Building Bench Strength and Driving Growth for Succession

Building Bench Strength and Driving Growth for Succession Presented by: Art Kuesel LEA Managing Partner SIG June 7, 2016

Art Kuesel, President EXPERTISE (Cont. ) ü Growth Plan Development/Implementation ü Managing Partner Coaching ü Sales & Marketing Recruiting ü Partner Roundtables EXPERIENCE ¨ ¨ ¨ STREET CRED Sales Executive 3 years @ $225 M CPA firm 5 years @ $40 M CPA firm 6 years at PDI/Koltin Consulting 3 years at Kuesel Consulting → Top 100 Most Influential Person in Public Accounting: 2014 → In-house and external experience → Clients include scores of T 250 Firms including a third of the T 100 → Frequent writer and blogger for Accounting Today → Accomplished speaker and presenter on growth trends EXPERTISE ü Leadership and Sales Coaching ü Sales/Marketing Training 2

Today’s Discussion Survey Results Industry Trends What’s in a Succession Plan Your Succession Planning Matrix Building your Bench Starting the Conversation @ Various Levels 7. Getting them Ready: Skills & Plans 8. Timeline, Contingencies and Best Practices 1. 2. 3. 4. 5. 6. 3 3

MP Survey Results

Succession Planning @ LEA Firms 1. What percentage of LEA firms have a formal, written succession plan in place? LEA Yes = 55% Nationally/Top 250 Yes = 30% (AICPA) 2. Does your firm have a mandatory retirement age? LEA Yes = 91% Nationally/Top 250 Yes = 64% (Rosenberg) 5

Succession Planning @ LEA Firms 3. We want to remain independent? LEA Yes = 91% Nationally/Top 250 Yes = “vast majority” 4. What percentage of your partners will retire in the next five years? 1 -24% = 45% 25 -49% = 55% 50 -74% = 0% 75+% = 0% 6

Succession Planning @ our Firms 5. Please rate your firm’s “bench”: 18% = GREAT (more candidates than partner slots) 73% = GOOD (1: 1 ratio) 9% = FAIR (maybe 1 rising star) 0% = POOR (bench is empty) 7

Succession Planning @ LEA Firms 6. Do your firm’s “rising stars” know what it takes to be a partner? 86% = Yes 14% = No 8

Succession Planning @ our Firms 7. What is your firm doing to build the bench and develop talent? 86% = Mentorship 63% = External development programs 59% = Personal development plans for rising stars 50% = Internal development programs for rising stars (XYZ Path to Partner Program) 9

Succession Planning @ LEA Firms 7. What is your firm doing to build the bench and develop talent? 41% = Experienced lateral hires aligning with our current practices 46% = Internal development programs (XYZ University) 41% = Real-time feedback 41% = Performance Coaching 37% = Experienced lateral hires bringing new practices/niches 10

Succession Planning @ our Firms 8. How is your firm fueling growth? 95% = Service line expansion 86% = Active client development 62% = M&A 48% = Practice innovation 38% = Lateral hires 29% = “Productization” ? ? % = BDE’s ? ? % = Other? 11

Succession Planning @ LEA Firms 9. My Firms biggest Succession Planning Challenge: (4) Finding the time to develop/train future partners especially in BD/rainmaking (3) Getting Partners to Transition Clients by 65 (2) Fueling Growth (2) People Retention Building the Bench with Laterals Effectively using BDE’s 12

Succession Planning @ LEA Firms 9. My Firms biggest Succession Planning Challenge: Aligning all Partners under Common Vision/Strategy Keeping outgoing partners busy during last three years while work is being transitioned Equity vs Income Partners (Income want it handed to me vs growing it) Not enough 4 -8 year talent to allow rising stars at SM level to become partner 13

Succession Planning @ LEA Firms 9. My Firms biggest Succession Planning Challenge: • Commitment of NG partners to relationship development, problem solving, and consulting • Finding good leaders 10 years out • Gap in business strategy knowledge among HP’s 14

Industry Trends

#1 Average Age of Equity Partners In 1995: 46 In 2000: 48 In 2015: 52 Percent of Partners 50+ in 2015 61% Source Rosenberg Survey and IPA 16

#2 Population Size by Generation Availability of Accounting Grads Source: Pew Research 17

#3 Labor Force Size by Generation Population Size 18

#4 Availability of Accounting Grads Source: AICPA 2003: 53, 000 2009: 35, 000 19

#5 MP Job description Turn lights on @ 5: 05 am, client service, business development, people issues, partner issues, technical knowledge, physical space issues, financial management, hiring decisions, niche expansion, competitive intelligence, public relations, client retention, technology, vision, leadership, sports tickets, vendor relationships, industry knowledge, referral sources, recruiting and retention, legal and liability issues, lateral hires, M&A, partner performance, realization, profitability, strategic alliances, partner compensation, succession planning, and turn lights off @ 9: 27 pm. 20

#6 Perceptions 1) Our perception of the immediacy of this issue 2) Our perception of the need to help/develop the next generation 3) Our perception of the work ethic or style of the next generation of partner 4) Their (NG) perception of our firm 5) Their perception of the partner role 6) Their perception of the current partners 7) Our perception of our options 8) And the list goes on>>>> 21

What’s in a Comprehensive Succession Plan?

What’s in a Succession Plan? 1) Strategic Vision: 5 -10+++ Years (vision, mission, size goal, services, geography, niches, etc. ) 2) ID retirement scope for each current partner 3) Identify people development needs to fill retirements and meet growth targets 4) Assess gaps & how we’ll fill them 5) Define criteria for future partners 6) ID partner candidates and plans for each 7) Buyout plan, buy-in plan 8) Client transition plans for “A” and “B” (process for “C”) 23

Your Succession Planning Matrix

Step 1: Your Partner Age Matrix Partners & Ages 2016 2017 2018 2019 2020 Jim 64 65 66 Nancy 62 63 64 65 66 Mike 53 54 55 56 57 Graham 49 50 51 52 53 Jennifer 42 43 44 45 46 25

Step 2: Revenue/Partners Needed Year Revenue Partners Fees/ Retiring Needed Need to Desired Partner Growth Prep at 9% 2016 $10 M 5 $2 M 0 0 > 2017 $10. 9 M 5 $2. 2 M 0 0 > 2018 $11. 8 M 6 $2 M 1 2 ? ? ? 2019 $13 M 6 $2. 2 M 0 0 > 2020 $14 M 7 $2 M 2 ? ? ? 26 1

> What Percentage of Managers “With Potential” Actually Make Partner? A) 10% B) 33% C) 50% D) 75% E) 100% 27

Step 2: Revenue/Partners Needed Year Revenue Partners Fees/ Retiring Needed Need to Desired Partner Growth Prep at 9% 2016 $10 M 5 $2 M 0 0 > 2017 $10. 9 M 5 $2. 2 M 0 0 > 2018 $11. 8 M 6 $2 M 1 2 3 -4 2019 $13 M 6 $2. 2 M 0 0 > 2020 $14 M 7 $2 M 2 ? ? ? 28 1

> What Percentage of Supervisors “With Potential” Make Partner? A) 10% B) 33% C) 50% D) 75% E) 100% 29

Step 2: Revenue/Partners Needed Year Revenue Partners Fees/ Retiring Needed Need to Desired Partner Growth Prep at 9% 2016 $10 M 5 $2 M 0 0 > 2017 $10. 9 M 5 $2. 2 M 0 0 > 2018 $11. 8 M 6 $2 M 1 2 3 -4 2019 $13 M 6 $2. 2 M 0 0 > 2020 $14 M 7 $2 M 2 OMG 30 1

Building your Bench

So, Who’s on the Bench for 12/31/18? 2 spots open and we have 2 potentials… Our Statistics tell us that up to 50% will: Get recruited away, leave the profession, be terminated, have a major family change, have a personal life crisis, doesn’t end up being partner material, won’t delegate, can’t develop business, can’t develop people, cause internal issues, etc. and so on… So We Ideally Need 3 -4 Partner Potentials in Development…NOW. 32

Building the Bench for 12/31/18 Where do we find 3 -4 partner potentials? a) Accelerated development of YP’s with HP 8 years to partner – why not! There is no law that says it needs to be 12 -15 years “just because that’s the way it was for me…” b) Laterals/Experienced Recruitment • • Retained search firm – with acute target(s) in mind Recruiters on-staff Staff communication and bonuses to recruit their friends Personal talent pipelines – required @ all levels Boomerangs 33

Building the Bench for 12/31/18 So we actually need 1 -2 more… c) Rewrite the Requirements • • Non-Equity PT, Virtual, Flex, 70% Non-CPA’s? !? !? ! Look outside our market d) M&A If the talent matrix works – why not? Just make sure the culture is right 34

Who’s on the Bench for 12/31/20 We can barely get enough candidates ready for 2018. How are we supposed to work on 2020? Do I really have to? • Only if you truly want to remain independent. But How? Put on your coach hat. 35

Who’s on the Bench for 12/31/20 36

Starting the Conversation

Nine Box Performance Matrix 38

Starting the Conversation with 2018’s (Path to Partner Program) 1. We think you are partner material here at the firm… 2. We’d like to work with you on a plan that rounds out your skills in areas we see as important to being a successful partner at this firm… 3. Short and medium term we’d like to expose you to more opportunities to lead and demonstrate your strengths while propping up acute weaknesses… 4. We don’t have all the answers you are probably seeking – yet – but we will find them together 5. Ideally we’d have you ready sometime between X and Y… 39

Path to Partner Program 1. An intense program that combines evaluation, mentoring, coaching, sponsorship, shadowing, training/CPE, leadership project(s), roundtable forums, information sharing, Q&A, and more 2. Eligible candidates are senior managers (or equivalent) 3. Usually time-limited (for example 2 years) 4. Monthly touch-points and quarterly review-points 5. Significant commitment from participants and direct supervisors 6. Annual self-review/review 7. Partner memo 40

Starting the Conversation with 2020’s (Leadership Development Program) 1. We see you exhibiting great leadership qualities at the firm 2. We’d like to work with you on a plan that rounds out your skills in areas we see as important to being a successful leader at this firm 3. Short and medium term we’d like to expose you to more opportunities to lead and demonstrate your strengths while propping up acute weaknesses 4. This may lead to becoming a partner at the firm at some point in the future – and we’ll assess this with you throughout the course of the plan. 41

Leadership Development Program 1. A program that combines mentoring, training/CPE, roundtable forums, leadership projects, sponsorship, information sharing, Q&A, and more 2. Eligible candidates are new managers 3. Usually time-limited (for example 4 years) 4. 6 x annual touch points 5. Moderate commitment from participants and direct supervisors 6. Annual self-review/review 42

Starting the Conversation with 2025’s and Beyond (XYZ University/Academy) 1. A core part of our firm’s DNA is people development 2. We recognize that everyone got to where they are today in this firm, in part, due to great coaching, mentoring, and being afforded valuable learning opportunities 3. We’re pleased to launch an internal university that will bring unique learning opportunities and experiences to our people 4. Going beyond technical training, we are pleased to offer a wide variety of programs in areas like leadership development, personal marketing, and communications. 43

XYZ Firm University/Academy 1. A program that combines mentorship and training/CPE 2. Everyone is eligible, no time limits 3. 4 -12 x annual touch points 4. Limited commitment from participants 5. Limited commitment from direct supervisors 44

Who’s on the Bench: Getting Them Ready

Core Skills for Leaders in CPA Firms Firm Development Business Development People Development Client Development Personal/Professional Development 46

Personal and Professional Development • Technical Expertise • Personal SWOT/Defining your Personal Leadership Style • Time Management 101 • Accounting Firm 101 • Strong Work Ethic • Credibility • Billable Hours/Realization • Communication Goals 47

Client Development • Understanding your Role with the Client • Being a Proactive Advisor • Developing Relationships and Building Trust • Cross-Serving/Selling • Achieving Loyalty – and Referrals! 48

People Development • Delegation and Leverage as a Development Tool • Team Building 101 • Serving as a Mentor and Coach to your Team • Performance Management of Others • Delivering Effective Feedback 49

Business Development • Building a Personal Brand and/or Niche • Capitalizing on your Biggest Asset: Clients • Developing a Referral Source Network • Succeeding at the Sales Process • Achieving a Goal for Originations 50

Firm Development • Herding Cats: Leading Other Partners • Creating a Culture of Accountability • Strategic Planning 101 • Leveraging Technology • Talent Acquisition • Niche Growth and Expansion 51

Each Plan will be Different Firm Development Business Development People Development Client Development Personal/Professional Development 52

Plan as Foundation 1. 2. 3. 4. 5. Objective Strategies/Actions Goals Advisors/Coaches Process/Approach 53

Timeline, Contingencies and Best Practices

Revisiting: What’s in a Succession Plan? 1) Strategic Vision: 5 -10+++ Years (size, services, geography, niches, etc. ) 2) ID retirement scope for each current partner 3) Identify people development needs to fill retirements and meet growth targets 4) Assess gaps & how we’ll fill them 5) Define criteria for future partners 6) ID partner candidates and plans for each 7) Buyout plan, buy-in plan 8) Client transition plans for “A” and “B” (process for “C”) 55

Budget 1. Path to Partner a) $4, 000 -7, 500 per candidate per year b) 100 -200 hours/year per candidate 2. Leadership Academy a) $1, 500 - $2, 000 per learner per year b) 100 -150 hours/year per candidate 3. XYZ University a) $1, 000 – $1, 500 per learner per year b) 50 -99 hours/year per candidate Does not include time and resources used in establishing the programs. 56

Fueling Growth: Three Ingredients 1 Part Organic + 1 Part Laterals + 1 Part M&A = Growth! 57

Client Transition Guidelines A and B Clients = 3 Year Runway ü Minimum of 4 Transition Activities/Year ü Definitions apply! ü Goal is that by 12 th touch all aspects of relationship have transitioned. ü Closely managed by MP Smaller Clients/C Clients ü Full “hand-off” as early as possible ü Priority should be on A’s and B’s 58

Reasonable BD Targets for P 2 P Candidates Year 1: Years 2 -3: Years 4+: $50 K $50 -100 K $100 K+ Requirements for Originations to be Made Partner: $100 K-500 K Yes, this is more than many of your current partners! 59

Deconstructing a Successful BDE 1) 2) 3) 4) 5) 6) 7) 8) Culture, Culture Previous Success Consultative Selling Knows our Services Worked in a Partnership Strong Network of Ideal Clients 2 Year Runway for Success Motivating Compensation Structure 60

What goes into High EE Retention? ü Vision and mission ü Ongoing Learning and Development ü Opportunities to lead ü Flexibility ü Recognition and Frequent Feedback ü Great leadership @ firm ü Challenging assignments ü Strong employer brand ü Community responsibility ü Innovation ü Internal Forums for YP’s ü Communicate the Career Track/ ü Advancement Opportunities ü Great compensation and benefits 61

Learning and Development Directors ü A person responsible solely for the development of our people and creating and driving programs (like discussed today) ü Not to be confused with a HR Director, HR Manager, HR Coordinator, Office Manager, COO, etc. 62

External Programs 1. Rainmaker 2. Upstream Academy 3. The Growth Partnership 63

LEA Support LEA YP Group Promotes professional growth and advancement for future leaders: 1. Conference Calls 2. In-Person Sessions @ LEA Conferences 3. LEA YP Volunteer Week 4. Best Practices Sharing 64

Find Resources: kueselconsulting. com/LEA

THANK YOU! Art Kuesel, President Kuesel Consulting, Inc. 312. 208. 8774 art@kueselconsulting. com www. kueselconsulting. com