Much has been written about the deficiencies of Millenials, all totally irrelevant in my opinion true or not (and mostly untrue), but what about the Gen Xer’s?  As the current and future generation of business management executives are they worthy of receiving the torch the Codgers (those born between 1945 and 1957 who prefer to be called ‘baby boomers’ and can be identified by their bell-bottom slacks and bee-hive hairdos) want to pass them?  Can they handle it?

The Gen Xers I know are technologically savvy, intelligent, committed, professional, and innovative.  They are the young partners in the successful firms I am familiar with.  As an entrenched Codger, I’d say they rock. (Codger talk for they got it goin on.)

Last week I had the distinct pleasure of attending a conference sponsored by one of the top accounting firm associations in the world.  The International Group of Accounting Firms (IGAF).  Everyone I met - Codgers, Gen Xers, Millenials - was exceptional, but what absolutely blew me away was the insightfulness of the ‘young’ partners.  The 35 to 50 year old leaders.  The Gen Xer’s.

The estimate is that up to 75% of the partners in accounting firms will retire in the next 10 to 15 years.  Succession is a big concern in our profession.  More important to me is whether or not we have future leaders who will perpetuate the ineffective model we have now - a business model that is over 100 years old and substantially ineffective in many ways - or will someone pick up the torch and challenge the ‘common belief’ that is practice management?  Will the Gen Xers  pick up where we Codgers leave off and employ their ability, motivation, intelligence and most importantly insight and innovation to address what we haven’t?  Based on the group I met at IGAF, there is no doubt in my mind.

I hope they’ll let this old Codger hang out and provide a thought or two.  We’ll have a new progressive business model incorporating service based pricing; a flexible working environment geared to the needs of the professional knowledge worker and integrated with those of the Firm; while re-establishing the accounting profession as the guardian, mentor and champion of world business.

Some of the most common complaints expressed by our assurance seniors are that the client “didn’t complete the schedule request properly, or provide adequate support timely, or apply the appropriate accounting principles properly, or, or, or, yada, yada, yada”. And correspondingly the audit team didn’t meet, or, had trouble meeting their due date. (We assign due dates for projects based on budgets, and allow the team members to determine when, where and how they will perform the engagement, rather than attempting to micromanage their time and daily lives.) After hearing this refrain / excuse for the umpteenth time during one of our recent after action reports for a very good client, I reminded the offending senior of the purpose of our use of Client Service Agreements and why we have change orders.

After practicing for over 30 years I can unequivocally say we’ve never had a ‘perfect client’. One who always applied the accounting principles correctly, on time and provided the requisite support. Without exception. (The other assurance partner claims he had one, once, but he drinks heavily.) The only perfect client is the one you are doing a proposal for. He’ll promise to do everything perfectly.

In the proposal process, the Company’s obligation is to get the ‘highest level of service for the lowest possible price’. So of course they are motivated to commit to a course they are entirely incapable of keeping and the assurance team has to endure the shortcomings.  In a time sheet environment this may get passed on to the client, but not likely. And of course if it does the client squeaks that it is not consistent with the original proposal, and you have what my friend and mentor Ron Baker euphemistically refers to as ‘bill and duck’ (and hope they pay). For pricing firms, as we are, it results in scope creep.

My point is that ultimately no client is perfect. Propose based on what they commit to but invoice them for what they actually do or don’t do. Don’t whine because they aren’t perfect. Just implement a system that accommodates that imperfection without penalizing your Firm or creating animosity with your client(s). You might want to try Client Service Agreements. (Oh, and to all you seniors – ‘imperfection’ is why you get paid the big bucks! If all our clients were perfect we wouldn’t need your gray matter. We’d just use checklists. )

Long known for our inability to communicate effectively either orally or verbally (yes there is a difference) as accountants we’ve found new facades to hide behind. Our communication with our clients is typically limited to brief general conversations, and written communications mandated by professional standards, such as engagement letters. The email / text message / voice mail have supplemented the traditional letter facilitating the anonymity so many in our profession seem to prefer, with the frequent result being misunderstanding or no understanding at all.

In most firms, the engagement letter – conceived / drafted / revised / and re-revised by attorneys attempting to protect us from ourselves - has become the primary, and frequently only, verbal communication with our significant clients prior to performing the engagement. Yet it does nothing to inform the client of their obligations other than to pay, or what our responsibilities or requirements are. It is a legal letter. Not designed to communicate, but rather to provide a defensible legal position.

As a Firm practicing ‘pricing’ – advising the client of the cost in advance of providing the service – we automatically assume the pricing risk of ineffective engagement performance. Of course we can only influence the risk for matters over which we have control, so what happens when the client doesn’t perform as agreed? The scope of the engagement is extended. We refer to this as ‘scope creep’. Without an agreement defining the engagement it is highly likely the service provider, if a pricing firm, will unfairly suffer the financial responsibility.

Poor communication can be even more detrimental to a firm who ‘bills’ – adds up the hours charged and then multiplies the total by some arbitrary rate at the end of the month - and drops an unexpected invoice on the unwary client. (Michelle Golden a national marketing and practice management consultant to service firms referred to this process when speaking with me recently, as ‘bill and duck’.) The frequent result can include non-payment or loss of the client, but at a minimum a deteriorated relationship.  

Does the engagement letter cover either of these possibilities and define the engagement? Contractually, maybe. Operationally, absolutely not.

During my career I’ve noted that when contractual agreements lead to dispute, it is primarily because they were not drafted jointly, but rather unilaterally. One of the fundamental tenets of effective leadership is convincing all parties necessary to a transaction or course of action to take ownership of the process. Undeniably you are more likely to take ownership of decisions you have participated in making than those that have been forced on you. It is no different with written agreements. Unilateral decisions are simpler to make, more convenient and easier to implement, but less likely to be embraced. In other words, they are sometimes more efficient, but typically much less effective.

Engagement letters are unilateral. They are without input from arguably the most important party to the contract. The client. We essentially are telling the client to take it or leave it rather than striving for concurrence. In our Firm, while we obtain engagement letters for every engagement, we’ve also implemented the use of Client Service Agreements.  Ron Baker refers to them as Fixed Price Agreements in his book the Firm of the Future.

We’re primarily an audit firm, and most clients have a very rudimentary understanding of the audit process. The CSA gives us the opportunity to explain the engagement process. Simultaneously, it provides the client with an opportunity to educate our audit team so that we don’t inadvertently or unnecessarily interfere with their work flow. The CSA is not a unilateral agreement. We develop it jointly with the client.

Typically our CSAs cover our approach and what we need the client to do for us to be successful; what the client needs from us to make the engagement tolerable and successful from their perspective; scope of services; timing; responsibilities of all parties; the additional financial cost and potential for missed deadlines if the client doesn’t meet their responsibilities; detailed schedule of payment for services; and our service guarantee. Little of this, if you think about it, is covered in a typical engagement letter but all of which is critical to a successful engagement. Finally, in addition to our service guarantee we include a termination clause allowing either party to void the CSA if they become dissatisfied.

For us, the improved communication embodied by our CSAs has led to significantly improved engagement performance with happier clients. We have completely eliminated invoicing disputes and increased our accounts receivable turnover which has resulted in improved cash flow and profitability.