This is part 3 of our discussion on independence. Here are my thoughts on the next generation.
As I progressed through my career and examined my personal finances, I thought about the risks I had taken on as an owner of a Top 20 firm—a capital investment and an unfunded buyout. I had no “Gary Thomson protected” account waiting for me upon my retirement.
I felt comfortable, however, that the firm had a strong financial position and a bunch of enthusiastic, upcoming partners to fund retirements and carry the firm through the next generation. But that may not be the case at many firms today.
When considering the critical question of whether to remain independent—without merging up or seeking a capital infusion from private equity—partners should learn more about what independence means to the younger generation of professionals. Their views are likely to differ from those of current leadership.
The Challenge of Risk
While I believe the desire to control your own future is a natural instinct for people of all ages, the next generation may not want to take the same kinds of financial risks that their partners took to become owners themselves.
Waiting 10 or more years to become a partner, buying in, and then hoping someone will buy them out when they retire is a concept being challenged by both internal and external forces. The scenario seems even less attractive when young people see their friends at Amazon, for example, who receive restricted stock units as part of their compensation package.
An Ownership Stake Without Partnership
While I believe young people have a lower tolerance for financial risk, they’re also interested in shaping the future of the firm and have fantastic talent. I don’t see them as totally risk averse, but they are less tolerant of a significant monetary investment and a long wait. This sounds like a conflict, but is it?
Firms ought to be looking at “ownership” in a different way, perhaps by forming an ESOP or giving professionals a profit interest. Private equity has more frequent liquidation events, and despite some challenges with these events, it does present opportunities for partners and staff to “de-risk” themselves financially by taking cash and having rolled equity in these transactions.
While CPA firms wishing to remain independent aren’t built toward a transaction model, we have to think through how we compete with these newer concepts. There are challenges with some of these options, but my challenge to you is to think deeply and explore how we can more effectively compete. Additionally, firm leaders can consider giving staff a financial upside beyond regular compensation along with a real sense of ownership without formal partnership.
A Shorter Route to Partnership
I worked with a firm that has addressed an aspect of the ownership issue head-on. By laying out an 8-year path to partnership versus 10 to 12, leaders were able to capture young professionals’ desire to set the course for the firm and get voting rights in a shorter period.
The firm believes that some leadership attributes can be cultivated during partnership rather than making sure every box is checked ahead of time. For example, while partners are expected to have top-notch technical skills, there’s no shame in asking or requiring another professional to review a complicated tax return or audit while those skills are being honed. Young people are embracing the idea that goals can be oriented around their strengths while being pushed to improve in all areas. Consider adopting a new training program to meet the 8-year target rather than saying no.
Fewer Hours, More Hires
In addition to the financial risk, young professionals are leery about taking on the same time commitment as their partners. In no way does that mean they’re not dedicated to their jobs. They just view work-life balance differently. And while it’s true that these desires may mean leaders must re-leverage the firm by hiring more people or outsourcing, it’s worth serious consideration to retain the creativity and entrepreneurship the next generation brings.
It’s time to drop the stereotypes and grumbling that young people aren’t as disciplined or committed as the generation before them. Think about what they bring—innovation and a willingness to challenge the norms. I started my accounting career 40 years ago. If we ran firms now the way we operated them then, we’d fall flat on our faces.
How I Can Help
Accounting firm management should evolve with the challenges and opportunities that arise.
Let’s figure out a different way to run our firms that respects the contributions of the younger generation of professionals while remaining independent, profitable, and successful.
