We all know that denial is not a river in Egypt, but how many of us know that denial is the state of our firm?

In his 2008 book entitled “Strategy and the Fat Smoker,” David Maister wrote that we often (or even usually) know what we should be doing in both our personal and professional life. We also know why we should be doing it and (often) how to do it. Figuring all that out is not too difficult. What is very difficult is actually doing what you know to be good for you in the long run, despite short-run temptations. Therefore, many leaders, and by extension many small and midsized CPA firms, live in denial.

More often than not, what needs to be done by a firm’s managing partner or CEO is obvious. While it’s not always easy, he or she needs to make those tough decisions in the best interests of the firm. But many leaders are in denial and fall short of what’s required, and, in many cases, that’s the principal reason why so many firms can’t get to the next level or, worse yet, can’t perpetuate themselves.

Presented below are the obvious but not easy things that a managing partner needs to do in today’s world of public accounting to be viewed as an effective leader who sits on top of a firm that is not in denial:

• Walk and talk the vision, mission and strategy of the firm. Lead by example. “Do as I do, not as I say.”
• Create an environment that breeds trust, persistency and consistency.
• Shepherd senior partners and potential all-stars.
• Create a firm-first (our clients vs. my clients) culture.
• Be open to service diversification. Move away from the traditional accounting firm model to a professional services firm model.
• Address ineffective partners on a timely basis.
• Realize that size (with quality and profits) matters, and explore a business combination or two if that is in the long-term best interests of clients, staff and partners.
• Deliver on the client promise of being a trusted advisor.
• Create goal setting, accountability and discipline — first and foremost with the partners and then with the staff.
• Drive industry specialization, the undisputed vehicle to provide client distinctiveness and value.
• Implement a partner compensation plan that is fair and equitable, incentivizes high performers and potential all-stars, and avoids “sprinkles.”
• Get value from non-billable time.
• Create a balanced approach to partner and staff utilization that’s neither too lenient nor too overbearing.
• Insist that a strategic plan may require a “no” when an idea doesn’t conform.
• Develop an effective “farm system” for talent, particularly future partners.
• Avoid being too many things to too many sectors.
• Gain market permission from the gatekeepers such as investment bankers, attorneys and bankers who will enable you to move upstream with clients.
• Grow for strategic purposes not simply for volume.
• Require the proper mix of clients, marquee clients (credential builders) and other clients that help pay the rent and train the staff.
• Have corporate governance and operating models that work for the overall firm.
• Always have the desire (and ability) to invest in the future.
• Help partners and staff realize that quality work doesn’t necessarily mean quality service.

From a quick review of the above, it’s clear that a managing partner is the heart and soul of a CPA firm, the one who must do what needs to be done to avoid denial and to ensure success. Having said that, many firms do not have effective managing partners. Here are four common mistakes to avoid when selecting managing partners:

1. Don’t ask the firm’s No. 1 biller to be managing partner.

While a successful managing partner usually carries a small client load to stay grounded in client service and to remain credible with the partner group, billings and chargeable hours are truly a small part of the job. In my view, a managing partner’s clients are the partners, giving them the opportunity to maximize their strengths while minimizing their weaknesses. A managing partner has to be readily available for big opportunities or problems.

2. Think long and hard before you ask someone from the outside to be managing partner.

Without a lot of due diligence and partner buy-in, an “outsider” is too risky, particularly if someone comes from outside the professional services firm environment. An outsider obviously doesn’t know the firm’s history or culture or the partners’ individual strengths and weaknesses. An outsider also isn’t attached to the firm’s vision, mission and strategy. Please stay away.

3. Don’t ask two partners to function as co-managing partners.

In the spirit of political correctness, it’s not unusual for firms to select co-managing partners. It’s a safe decision that doesn’t offend quality partners who compete for the position.

While from time to time, this kind of arrangement can work, many times it doesn’t and is therefore a step that should be taken with lots of caution. Too often firms with co-managing partners are plagued with inaction or conflicting directions with little, if any, consistency on strategy. If co-managing partners can be avoided, take the bold step and the tough decision: select the right person for the job today and make sure you do your best to retain the other contenders.

4. Don’t ask a part-time committee to be managing partner.

Firms can’t operate by part-time committees. A firm needs to make decisions and move on. Sure, a firm needs oversight committees such as a management committee or an operations committee to drive their day-to-day activities. A firm also needs an executive committee for corporate governance, partner matters and strategy. But a firm can’t easily do what is obvious if the key leadership role is delegated to a part-time committee that reacts to situations if and when time permits. It’s a recipe for disaster. No one is thinking about strategy and the future while, at the same time, making sure that the necessary blocking and tackling are being tended to.

So, why do some firms continue to live in denial and lack an effective managing partner? In many cases, it comes down to trust and security.

Many firms select a new managing partner from their ranks at an age somewhere between 45 and 53. Candidates are usually excellent client relationship partners with substantial client service responsibilities. The thought of giving up a substantial portion, if not all, of the client relationships that have been developed over years of service is scary to many. For sure, there is a risk in being a managing partner. Candidates may ask, “What happens if I’m not successful? In the spirit of trust, I lose most, if not all, of my client responsibilities and begin to lose touch with my outside referral sources. I’ll have nowhere to go but to exit the firm when I’m no longer the managing partner.”

This is a very real concern and many firms do not want to recognize the severity of the issue. Instead, firms say, “trust us,” and while that’s easy to say, history has shown that this trust has sometimes been misplaced. As a result, for the overall good and welfare of a firm, I recommend that a managing partner be offered an agreement that addresses what happens if he or she is no longer the leader of the firm. Such an agreement can address what happens to future compensation, what happens to employment, and what happens to retirement benefits or deferred compensation arrangements. It can pay huge dividends down the road for everyone.