Choosing a Governance System
Source: Partner’s Report—the Monthly Update for CPA Firm Owners This article is based on the book Securing the Future: Building a Succession Plan for Your Firm, by William Reeb. (see Book Review section below). Among the important steps in creating a new governance structure is choosing the person who will manage the firm and giving him or her the necessary authority to be effective. Naturally, there must be limits to that authority, but it is crucial that the partners not reserve operating authority for themselves. The partners, or the board, must be limited to matters of strategy, planning, and oversight. By the same token, the managing partner must not be permitted to usurp the authority of the board. The governance system will be out of balance if:
v Partners refuse to comply with policies.
v The board (the partners) tries to do too much—which will turn out to be too little.
v The board delegates responsibility but not the requisite authority to the managing partner.
v Partners become micro-managers.
The style of governance is important. Most smaller firms operate as a group of sole practitioners sharing office space and resources. This system inhibits the functioning of systems because partners handle clients in their own ways. Staff members who work for more than one partner find it inefficient to constantly change procedures. This system makes performance rating difficult and succession plans practically impossible.
The solution to the problems created by the above is the one-firm concept, but partners are often unwilling to sacrifice their personal choices and to invest in the systems that diminish the disparity between different levels of performance. Partners are also often unwilling to be accountable. Under the one-firm concept:
v Partners do not own their clients.
v Partners must put the interests of the firm first.
v Performance determines compensation and is linked to strategy.
v Being an owner does not mean having the independence to choose one’s own modus operandi. Ownership must be separated from authority.
v Decisions about the acceptance of clients and the assignment to partners must be made by the firm, not the individual partners.
v Partners must be accountable with penalties for noncompliance.
v The firm must invest in technology and marketing.
One of the biggest hurdles to overcome in creating a new governance system is resistance to change.
From Partner’s Report—the Monthly Update for CPA Firm Owners, June 2005, p. 1. For the complete article click here. For subscription information contact Institute of Management & Administration, Inc., 3 Park Avenue, 30th Floor, New York, NY 10016-5902. One-year subscription $329.