New Study Highlights CPA Lateral Hiring Trends
A recent study of lateral hiring trends in the accounting industry by the Chicago-based executive search practice the Koltin Consulting Group (KCG) has found that in the first half of 2014 firms continue to lure top talent away from their competitors as a way to spur growth and generate new revenue in their organizations.
The KCG Lateral Hiring Study for the first half of 2014 found that half of the 100 largest non-Big 4 Firms made a lateral partner, director, or senior manager hire during the first six months of 2014.
KCG studied 160 lateral partner, director, or senior manager hires made by the top-200, non-Big 4 public accounting and financial consulting firms across the U.S. between January 1, 2014, and June 30, 2014.
Other key findings from the first half of 2014 study include:
- Client-service bottlenecks due to a more complex client base, plus the increased regulatory environment, are driving firms to add layers of depth and expertise to their quality assurance and quality control functions.
- Lateral hiring of tax professionals by firms with $100-250 million in annual net revenues has increased 62 percent since Q4 2013.
- 8o percent of lateral tax hires were specialty tax professionals (e.g., SALT, international, cost seg, trusts and estates).
- Transaction services professionals represent 40 percent of all lateral advisory hires.
- Firms with $13-25 million in annual revenues increased their hiring of advisory professionals by 85 percent since Q4 2013.
- Transaction advisory, state and local tax, and international tax specialists topped the list of most desirable lateral hires by service expertise, while private wealth, healthcare, and real estate specialists made up the top three lateral hires by industry/sector expertise.
How to Retain Talent
Early findings from the KCG Lateral Hiring Study for the first half of 2014 seem to indicate that the lateral hiring trend sweeping the accounting profession over the last decade is showing no signs of slowing. So what can firm leaders do to protect their top talent?
Geremy Cepin, managing director of KCG's Executive Search Practice, offers the following retention strategies for firms that want to insure their valued partners, directors, and senior managers stay and grow with their firm:
- Create, promote, and live a culture of entrepreneurialism, technical excellence, and personalized service.
- Dialog continually with top performers. To prevent your best people from feeling ignored or unappreciated, check in with them frequently.
- Invest in leadership and business development training. Help your people develop the knowledge and skills they will need to take over when the older partners retire.
- Make them partners. If high-performing senior managers have what it takes to make partner, do not keep dangling the "partner carrot" in front of them in hopes of squeezing another year or two of less-compensated work out of them.
- Hire support staff to free up your partners for business development. The most profitable firms are the most highly leveraged, not those that minimize staff costs.
- Weed out low-performing partners. Nothing ruins morale more than seeing highly compensated partners cruise while managers and other partners bear the brunt of the work.
- Expand your management committee. Involve more partners in decision about the direction of the firm, to give them a sense of control over their future and bring new energy and ideas to the table.
The top-200 largest firms in the U.S. were defined by annual net revenues. Lateral hires made through mergers or acquisitions were not included in the study.
According to KCG, this latest study further documents the continuation of an increase in lateral hiring originally established in KCG's 2013 Lateral Hiring Study, which found firms were "increasingly spending money at the heavyweight level, with the majority of firms seeking to attract lateral partners in order to accelerate growth."
"Just a decade ago, the term 'lateral hire' had little meaning to most public accounting and consulting firm leaders," KCG stated in the 2013 Lateral Hiring Study. "In today's aggressive business climate, attracting lateral partners and emerging leaders from the outside is an appealing strategy for propelling organizations forward."
Geremy Cepin, managing director of KCG's Executive Search Practice, said lateral hiring had grown over the past decade, and continues to grow into 2014, because there are several ways firms can utilize top-tier lateral hires to enhance their competitive advantage, drive revenue growth, and increase profit margins.
One of the reasons for the rise of the lateral hiring, Cepin said, is that lateral hires stimulate new business opportunities for firms by providing a quick and efficient way to build expertise in new industry sectors.
"A firm may hire a lateral partner with specific industry-vertical expertise, a nonprofits specialist for example, from another firm who has previously built a successful industry focused business and has an established professional network that can be leveraged to drive new business opportunities in a specific industry vertical that the firm did not previously serve," Cepin said.
Firms may also add new service lines and technical specialties through lateral hiring by hiring a technical specialist, or "subject matter expert," in a field like state or local tax, who can then "cross-sell the new service to the firm's existing client base, as well as to drive new business opportunities from an untapped marketplace," Cepin said.
Lateral hiring also helps firms fuel their succession plans.
"The profession is aging. Firms are still affected by the gap in experience that resulted from increased education requirements in the early 1990's. Rainmakers, industry vertical leaders, and technical specialists are retiring," Cepin said. "Firms need successors for these people, but often don't have someone homegrown that is ready to step-up. While rising stars may exist in-house, the waiting period between grooming potential talent and that talent developing into high-performers simply takes too long."
In addition, Cepin said, many firms also hope to entice lateral hires who can help them address two additional concerns currently facing the industry: the changing, and increasingly complex, needs of their clients, and the "ever-increasing demands of regulation."
"Client demands are increasingly complex and sophisticated and importing talent through a lateral hire can help firms improve their in-house capabilities to keep up with the complexities their clients present," Cepin said.
To meet regulatory demands, firms are on the hunt for industry specialists, or subject matter experts, to help clients comply with regulation germane to specific industries, as well as specialists who can help manage the regulation of the accounting profession itself.
"Firms are using lateral hires of technical experts to add layers of depth and expertise to the firm's quality control and quality review functions, thus mitigating risk," Cepin said.
KCG's complete 2014 Lateral Hiring Study, which will include additional statistics including lateral hires by region, will be published at the end of the year.