Non-executives can often bring a vital level of insight and objectivity – as well as a strategic overview – to accounting firms that are often not seeing the bigger picture
This article was first published in the April 2018 Ireland edition of Accounting and Business magazine.
Bill Fields, when he was CEO of the Blockbuster video chain, wrote prophetically: ‘When the external rate of change exceeds the internal rate of change, disaster is imminent.’ Clearly the demise of video totally changed this form of entertainment and the business suffered accordingly.
But what is the relevance of this to accountants? Sadly, all too often their focus is either on clients or on managing their practice and they do not fully appreciate what is happening outside of their domain.
So how can they overcome this? One possible solution is the appointment of an effective non-executive who can bring greater insight into what is happening in the broader market, as well as a greater objectivity to many of the discussions that are vital to the success of any firm. Often practices need someone who can stand back and tell it as it really is.
Although there is an increasing realisation of the value of this outside help, all too often firms appoint those whose primary function is to introduce potential clients, rather than an individual who has greater knowledge of how to run a successful professional services firm.
The overall goal must be to broaden the horizons and experience of existing partners by facilitating the cross-fertilisation of ideas, and to play a vital role in appraising and commenting on the firm’s plans and vision.
A team of executive and non-executive partners needs to be made up of people with business acumen and hands-on experience. Non-executive directors should be able to fill the gaps in expertise not available in the executive team. They can also raise the difficult questions that the existing partners are reluctant to discuss.
Non-executives can significantly improve the leadership abilities and help to ensure that the organisation has:
- clarity about objectives, vision, mission and values
- efficient structures, policies and procedures
- a clearly identifiable executive body with the right balance of skills and experiences.
The executive body must:
- manage and use resources to optimise potential
- be accountable in a way that is transparent and understandable
- be flexible enough to influence and adapt to change in the environment.
It has three key roles to play in leading the firm: fiduciary, strategic and generative. For many firms the fiduciary role becomes the dominant one, with the emphasis being on short-term financial issues rather than the longer-term strategic issues confronting the firm. It is not uncommon for partnerships to have at least one person in a leadership position who envisages their role as more ‘check’ than ‘balance’, and who can consume energy rather than create it in an executive role.
The three key roles are as follows:
- Fiduciary – with a concern for legal and regulatory compliance, financial sustainability and checks and balances on those with management roles.
- Strategic – with a concern for strategy and direction, plus a role monitoring progress against the agreed goals.
- Generative – with an emphasis on innovation and creativity.
The role of the non-executive could involve the following key elements:
- Strategy – non-executive directors should review and comment on short-to-medium-term strategic plans, budgets, accounts and key performance indicators.
- Performance – they should scrutinise the performance of management in meeting agreed goals and objectives, and monitor the reporting of performance.
- Risk – they should satisfy themselves on the integrity of financial information, and that financial controls and systems of risk management are robust.
- People – non-executive directors should act as a mentor and sounding board for partners, and ensure as far as possible their wellbeing. They can also help in the determination of appropriate levels of remuneration of partners, and have a prime role in appointing and, where necessary, removing partners.
- Meetings – they should chair partner meetings and review key aspects of general partnership activities concerning client, team, firm and financial performance.
- Succession planning – they should help partners identify and develop individuals who might in due course become partners in the firm.
- Other support – non-executive partners should provide any other support needed to help the partnership achieve its goals and ambitions.
In order to fulfil their role, non-executive partners need to be able to allocate sufficient time to the firm to perform their responsibilities effectively.
Non-executives usually bring great value and help firms to ensure that time is spent focusing entirely upon the firm itself rather than on clients. Just the very involvement of an external third party can bring more discipline.
Frequently partner meetings that have been sterile events, resulting in little change, become a fundamental and energised vehicle for necessary change.
It is sometimes said that the road to failure is paved with good intentions and it may well be that an experienced independent person can help ensure that changes are not only agreed, but also implemented.
Derek Smith is a senior consultant at Foulger Underwood Associates