Lies

post # 9 — January 29, 2006 — a Managing post

What follows is an article I coauthored with Julie Lindy, the editor of INSIDE Public Accounting. I plan on revising it into my usual article length, but thought the blogosphere would like to see the shorter version which appeared in Julie’s newsletter/magazine this month. Julie Lindy is a veteran journalist who has been covering practice management of accounting firms for more than a decade. Contact her at (678) 686-6528; jlindy@hudsonsawyer.com.

Let’s face it: lying is a very common human activity. Not only is it easy to lie – it can even be the polite or politically correct thing to do. “Your baby is beautiful.” “Don’t worry, spilling your drink on my carpet is no big deal.” “Your party was so much fun.” We often find ourselves lying for the sake of kindness and social graces.

However, equally common are the times when we lie not to preserve the feelings of others, but to try and create an advantage for ourselves. That’s when we get ourselves into trouble – almost always. We are so eager to impress that we end up saying things that are so hackneyed and improbable as to backfire immediately: “My child is brilliant” “Trust me, I’ll do the right thing” “The check’s in the mail” “It’s not about the money.” (Does any listener ever believe any of those claims?)

The lies accounting firms tell flow just as easily. And, like social lies, accounting firms often tell them knowing that nobody really believes them. Everyone, speaker and listener, knows we are making conventional, time-worn claims (often phrased the same old way) that have little correlation with reality.

There are four categories of accounting firms lies:

Lies to clients: These lies occur throughout most firms’ marketing materials. Look at some obvious lies prominently placed on the Web sites of three firms in the INSIDE Public accounting list of the largest 100 accounting firms:

• “We dedicate all of our resources to the long-term success and general well-being of our clients.”
• ”[Firm X] is uniquely qualified to provide audit and accounting, tax, information technology, estate and financial planning, and management consulting services to a wide range of industries, individuals, estates, and trusts.”
• “Our core purpose is to use knowledge, experience and innovation to solve problems and enhance opportunities for our clients.”

Do the firms that say these things about themselves really think clients and prospects who read these statements will believe them? And if everyone knows that the claims are not going to be believed, why do firms continue making them? All that happens is that by continuing to make claims that are (literally) non-credible, less trust and confidence is built, not more. It’s all very peculiar!

It’s no explanation to argue that firms really believe that they are superb at these things. It’s always been true that what you think about yourself is irrelevant data. It’s what others think of you, not what you think of yourself that determines your success. Unproven claims have become a hallmark of marketing, but in a reputation-based business like accounting, it’s much more effective to provide some evidence and let people draw their own conclusions. For example, client testimonials are an effective way to deliver your message. They allow you to avoid the perception of lying, because you’re not making a claim.

Lies to staff: One of us recently spoke with a firm that claimed to be a terrific place to work. When he asked for proof, firm leaders replied, “Well, we can’t prove it, but we just know we’re a fantastic place to work!” Saying something is true doesn’t make it so. In these times of desperate staffing situations, it’s tempting to say what employees and potential employees want to hear: “We have great communication between partners and staff.” “Our people are our greatest asset.” “We offer flexible schedules and believe in work/life balance.” “We live by the following core values …” We want to believe we are great at these things, but are we really? When was the last time you asked your employees how well you were living up to your espoused values?

Lying to staff can have damaging long-term consequences. Recently a tax senior felt so compelled to vent his frustration with the firm he recently left that he wrote a confidential letter to the editor of IPA: ”[Firm Y’s] partners … have to lie in interviews to get people to come work for them. When I interviewed with this firm, they made multiple promises that they didn’t keep.”

Is this what you want former employees saying about your firm in your community, or to the press? Again, testimonials are extremely powerful. The only people really qualified to say whether your firm is a great place to work are your employees.

The biggest danger in lying about our performance and effectiveness (without confirming feedback) is that it can lure us into believing our own PR. Once you start lying to yourself about what you are good at, you’re really in trouble, because you’ll stop looking for ways to improve and you’ll suffer doubly – once for the poor performance and secondly for being so manifestly “out of it” that you can’t even see what you need to improve.

Lies partners tell each other: Here are some common ones: “We act like team players, putting the interests of the firm before our own.” “We treat each other with respect.”

“We keep our word to each other in contributing non-billable time to help the firm develop.” “We don’t care who gets the origination credit. We help each other with marketing and business development”

These are all very nice things to say. We might even mean them when we say them. But how many times do partners catch each other dropping a ball or breaking a promise to the practice group or some other team – and do nothing about it? “The trouble with law firms is that the culture is: Promise big. Deliver little. Get forgiven. Repeat until totally frustrated,” says consultant Patrick McKenna. Accounting firms aren’t much different, are they? Forgiveness, toleration and understanding are certainly virtues, but failure to hold each other accountable isn’t good business.

Successful businesses don’t tolerate broken promises and uncompleted actions. “At McKinsey & Co., there is very little you have to do. But if you say you’re going to do it, you must keep your word,” Managing Director Ian Davis reported in a speech at the London Business School. People who don’t keep their word create a chain reaction of consequences – wasted meetings, redoing of tasks, unnecessary downtime, and missed deadlines that are deadly to an organizations efficiency and quality. And of course, the attitude quickly spreads that if the other guy doesn’t have to keep his word, I don’t have to either, and the whole thing spirals!

Lies partners tell themselves: Do any of these sound familiar? “We manage for the long term around here.” “We balance financial metrics with soft contributions like mentoring and being a good citizen when dividing the pie.” “We reward our group leaders for time managing their groups and forgive them if that means fewer personal billable hours or less origination. We want them to focus on their groups.” Sounds nice, doesn’t it? But is it the truth? We’d save ourselves from so many blunders and foolish notions if we could only see ourselves as others see us, the poet Robert Burns points out. Like the other types of lies that firms tell, these lies aren’t mean or malicious. They’re the lies of self-delusion. We want to believe them. Often, the claims we make don’t have the desired impact, so we raise the temperature of our tone. We exaggerate to make affect, and in the process, hurt our own credibility.

Exaggeration, misrepresentation and lying – however innocently or well-intended – has never made good business sense, as tempting as it may be. Lying and getting away with it puts you at risk of being found out in the future. Lying and not being believed destroys your credibility immediately. It’s just not worth it!

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Professional Firm Boards

post # 8 — January 27, 2006 — a Managing post

An old friend and client writes to ask:

How do professional service firms obtain independent, external input at the leadership level? Do they add a few independent directors to the board of (inside) directors, if there is one? Do they form an external advisory board of people? Do they hire specialized consultants on an issue-by-issue basis? Do they bring in outsiders as co-CEO, COO or as a full- or part-time vice chairman?

Corporate boards bring valuable experience, expertise and networks to their managements. But doing this in a professional services firm would pose numerous challenges, not least of which is the amount of time it would take the outsiders to really get to know the business, the top managers and customers before their counsel would be valuable and valued.

As to advisory boards, in the 1970s a number of high-profile American companies created international advisory boards peopled with former heads of state (e.g., Willy Brandt), high-profile foreign corporate leaders, statesmen (Henry Kissinger) and others.

Hiring a highly talented retired executive or regulator as full- or part-time vice chairman or senior advisor might be a viable approach to accessing ongoing independent thinking at the top. However, in a number of years the thinking might lose some of its “independence.”

Are any of these approaches wise or viable for today’s professional service firm?

Let’s begin with the cheap shot. What does it tell you that one of the most pioneering, prominent, distinctive and heavily promoted advisory board in professional services (with the caliber of people you mention) was that of Arthur Andersen? I have no way of knowing whether that instance was cynical window dressing or a real strategic advantage to the firm, but as a professional cynic I incline towards the former interpretation, especially given the way events unfolded.

I would be more impressed by a firm that had such a Board, but told no-one about it. Now that would be a good clue that they weren’t doing it just for the image!

I am willing to believe that getting high-level input and access to great minds is helpful to any top executive (CEO or managing partner) in any business, large or small. That’s why organizations like The Young Presidents’ Organization, Rotary Clubs and private dining clubs in every major city exist to allow business people from different industries to get to know and help each other.

I don’t at all accept your implication that professional service firms are going to be particularly difficult for an outsider to understand. That’s pomposity. Professionals themselves pretend they can quickly understand all their clients’ industries and businesses when they get hired, but to turn around and say “our business would take years to understand” is the (unsurprising) height of arrogance (and self-delusion.)

The biggest barrier for professional firms acting like corporate businesses and getting high-level input at senior levels would likely be their (un)willingness to accept advice! Who is going to successfully get the world’s top advice-givers to accept critiques and suggestions that what they are doing could be done another way? Who’s going to tell some of the world’s smartest brains that they have reached a faulty conclusion? Who’s going to get away with doing this more than once, and still be asked back again and again? It’s a very peculiar set of skills to have, and only a (small) subset of top professional firm leaders who would want this on a regular basis. (I don’t think I ever could have got started in this business without the crimson H of Harvard glowing out of my forehead!)

So, should firms have these formal structures? One of my eternal rules is to eagerly look for productive processes, but beware of sticky structures. The key here is to engage in activities (or processes) that get input from fresh perspectives (dinner clubs, mentors in other industries, use of consultants to do make evaluations and recommendations and to do so in such a way that there is a route for the input be surfaced, dealt with and responded to, not just collected and ignored.

However, for me the warning sign would be that if this ever goes beyond being a process (the regular way you do business) and becomes a structure (an board, a committee, a bureaucratic system) then that’s a pretty good sign that you’re only playing games, and its likely to be of limited value. There’s no more certain way to avoid facing hard issues than to form a committee, establish an oversight board, or hire a new executive to a new position who actually cannot influence how the firm actually does things.

One final thought: you may be overestimating the impact of corporate boards. We all know they are not only supposed to provide wisdom to top management, but also to exercise oversight on behalf of the shareholders. So it is, in theory also, with professional firms. Many partnerships, for example, have a board of partners whose job it is to oversee the activities of the firms’ executive. My take is that, most of the time, these are no more and no less effective in controlling management than they are in the corporate sector. And adding outsiders theoretically should give the board more power, but rarely does. It’s usually a well-paid boondoggle for the board member who is expected to behave.

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Team Rivalry

post # 5 — January 25, 2006 — a Managing post

I received this question from a client executive:

One division of our private banking unit is 5 years old, with 7 investment directors and 7 client relationship managers. As we grow we are in the process of dividing the 14 people into 3 sub-groups, each with informal team leaders who support me by helping their team members to be motivated, to fulfill their aims and to solve problems.

As we do this, we want to avoid internal competition between the teams. We want members of each team not only to cooperate within their team, but to be supportive of other teams and to have a feeling that we stand for the same purpose. We also wonder how we should measure the teams, the individual team members and the team leaders to accomplish both small-team performance and group-wide collaboration.

When you get big, it may be necessary to have formality and “official” structures, but it is not clear to me why you need it now. Managing 14 people should be possible without official structures and, as you point out, the minute you draw a circle around a group of people, you automatically get less collaboration across boundaries. Always.

So, I would work hard to make the team assignments feel informal. You want mission-oriented teams, not structurally-defined departments. For example, I would not “publicize” or “publish” any official team metrics, but only discuss performance in private with individuals and small teams, making sure that you insist on making judgments, not just sticking to measures.

In private meetings, you can say “The hard numbers look great but people do not give you great praise for collaboration. Both are important to us. Can we discuss ways to improve? Can you tell me what you have done to help others look good, within your team and outside your team?”

Done this way, here will be little opportunity to play games with the system by trying to look good on fixed metrics, individual or team. Again, the rule – for firms and groups large or small – is: “Avoid ANY fixed system of metrics – always make judgments.”

Your people will not like this. Everyone, especially the quantitative types attracted to banking, wants a precise formula as to how they will be measured and compensated. It is always a mistake to give in to this request. There is no quantitative system that cannot be “gamed.” Some firms like to think that financial measures are “objective,” but that’s a delusion. They are not objective if people are making the numbers look good by hoarding work, failing to share and collaborate and thinking of their own metrics. What’s objective about that?

Something else I would try is to make team assignments short term or temporary – rotate people between the teams as the months and years go by, and make sure everyone knows that this will happen. It will be good for their careers (they will be better advisors for having worked in all our areas) and they will have more opportunities to be close to people who were once team members even if they are not now. People collaborate with individuals they trust, and you need to give them repeated experiences of working together, (I wrote about this in the chapter Creating the Collaborative Firm in Managing the Professional Service Firm)

Finally, look at the Nine Case-Studies in my book Practice What You Preach for some wonderful examples of how nine managers got teamwork going and built a sense of community (and made lot of money by doing so.) Among the things they did were:

• Arrange a series of group days out of the office (picnics, films, shows)
• Eat lunch together every day as a group.
• Regularly throw a good office party!
• Make sure people believe management is not ONLY out to make a lot of money for themselves.
• Discuss all financials (except salaries) with everyone – open disclosure of how every group is doing.
• Have a bulletin board where you list everything anyone wants to celebrate either for themselves or for someone else.
• Ensure everyone knows why a decision is made.
• Give regular “State of the Union” addresses to the entire firm.
• Have team leaders meet with you regularly to discuss cross-group issues

Does anyone else have ideas about avoiding cross-group competition?

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