More Merger Questions Than You Imagined

Business group of two women and two men shaking handsThere’s a lot to consider whether merging up, down or laterally.

By Bill Reeb and Dominic Cingoranelli

Although we find that an internal ownership transition often can be your best bet, a merger makes sense in many cases. So, if this is the direction you are heading, we’ve highlighted some of the issues below that we think you ought to consider, with the first one being to really take a close and hard look at the compatibility of the organizations courting each other.

MORE ON PERFORMANCE MANAGEMENT: How to Compensate Your Managing Partner | The Job of Managing Partner: Empowered or Emasculated? | How the Best Managing Partners Turn Ideas into Reality | Make Accountability a Process | Accountability Requires Clear Expectations | Base Retirement on Today’s Operations

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Who Is a Likely Candidate for a Merger?

If you are going to consider a merger, which firms would seemingly be a good fit for your practice – i.e., your clients and your employees and if, applicable, partners?  The better the fit, the more likely you will be able to retain clients and employees, and the greater the chance for overall success of the merged firms.
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Merging for All the Wrong Reasons

Jigsaw puzzle with pieces missing and word "incomplete" in gapFirst: Get your house in order; don’t expect someone else to do it for you.

By Bill Reeb and Dominic Cingoranelli

For at least the past 10 years, the merger market among CPA firms has been pretty active. While the market volume has waxed and waned a little several times during this period, mergers have been a topic in almost every strategic planning retreat we have facilitated.

MORE ON PERFORMANCE MANAGEMENT: How to Compensate Your Managing Partner | MPs: How to Elect Them … and Fire Them | Partners as Role Models: The Good, Bad & Ugly | Managing the Managing Partner | Pay Varies When Performance Varies | Accountability Is for Everyone | Who Decides What?

 

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Paying the Managing Partner: Today’s Trends and Best Practices

Businesswoman holding giant dollar symbolHow firms are balancing base salaries against billable hours.

By Bill Reeb and Dominic Cingoranelli

The managing partner should have a compensation plan unique to that position focused on carrying out the strategic and tactical objectives of the firm.

MORE ON PERFORMANCE MANAGEMENT: How to Elect a Managing Partner … and How to Fire Them | Why Accountability Falls to Managing Partners | How to Implement Strategy, Step by Step | How to Decide Who Decides Pay | Accountability Includes Partners | Succession Plan Requirements | How Retired Partners Are Robbing their Own Firms | 4 Ways to Create More Capacity | Partner Retirement and the War for Clients | Succession: The Questions to Care About | Hazards of Not Reallocating Equity

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While there can be some individual performance goals assessed, the bulk of the managing partner’s incentive package and focus should be on overall firm performance. The key here is that you don’t want an incentive system for the managing partner that is overly focused on individual goals because the real value of this position is in driving firmwide change.
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Managing Partners: How to Elect Them… and Fire Them

Midsection of businessman moving out with cardboard box from officeAnd why a five-year term is ideal.

By Bill Reeb and Dominic Cingoranelli

Often, firms elect a managing partner with a majority vote, but to dismiss a managing partner within their elected term requires a higher vote, commonly two-thirds of the equity vote. In some larger firms, the people running for managing partner might not be eligible to vote in this process, but in many others, everyone can vote.

MORE ON PERFORMANCE MANAGEMENT: The Job of Managing Partner: Empowered or Emasculated? | How the Best Managing Partners Turn Ideas into Reality | Make Accountability a Process | Accountability Requires Clear Expectations | Base Retirement on Today’s Operations | How Involved Should Retired Owners Be? | How to Find a Partner’s Replacement

The reason why everyone should be allowed to vote is simply that the smaller the firm, the more likely that removing the candidates being considered for the position puts too much control in the minority ownership of the firm. For example, consider the following six-partner firm scenario:
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How Committees Kill Firms

Businesswoman working at deskWhy managing partners need to be accountable.

By Bill Reeb and Dominic Cingoranelli

As we have said so many times before, everyone likes the idea that “I” will hold “me” accountable. But few like the idea of “anyone else” holding “them” accountable.

MORE ON PERFORMANCE MANAGEMENT: The Job of Managing Partner: Empowered or Emasculated? | Partners as Role Models: The Good, Bad & Ugly | Managing the Managing Partner | Pay Varies When Performance Varies | Accountability Is for Everyone | Who Decides What? | CPA Firm Performance Assessments: 15 Core Competencies, 21 Questions

So, once it is decided that accountability is important and someone needs to be responsible for implementation, the discussion quickly shifts to “let’s form a group of people, like an executive committee or a compensation committee to hold us accountable.”
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The Job of Managing Partner: Empowered or Emasculated?

Woman executive coaching a male employee across deskWhy eat-what-you-kill firm cultures produce weak CEOs.

By Bill Reeb and Dominic Cingoranelli

Let’s review some best practices as to how the managing partner is elected, what is expected, for what term and how he or she is protected if removed from that role.

MORE ON PERFORMANCE MANAGEMENT: How to Monitor Goal Progress | How to Implement Strategy, Step by Step | How to Decide Who Decides Pay | Accountability Includes Partners | Succession Plan Requirements | How Retired Partners Are Robbing their Own Firms | 4 Ways to Create More Capacity | Partner Retirement and the War for Clients | Succession: The Questions to Care About | Hazards of Not Reallocating Equity | CPA Firm Performance Assessments: 15 Core Competencies, 21 Questions | 5 Harmful Management Attitudes (and How to Fix Them)

The job differs whether it is being filled under the Eat What You Kill (EWYK) or Building a Village (BAV) models. For example, under the EWYK model, the managing partner is likely the largest equity partner, or if not, then the default would be that the role of the managing partner would be that of administrative partner.  Because the EWYK model is usually a silo model built around superstars, the managing partner’s role is to handle all of the matters that the other partners don’t want to do.  It is not uncommon in these scenarios that the managing partner earns a stipend to fill that position, and that the stipend is not very much (maybe $25,000 to $75,000 a year).

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Partners as Role Models: The Good, Bad & Ugly

Two older businessmen talkingAccountability and reviews are more important at higher levels, not less.

By Bill Reeb and Dominic Cingoranelli

Evaluation of performance and goal achievement is something done that should be performed multiple times during the year. Unfortunately, many CPAs tend to think of management as a waste of time, and evaluations as purely a human resources requirement created by the government to protect employees to the disadvantage of the organization.

MORE ON PERFORMANCE MANAGEMENT: How to Implement Strategy, Step by Step | How the Best Managing Partners Turn Ideas into Reality | Make Accountability a Process | Accountability Requires Clear Expectations | Base Retirement on Today’s Operations | How Involved Should Retired Owners Be? | How to Find a Partner’s Replacement

Well, that is one way to look at it. But we think it’s the wrong way.
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How to Implement Strategy, Step by Step

Businessman's shoes toeing words "What's your next step?"Be specific and find ways to “catch” the partner in action.

By Bill Reeb and Dominic Cingoranelli

An Example of the Process

It’s one thing to say “the managing partner implements strategy,” another to put it into action.

MORE ON PERFORMANCE MANAGEMENT: Make Accountability a Process | Pay Varies When Performance Varies | Accountability Is for Everyone | Who Decides What? | Firms Say What Would Change Retirement Pay | Action Plans for Transitioning Partners | How Retirement Issues Affect Succession Planning | How Partner Ratings Factor Into Equity | Develop Your Employees or Suffer the Consequences

Following is an example of this process, providing more detail to show how it might look in actual practice. Let’s assume that one of the goals of a partner is to increase the Most Trusted Business Advisor Activity for his or her top clients. In the initial goal sheet, for this one goal from the managing partner, that might look like this:
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