Staffing: What CPA Firms Are Learning the Hard Way

Marc Rosenberg, "When firms excel at making their firms great places to work where staff stay and thrive, client service always improves."4 reasons staff are the #1 key to firm success.

By Marc Rosenberg
On Staffing

The ancient Greek philosopher Heraclitus said:  “There is nothing permanent except change.”

MORE FROM THE AUTHOR: How to Identify Partner Potential in Staffers | 15 Ways to Develop Staff Into Partners | Staff Best Practices … for the Firm | Staff Likes and Dislikes about the Accounting Profession | Keys to Bringing in New Partners

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People fly and drive cars instead of using horses and carts. Technology has replaced calculators, slide rules and how books are written. Food is purchased at grocery stores instead of grown on the farm.

Drastic changes have occurred in the CPA industry as well.  One of the biggest areas of change is how staff are managed and treated, as shown by the following chart.

How CPA Firms Treat Their Staff:
Changes From 20th Century To Today

Chart of how staff treatment has changed

If this had been written 30 years ago, it would be totally different from what you are about to read. I am taking the perspective of firms wishing to adopt progressive polices and techniques to manage and develop their staff.

Two major drivers of the change in the way firms manage and treat their staff

  1. The production model for managing CPA firms has changed dramatically. Years ago, partners were expected to be highly billable, with 1,400-1,600 hours being common. Today, this figure is roughly 1,100. As the trend to manage CPA firms like  real businesses has become the norm rather than a radical  concept, firms have come to realize that:

a. It’s more important what partners do with their non-billable hours (firm management, practice development and staff mentoring) than their billable hours.

b. Because firms value partners’ non-billable time so highly, inevitably their billable hours have come down. This means that partners must delegate even more of their work than in the past, resulting in staff-partner ratios increasing significantly in the past 30 years.

  1. At a time when the model for operating firms calls for more staff time, the supply of staff has remained stagnant. It’s been this way for at least 20 years and shows no signs of abating any time soon. Even if there were an unexpected upward spike in students’ interest in accounting as a career, colleges and universities couldn’t handle the demand. There is a catastrophic shortage of accounting professors worldwide, which is also not expected to ease any time soon.

Faced with this dilemma, CPA firms woke up and realized that their whole perspective on managing and developing staff needed to change dramatically.

Many years ago, the HR director of a large firm told me:

“There isn’t anything firms can do to affect the supply of staff, but there is a lot firms can do to affect the retention and development of staff.”

That HR director was spot on, and this explains the changes that have occurred in the past 30 years in the management and treatment of staff.

“Treat people as they are and they will remain as they are.
Treat people as they can be and should be and they will become as they can and should be.”

– Goethe

“You see, really and truly, apart from the things anyone can pick up such as dressing and the proper way of speaking and so on, the difference between a lady and a flower girl is not how she behaves, but how she’s treated. I shall always be a flower girl to Professor Higgins, because he always treats me as a flower girl. But I know I can be a lady to you, Colonel Pickering, because you always treat me as a lady and always will.”

– Eliza Doolittle, "My Fair Lady"

 

To paraphrase these quotes, if CPA firms want to retain, attract and develop staff into skilled practitioners and eventually leaders and partners, then they need to treat them like leaders and partners instead of seeing them merely as employees with no rights.

The new school of thought recognizes that allowing staff control over their work schedule and where they conduct their work is a major workplace motivator. Firms now trust their staff to act like professionals.

The #1 key to CPA firm success: The staff

If you ask CPA firm managing partners what is the most important key to the success of their firm, the hands-down winner will be “our staff.” OK, some may say it’s a two-way tie between clients and staff. But you get the point. There are many reasons for this:

  1. Having a staff that is motivated, engaged, skilled, ambitious, productive and personable is critically important. No one would disagree with this. Just ask firms whose staff lack these traits.
  1. The CPA firm business has traditionally experienced a high turnover rate. A rule of thumb is that the cost of replacing a staff person ranges from 1 to 1.5 times a person’s annual compensation. So the pain of turnover is compounded not only by the nearly impossible task of replacing the departed, but by its high cost as well.

More importantly, retaining good staff enables firms to ultimately provide better service to clients. When firms excel at making their firms great places to work where staff stay and thrive, client service always improves.

  1. If firms adopt the more leveraged operating model discussed earlier in this post, this means that 70-90 percent of all client work must be performed by staff. This won’t be possible unless firms invest tremendous time and resources into developing staff who can perform the work at a highly proficient level.
  1. Firms need a continuous flow of new leaders to grow and successfully transition work away from retiring partners. This will occur only if the firm excels at developing staff.

Proof

If you still aren’t convinced that staff is the biggest issue facing CPA firms today, here is a recent AICPA survey ranking what firms feel their top practice management issues are:

Chart of survey results

Advice from Todd Shapiro, President/CEO of the Illinois CPA Society, excerpted from his column in the society's Insight Spring 2016 issue:

“There are always reasons why firms decide not to devote resources to developing great employees, whether because of the impact on billable hours or ingrained corporate culture. Truthfully, there are no excuses. We have to commit to developing the skills needed for our young professionals to succeed. To put it plainly, developing young talent is not a “nice to have,” but a “must have.” 

Advice from Jack Welch, former chairman/CEO of  General Electric:

During his legendary tenure at the helm of Fortune 100 giant GE from 1981 to 2001, Jack Welch appeared on everyone’s list of top 10 CEOs. The accomplishments of GE during his reign were spectacular.

Woven throughout the books he authored and articles written about him is Welch’s #1 management philosophy: his fanatical insistence that GE executives consistently demonstrate their commitment and proven success in developing people. Indeed, he required that the top executives of each business unit identify and develop future leaders. He made coaching, training and developing people a performance metric that carried equal weight to financial results in determining promotions and compensation.

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