Posted by Chris Vanover.
The Houston Astros won the 2022 World League Baseball Championship on Nov. 5, and spring training, ready or not, will begin the 2023 season when pitchers and catchers report on Feb. 14. Much has changed in over 120 years of professional baseball.
After reading the recent book by former MLB manager Joe Maddon, Joe book – Written with Tom Verducci – It shocked me: The plight of the public accounting industry is not unlike that of Major League Baseball.
Among the trends affecting both camps are changing demographics, a declining appreciation for tradition, advocacy of advanced technology, and shorter attention spans. Maddon came out rambling about accepted baseball conventions, but he could have easily defied our profession:
“Accepted beliefs can stifle individuality and instinct…. When you adhere to them, you stifle what a player can become. It is important to be uncomfortable. Getting out of the box stimulates growth and negates complacency.”
Let’s take a look at some of the parallel problems facing both public accounting and MLB.
In just seven years, the last of the baby boomers will reach the traditional retirement age of 65. But despite the coming immigration, most CPA firms have continued to operate in the same basic pyramid model. The gray-haired partners progress during their education, overseeing largely inexperienced employees who toil through a longer busy season and then resent their career choices for the remainder of the year.
While most American attitudes about work have evolved, the public accounting industry and corporate leaders remain stuck in the past, either cool by filling their coffers or too busy searching for progressive answers. In the same way, MLB executives can hardly get out of the hitter’s box when thinking of new ways to play the game and keep today’s audience interested.
As the boomers in the public accounting industry continue to age, we also can’t seem to get potential clients interested in playing our game. The number of American students earning undergraduate accounting degrees decreased from 2016 to 2020, according to the AICPA’s 2021 Trends Report. In other words, the farm team has left the farm in search of greener pastures, and there are fewer kids on deck.
For many years, audit leaders have failed to differentiate our services, leading companies to lower fees in hopes of making it on the back end. A by-product of failing to get what we deserve is the need to cut costs to maintain a certain level of profitability. When the biggest cost is labor, companies don’t have much choice than to burden fixed-salary employees with excessive workloads. Stop selling your brain power like it’s a hot dog, and you won’t have to demand that your exhausted employees do more just because you failed on your part. Just as no one likes additional roles, no one likes working overtime because you strayed from your sales pitch.
The partner-to-employee compensation ratio is laughable as the pay disparity between a major league veteran and a rookie in the league. According to Bankrate.com, the average starting salary for a college graduate is $55,260, about the same as the first-year salary for audit staff at most mid-market firms. So our industry compensation is just that an average When compared to other tempting career choices for smart kids: Computer science majors have a median expected starting salary of $75,900, while engineering graduates aren’t far behind at $73,922. Don’t even get me started on their actual hourly wage.
If you were a fresh graduate with an average of $27,000 in student debt, what career path might seem most attractive? Heck, I picked an internship with one company just because they offered me an extra $500 and a trip to Disney World. It didn’t hurt that he also auditioned for the beloved Angels baseball team.
Either offer a better balance by implementing a four-day year-round workweek or pay more upfront and create a robust and transparent incentive compensation program. And at the end of the day, you’ll be able to charge your customers for the difference or perhaps a sacrifice by giving up a little bit of the industry-leading $583,824 partner compensation.
The youth in your organization derive satisfaction from mission and purpose. According to the Forbes.com article, “79% of business leaders surveyed by PwC believe that purpose for the organization is central to business success, yet 68% of respondents shared that purpose is not used as a guide in leadership decision-making processes.” The PricewaterhouseCoopers survey indicated that millennials with a strong connection to their organization’s purpose were 5.3 times more likely to stay. But only 33% of employees indicated that they derived real meaning from their employer’s purpose. What is the mission and meaning of public accounting? Do you act as watchdogs of the capital markets? Do you protect assets? It would be interesting to have that conversation with your employees to find out what’s important to them and how – or if – they see purpose in what your company does. If you’re having a hard time keeping your people in their seats, either the stadium you built looks as bad as Tropicana or you’re playing a game with no action. Money talks some, but most free agents sign contenders where they can play to win a ring.
Today’s 20 employees are light years ahead of their predecessors when it comes to technology. It’s in their DNA. Keep in mind they weren’t even 10 years old when the iPhone was introduced in 2007. From drones to automated worksheets, there are plenty of game-changing auditing technologies available to enhance the auditing process, but few companies are investing the time or money to adopt them, rather than However, continuing to pay the price for mistakes, reworks, and frustration caused by the blues of a busy season. The most technologically advanced generation does not have access to the appropriate tools in most local and regional firms, and they suffer in silence because assertive leadership does not understand all the noise, does not find time to learn, or in most cases, does not want to be hurt by partner profits.
Even MLB may have public accounting firms that excel here. In 2006, PITCHf/x was installed at all MLB ballparks to track key data on each ballpark. Statcast has since replaced it and now measures what was once immeasurable. And believe it or not, MLB’s automated strike zone finally made its debut in the Triple A Pacific Coast league last year. If today’s review sounds like it did back in 2006, take your seat on the bench and be ready to learn some new ways to play.
If the only conversations you have with your team are about hours and deadlines, you’re measuring what doesn’t matter. Billable hour goals, utilization goals, and perception are just as useless as traditional baseball metrics like batting average or pitcher wins and losses. It’s time to abandon yesterday’s stats in favor of advanced company metrics. What’s your equivalent of WAR (wins higher than replacement) or OPS (on base plus cooldown percentage)? Your employees are not robots – yet – nor are they an audit assembly line. We are now in the knowledge economy: knowledge creates solutions. Solutions deliver results. Results pay value. Value generates profit.
The partners leading today’s companies have a few options inside an industry ripe for disruption: Play the waiting game and resist real change until their final exit day, Lou Gehrig style. Play defense and shut up the hole before your competition scores—a maneuver that, by the way, will be outlawed by MLB in 2023. Or swing for the fences to win the game for your people, customers, and community and walk off the field a winner. Most public accounting firms are one stroke away from being irrelevant. Here’s to throwing away the rules of a traditional public accounting firm and building a “dream firm”. If you create it, they will come.
Chris Vanover is an outspoken survivor of the Big 4 and PCAOB and has committed himself and AuditClub to improving public accounting. By offering auditors as a service through a flexible and segmented membership model, AuditClub has upended the traditional pyramid, killing the billable hour and democratizing corporate infrastructure. The result is an alternative public accounting environment for rising stars who love auditing but don’t like working for legacy auditing firms. You can learn more about Chris Vanover and AuditClub on the site www.auditclub.cpa.