Challenges Emerge When Passing Leadership Baton

There’s a huge generation gap in the accounting industry – literally. And it’s causing jitters among local partners looking to make succession plans. With many accounting firm heads on the verge of retirement and few people in their late 30s or early 40s to groom to replace them for decades to come, some partners of small and mid-size firms are regretting they didn’t deal with the problem sooner. “It’s so easy to put things off,” said Gary Condie, CEO of Valencia-based Condie & Wood, CPAs. “It’s human nature.” Condie, who identifies himself as a Baby Boomer, believes his generation’s own confidence level and self-reliance has led partners down a road of denial about the limits of their own longevity. “Everyone around them is getting old,” he said. “They think, ‘it doesn’t apply to me.’” Nevertheless, Condie said, accountants should have been more on top of the statistical fluctuation in this country’s age makeup. For decades, it has been known that due to low birth rates in the late 1960s and 70s, fewer men and women in their late thirties and early forties (Generation X) would be around in the middle of the current decade. “I’ve done a fair amount of reading about the Gen-X hole,” Condie said. “I first became aware of it in my 20s, but probably had not given it any meaningful thought before age 45. And I probably didn’t give it a whole lot more thought until I was 65,” Condie said. Despite having mostly brushed aside concerns about succession at his own firm vis-à-vis the Gen-X hole, Condie said he has been passionately advising his clients about the perils inherent in ignoring the issue of succession planning. “On the whole, accounting firms are very dedicated to serving their clients’ needs before their own,” he said. “It’s the shoemaker’s kids who go shoeless; we don’t take our own medicine.” Developing a plan There are two ways to do succession planning, according to Condie, who’s keen on using sports analogies. “You either develop your own farm; or you go out into the free-agent market.” But for Condie & Wood, the route to establishing a sound succession strategy is something of a hybrid. “Something I’ve seen done in some cases, although the large firms don’t like to be reminded that it goes on, is that a small firm might send a son or a daughter off to work for one of the bigger firms for a while to acquire that level of training before they come back home to the smaller firm to take over the leadership.” Condie said he never designed such a plan for his firm. However, this scenario has occurred anyway. “God gave me no sons but he gave me nephews,” he said. “I have one in New York, working at a Big Four firm, as well as a daughter whose husband is at Ernst & Young.” As it stands today, 29-year-old nephew, Jace Katseanes is first in line for the top job at Condie & Wood. Katseanes said he feels ready to take over from his 65-year-old uncle today if he had to. “But, I still have a lot to learn,” Katseanes said. “I don’t think we’re talking about months, more like years. But, if I had to step in now, I would be able to do the job my uncle expects for his clients.” Both Condie and his nephew are buoyed by the fact that in addition to Katseanes’ Idaho State accounting education, and the experience he’s gained working under the tutelage of his uncle, Katseanes has a backup team on deck. “I have family members already working at the top firms in the world,” he said. “They would be there for us if we needed them.” Taking out an ad Succession plans at some local accounting firms are still unfolding. Kirsch, Kohn & Bridge, LLP recently took out an advertisement in the Business Journal calling for potential new partners to approach the firm to explore the possibilities of joining its ranks or even merging entire companies. In the meantime, KKB has taken the medium-term step of passing the baton of leadership from 68-year-old CPA Mel Kohn, to new managing partner, 50-year-old Stuart Jaffe. “We had been talking about doing this for a long time,” Kohn said. “Now just seemed like the right time to do it, and we were advised by an independent consultant that it was the right time.” Nevertheless, the ad itself indicates that Kohn and Jaffe realize the handover is not a full-fledged succession strategy. KKB is not alone in finding there is a shallow pool of younger managing partner candidates. Likewise, Condie believes that without the good fortune of having more than one member of his family’s younger generation go into the accounting field, his firm might have found itself in a very bad position of late. “What’s at stake are peoples’ lives,” he said. “It’s jobs, fortunes, and the continuity of your clients’ businesses. When people rely on you to do their accounting, their succession planning, their wealth management, and suddenly your’re gone; you have betrayed a sacred trust.” Ideally, said Condie, the age to begin grooming successors is about 35. “I love to start turning the reigns over at 35,” he said. “It’s a great age. You still have tremendous energy, both mental and physical. You still have ambition, and you’re not yet starting to compromise on goals; you still want to shoot for the moon.” But even before the real grooming begins, said Condie, a firm must begin the prospective-leader identification process. “By the time they’re about 30 I’ve started to identify the next crop of leaders in an ideal world,” he said. “I decide how far each one is going to go, and they get the better client assignments, which doesn’t necessarily mean the easier assignments.” The right time Looking at succession from the opposite perspective, Condie said the time for partners to take stock of their plans is when the youngest partner is 50. “If you’re youngest guy or woman is 65, you’re already too late,” he said. Indeed, the numbers speak volumes – in just one recent two-year period, the percentage of persons in the U.S. between the ages of 40-44 declined by a full half percent, according to the U.S. Census Bureau. That period (2005-2007) marked the beginning of an ongoing decline of that age group. In fact it’s a trend that will continue until Millenials (those born after 1983) begin to reach their mid thirties. Meanwhile, as the region’s small firms such as Condie and Wood, as well as its mid-sized firms, e.g., Kirsch, Kohn & Bridge, navigate the early 21st Century succession-planning wilderness, accounting powerhouse Grant Thornton LLP and most other large firms enjoy mostly seamless transitions of power. “There’s not that kind of challenge for us,” said Grant Thornton spokeswoman Lee Marcus. “Our succession plans follow a natural institutional course that is thoroughly strategized and vetted and laid out across decades with contingencies in place for the unexpected.” Grant Thornton partner Rich Simitian overseas the firm’s Woodland Hills office, as well as Los Angeles and Orange County. Simitian is 42. As a managing partner at that particular age with more than 20 years of experience, he represents a precious kind of human capital that many small and mid-sized accounting firms would like to be able to find more frequently nowadays. But for an accounting firm as large as Grant Thornton, which is the sixth largest in the nation, having prime-age leaders is much easier. “If we’re going to acquire another company, it’s not going to be so that we can take on some of its younger talent,” Simitian said. “It’s more likely to be about identifying a market share that the firm believes is attractive enough to warrant an acquisition.” Agreeing that demographics have caught up to some smaller accounting firms, Simitian recalled something he noticed during his early years in the profession (he began working for Grant Thornton while still in college in New York; the firm is the only employer he’s known his entire career). “I noticed a lot of people in my generation leaving the accounting profession trajectory from school after the stock market crash of 1987,” he said. “A lot of my peers left accounting programs and began going into other fields like information technology or other aspects of industries related to the technology revolution and what eventually became the dot-com era.” Different points of view Simitian sees some differences in the way the three generations he works with view their jobs and their careers. “Generation Y (Millenials) have a different outlook,” he said. “I remember when I was sent out to jobs, I was on my own and had to figure things out on my own. The younger generation today wants more supervision and interaction with you. They want access to everyone, including the CEO. They demand a very flat organization.” What happens when Millenials don’t get access to the information senior employees have to offer, said Simitian, is turnover. “They want my job, that’s how motivated they are, and that’s actually a good thing,” he said. “I want to do new things too, and identifying the right people who can be groomed into leaders is easier when they’re letting you know they want to know everything you know and learn from you.” Technical accounting skills are important in identifying leadership candidates, Simitian said. But, other skills are just as, if not more, important – especially for practice-area leaders. “It seems like people who have had retail or restaurant experience make good managing partners,” he told the Business Journal. “We want them to be able to deal with the community and people in general and to be able to build relationships on behalf of the firm.” That’s not to say there are not leadership roles for great accountants, regardless of age. “There are top jobs for master technicians at this and any firm,” he said. “We’re accountants and it’s easy for us to take our own measures of exceptional talent in that area.” But, as far as the frontline of face-to-face community and corporate leadership, nothing beats a rainmaker. “No; that’s not too crass,” Simitian said. “That’s an important part of identifying the next generation of leaders too. Who can bring in the clients and help build the firm’s portfolio?” Grant Thornton’s client portfolio was built on the middle market when, in 1924, 26-year-old founder Alexander Grant left Ernst & Ernst. A long history with mid-sized, closely held private and public companies has given Simitian and his colleagues at Grant Thornton experience with the Gen-X population hole. “We do find ourselves, especially with family-run companies, advising our clients on the issue of succession planning,” he said. “They sometimes can’t believe that their daughter doesn’t want to take over the business.” In those cases, often regardless of the industry, Grant Thornton’s clients come face to face with an issue that their large accountancy doesn’t have to worry about. “They may find that there is scarcity in the 35-to-45 age bracket,” he said. “And, they may have to look at the factory floor and find someone maybe a little younger than they’d prefer to begin grooming.”