Tuesday, February 9, 2010

Howard’s Inner Circle, No. 7: Reducing the Divorce Rate of Accounting Firm Nuptials

I have always been intrigued by mergers and acquisitions of accounting firms. The initial exploratory discussions are usually described as “dating,” and if the parties are serious, a due diligence is conducted to see if a “marriage” will follow.” As with most courtships, the parties are on their best behavior and there seems to be a sort of tentative dancing so the parties get to know each other better and see if they’re truly compatible. You might even see some passion as one, or both firms, see their coming together as meeting a deep need that couldn’t be met otherwise. If there is a perceived dealbreaker, the parties go their separate ways and begin dating again with another firm, or swear off dating for a time.

I dislike the dating analogy--but if we’re going to use it, be forewarned that half of marriages end in divorce, and unlike what we read about messy divorces, we see very little about the messy firm demergers that occur or the exodus of incoming partners a few years after the two firms join. My guess is both are more prevalent than we expect and, of course, kept very quiet.

If I was giving advice to a firm that was “dating” another firm, in addition to discussing typical issues such as compensation, buyouts, equity, firm management, etc., I would advise the due diligence to focus significantly on compatibility, and the possible obstacles to, as well as, the details of integration.

I believe the most successful firms with regard to mergers and acquisitions are those that have the most experience with them, and therefore know quickly in discussion with firms if the deal should go forward. They are also very adept at, and understand, the importance of quickly integrating the two firms so the all the firm members have a common firm identity. Firms with less experience with mergers and acquisitions are usually successful because they really know the other firm well, and once they wanted to date, knew whom they wanted to ask.

The firms that don’t do well probably need to be a little more analytical and observant before jumping into marriage. I am not urging a longer courtship only searching for a deeper understanding of what their marriage is likely to be, and how a foundation for a solid marriage can be laid. It requires going beyond agreeing on terms and concentrating on the M&A process and the associated dynamics.

© 2010
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The above is from the seventh issue of the newsletter, Howard’s Inner Circle, which periodically appears on the blog, “Instigator” at http://howardwolosky.blogspot.com/. It may be reproduced in full if that fact is stated and Howard Wolosky is credited as the author.

Tuesday, February 2, 2010

Howard's Inner Circle No. 7: A New Kind of Leadership

"A leader must be visionary and paint a compelling picture of the future. The leader has to articulate the vision and attract the kind of people needed to make it happen. To be effective, leaders must be respected and admired. Above all, they must be trusted. Your people must have confidence that, in difficult situations, you will do the right thing.” says Managing Partner Larry Unruh of Hein & Associates in Denver.

I used his quote in a recent presentation to the New York State Society of CPAs Large and Medium-Sized Firms Practice Management Committee on a new emrging style of leadership at a number of regional accounting firms. Although many of the leaders of these firms were rainmakers, they understand because of a constantly changing marketplace, increased competition, and expansion beyond compliance services, a firm had to stand out as providing value-added services and modify the rainmaker business model.

Referrals and personal relationships are still extremely important, but business development is now more of a firm-wide effort. These successful firm leaders also understand the importance in excelling at knowledge, change, risk, talent, and project management. They also recognize the increased need for strategic planning, transparency, application of best practices, a team mentality, the creation and maintenance of trust, consulting with futurists, ending of a book-of-business mentality, and greater non-CPA involvement.

A great firm begins and ends with the leadership. The other basic keys are a shared vision, an ability to promote and distinguish, and providing quality professional services. Too often I have seen firms in which a long-time managing partner molds the firm to reflect that individual’s style. That firm’s success is usually short-lived and ends soon after that managing partner retires. That is why this new style of leadership is so appealing. As these managing partners mold their style to the firm’s needs thus allowing for a smooth transition to the next managing partner and the firm’s continued flourishing.
© 2010
*****************************************************************************
The above is from the seventh issue of the newsletter, Howard’s Inner Circle, which periodically appears on the blog, “Instigator” at http://howardwolosky.blogspot.com/. It may be reproduced in full if that fact is stated and Howard Wolosky is credited as the author.