Who Are the Partners of Tomorrow? The Partner Gap

Talk about a 180 degree turn. In the late 1990’s and early 2000’s, we were reading doom and gloom stories about how there weren’t enough students choosing to major in accounting. Instead, they were flocking to finance and IT with hopes of cashing in on lucrative positions within the dot-com industry. Colleges, universities, the AICPA, and state CPA societies went into overdrive to market the profession to students. But now, thanks to things like the dot-com bust and various industry scandals, the accounting profession has once again hit its stride. The media has even used the word "sexy" to describe the profession today.

As a result, students are choosing to major in accounting in record numbers. In fact, the AICPA’s publication, 2008 Trends in the Supply of Accounting Graduates and the Demand for Public Accounting Recruits, reveals that in 2006-2007, total graduates in Bachelor’s and Master’s degree programs were up 19 percent over the three-year period since the 2003-2004 survey. This is the highest number of graduates since the survey began in 1971-1972.

Entry-level job Web site CollegeGrad.com has ranked accounting as the college major most sought after by employers for filling entry-level jobs. Employers predict that accounting students and graduates will comprise 23 percent of their entry-level hires, 30 percent of internship hires, and 24 percent of master’s level hires.

"From what I can gather, we’ve reached equilibrium in supply and demand for new hires," says Ron Reed, Ph.D., CPA, professor of accounting and Wall Street Journal Fellow at the University of Northern Colorado’s Monfort College of Business. "The shortage of accountants no longer exists in the one- to six- or seven-year experience period. We don’t have an excess by any means, but we don’t have the shortage that we had in ’03 and ’04."

Instead, the shortage has been pushed along the experience curve and now exists in the six- to eight-year range, reflecting the time when so many students were choosing to pursue different majors. Those who did major in accounting and now are in the six- to eight-year experience bracket are either leaving public accounting or aren’t choosing to pursue the partner track.

"The profession is facing a difficult challenge to retain senior and manager level people," says Jack Allgood, CPA, tax partner with Anton Collins Mitchell LLP (ACM) in Denver. "It appears that people in the six- to eight-year experience range have fewer aspirations to become partner than in decades past. We all are seeing that," Allgood notes.

Allgood and Reed agree that several factors have combined to create the perfect storm that is causing the partners of today to wonder who will lead their organizations in the future.

Women have represented more than half of accounting graduates for the past decade, and while this has helped bring about changes such as flexible work schedules and more attention to work/life balance, the higher percentage of females also has contributed to the partner gap. Allgood says that in general, women in the profession do not aspire to become a partner at the same rate as their male counterparts. With that said, even males following the public accounting career path these days are thinking twice before committing to the partnership track. They’re seeking the work/life balance that was so elusive in the profession over the course of the last three decades and which caused would-be partners to leave for perceived greener pastures in industry and other areas.

"We are finding it hard to attract seniors and managers into the partner track," Allgood says. "The profession has been viewed as working long, intense hours, and it’s hard for senior staff and managers to want to aspire to that. People are more concerned about lifestyle now. The big challenge is retaining the brightest people we have and setting a career path for them. That’s what we’re focusing on, but there’s a real vacuum there."

Allgood says his firm provides work/life balance and flexible schedules, "but a lot of firms don’t make that an easy track." Some of the ways ACM is working to bring balance for their employees include giving the entire staff every other Friday off during the summer months, regularly scheduling celebrations and trips outside the office, and balancing work production schedules so people can see when their workload will lighten.

Reed says the partner gap is especially pronounced in tax practices. "Tax has struggled in the seven- to nine-year experience range," he says. "People with that level of experience either stay at that point or leave the profession altogether. Even if a firm is looking to other CPA firms for talent, it takes a lot of money for someone at that experience level to move. At that point, you’re getting pretty close to knowing if you’re going to be a partner, so why would you move?"

Maybe the ebb and flow of accounting graduates over the years is just history repeating itself. One year liberal arts is the "it" degree. The next year business is the "it" degree. These are factors that will continue to affect the accounting profession’s supply chain.

But what about those individuals who obtain their accounting degree, work in the profession, and then leave? "That’s always been the case," Reed says. "I think the profession fosters that because you can do just about anything with an accounting degree. If you don’t like working in public accounting, there are opportunities wherever you might want to go."

The simple fact, according to both Reed and Allgood, is only a limited number of people want to be on the partner track. Reed says most individuals who enter public accounting after graduation don’t have any idea what they’re getting into. And despite firms’ best attempts, providing meaningful work/life balance to lower level staff can be difficult to achieve.

"I’d like to say that balance is there," Reed notes. "But it’s hard for the person at the bottom, and students don’t like that they can’t control their lives very well during busy season." With no changes in sight, they burn out and move on.

Allgood says that while there have been trends and a cyclical nature to the profession, it’s dangerous to assume a trend is going to repeat itself and that the problem of filling positions and retaining employees will go away. "At ACM, we don’t feel we can say that this ‘trend’ will reverse," he says. "I have to assume that we have to adapt. We have to change. We have to do what we can to attract seniors and managers to the partner level."

Part of the effort to change is bridging the generation gap and convincing current partners it’s necessary to make becoming partner more appealing—a change of mindset at the top. "Would I rather expect everyone to work hard and turn future potential partners off, or offer the work/life balance that makes becoming a partner attractive?" Allgood ponders. "I have no interest in going back to the time where the rules said you have to work hard your whole life. We all welcome the change, and it’s the evolution of the workforce bringing that change about."

Trends show that only about half of existing senior staff and manager-level people plan on spending the next ten years in accounting. "That’s who our next partners are, so if we expect to lose half of them over the next ten years, that’s going to create an even more significant void than we have now," Allgood observes.

"The only way the six- to eight-year bubble goes away is over time," Reed notes. "You have all those people you’ve continually hired, and hopefully retained, and it takes a couple more years for that bubble to get pushed out. Of course, all of this depends on a firm’s ability to manage and keep its people," he adds.

Rinehart says the road map is basically a career path for professionals. "You can say to them, ‘If you come to work for our firm, here’s the path to partnership,’" Rinehart says. "You outline what’s expected personally, professionally, and technically, the soft skills they’ll need, and the business development skills they’ll need through the course of their career so that when the opportunity presents itself, they’ll be ready. This is a very important aspect of retention because your goal is to get people to stay for a career."

Make the career interesting, enticing, challenging, and rewarding, Rinehart suggests. Your goal is for a young CPA to say: "This is a place that will help me grow and that cares about me and about my professional development."

Rinehart adds that one of the biggest mistakes current partners make is holding onto the best parts of public accounting and not sharing them with younger staffers. "Public accounting is about relationships, helping people, and doing good work," he says. While financial rewards also play a role, Rinehart believes it’s the intangible rewards that can provide the big payoff. "When someone can say, ‘I really helped solve that problem,’ or ‘I was there when that client needed financial advice,’ or ‘We just saved that amount in taxes,’ those are the important things."

Share client relationships with your developing professionals as opposed to just passing all of the work down to them. The interaction benefits both firm growth and employee retention. Partners who don’t expose their staff to client relationships will stall, Rinehart asserts. Partners need to let go of the relationships and some of the more complex work. "The classic thought process is: Why should I show them how to do it? I could do it faster myself," Rinehart says. "Partners have to stop doing that."

Rinehart notes that when partners hold their cards too close to the vest about opportunities and performance and don’t celebrate successes with employees, a disconnect occurs. You’re not trying to win a poker game, so put your cards on the table and share the celebratory wealth. If you just got a new client, celebrate it with your staff. Just had your best year ever? Share the information and success with everyone. Individuals who want to make partner, and who you want to make partner, need information to make decisions. Give them the information they need about how the firm is doing. Don’t keep them guessing.

Retention begins with hiring, which means your hiring process needs to screen for the qualities and traits you want in a future partner. When Rinehart speaks to college students, he tells them about "executive presence"—which he defines as the way you hold yourself when you meet someone for the first time and the way you engage and listen.

"Look for people with executive presence, who demonstrate leadership and the ability to work with others, more so than their grades in their accounting classes," Rinehart suggests.

Rinehart frequently discovers that current partners are doing the recruiting. "You’ve got these 28- to 32-year olds looking across this chasm," he says, referring to the age difference. "We don’t relate to them. You’ve got to get younger people involved in recruiting. Face it—you look like their parents. Put a younger person with some moxie out there."

How do firms respond to this advice? "Some get it. Some don’t," he observes. "People have always left public accounting," Rinehart says. "If 10 people go in, only one becomes partner. The other nine go on to something else—controller, CFO, business owner, consulting." It’s all part of the ebb and flow, he says.