Ken McCrory recalls an executive committee meeting at accounting firm McCrory & McDowell when he became irritated and snapped at a colleague.
“I turned to him and said, ‘Look, why don’t you do it; I’m really getting tired of this,” says McCrory.
Mike McDowell tells of encountering employees in the McCrory & McDowell offices and not always immediately recognizing them.
“I’d ask, ‘Can I help you?’ and they’d say, ‘I work here, Mr. McDowell,'” he says.
McDowell made such mistakes because he had taken an engagement on the firm’s behalf as interim COO at a 350-physician medical services organization at Emory University Hospital in Atlanta and hadn’t been around the offices much. Even though he was commuting weekly between Pittsburgh and Atlanta, his direct involvement at the firm, by necessity, had been limited.
Individually, none of the incidents was decisive in the partners’ decision to make substantive changes at McCrory & McDowell and put in place a plan to leave a legacy for the accounting firm they had founded. But both point to them as indicative of the kind of experiences that accumulated over time and ultimately led them to a series of decisions over the past two years to determine the future of the firm they formed in 1983.
“I think it was time for a change, to re-energize each of us and also to prepare the firm for change,” says McCrory.
And change was in order for another, more far-reaching reason. The partners realized that for the firm to survive into successive generations, it would have to hold on to the valuable human resources necessary to create a new strain of leadership.
Simply building the value of the firm and raking out cash in a sale would not ensure its continuation once McCrory and McDowell retired.
“We’d be doing that because our objective was to maximize profits on an annual basis, knowing that when we retire, there’s no legacy, there’s no professional goodwill, there’s no personal goodwill in the firm,” McDowell says. “It just kind of melts away into something else and loses its identity.”
The founding partners had an opportunity to do just that in the mid-1990s when they got an offer to be acquired by American Express, which at the time was buying up accounting firms all over the country. They considered it for a few months but ultimately rejected the proposal.
“I know we’d have felt a sting of guilt if we’d have done something like that and sold out to the detriment of the people who were here,” McDowell says. “I don’t think we could have lived with that.”
Different experiences
By necessity, McCrory and McDowell wore a lot of hats in the early days of their firm, as do most entrepreneurs with limited resources and a small initial book of business. That has changed as the firm has grown, accountants have become more specialized and the accounting profession itself has undergone a transformation.
“The CPA business was real simple back in the ’70s, and even throughout most of the ’80s,” says McCrory.
But alterations in the business landscape and regulatory reforms brought changes to the profession. Tax and audit work became near break-even services cast out to attract clients, with the hope of then selling them consulting and other services.
Accounting firms began to delve into additional practice areas, including investments and financial services, and the industry became more complex and specialized. The accounting generalist became less valuable, while specialization in narrow niches emerged as the discipline in greater demand.
McDowell, for instance, built a consulting practice, Diversified Medical Management, at the firm, largely to assist in the sale of physician practices to hospitals. McCrory & McDowell started Computer Resources, a computer networking and e-commerce solutions company, and Financial Advisors Inc., a financial planning and investment management company for individuals and businesses.
They came to realize that the career experience they had accumulated as founders and builders of the firm over nearly two decades, while valuable, was different from that which the younger people in the 52-employee firm had collected. As entrepreneurs, they had to be nimble and versatile, willing to take on a variety of work and clients to bootstrap the firm’s growth.
That experience contrasts with that of the upcoming generation of professionals in the firm, who were employees, not owners, and tended to be more specialized in their skills.
“We grew up doing everything. Coming up the way we did together, life teaches you a lot of lessons,” says McDowell. “One of the challenges that we’ve seen in this transition period is that they don’t have the same background that Ken and I had.”
Adds McCrory, “The entrepreneurs that found a company have a whole different set of experiences than the management team that comes later.”
Making it rain and making it run
From the moment McCrory and McDowell hung out their shingle as partners, while their responsibilities overlapped to some degree, each took control of different sides of the business. McCrory, for the most part, handled the administrative side, while McDowell played rainmaker.
While McCrory did a share of the client development, most of his energies went into the day-to-day operations of running the firm. McDowell’s primary focus as rainmaker was to generate new business.
One of the changes they’ve made in the past year has been to trade primary responsibilities. McCrory says he wanted to engage in business development and take advantage of contacts he has made through his volunteer activities serving on nonprofit boards. McDowell wanted to get closer to the management of the firm, something he hadn’t much opportunity to do.
Extending governance
McCrory and McDowell decided that an exchange of responsibilities wasn’t enough to prepare the firm for a transfer of leadership to the next generation, so they devised a plan to extend ownership in the firm to more of its employees (see sidebar).
And they decided to move some of the senior employees onto the firm’s executive committee, originally comprised of the firm’s five partners, to give them leadership experience.
The process brings two employees on to the six-member executive committee every two years and will continue until McCrory and McDowell themselves rotate out of the committee.
“The right thing to do”
McCrory and McDowell say they have settled into their new roles and feel energized by the fresh perspective on the practice that their current responsibilities provide.
When McDowell got a call recently to take an engagement at Massachusetts General Hospital similar to the one he had completed in Atlanta, he declined, even though it would have been a reputation-builder for him personally and for the firm’s health care consulting practice.
“There’s not a snowball’s chance in hell that I’m going to do that again,” he says, because he is satisfied doing what he is doing now.
McCrory says he doesn’t miss the functions that were formerly his responsibility. And both are convinced that the changes are critical if McCrory & McDowell is to continue to grow.
Says McDowell: “Challenging ourselves at our ages to do something different every day from what we’ve gotten used to is clearly to me the right thing to do.” How to reach: McCrory & McDowell, www.mccmcd.com
