Answer fowlling questions 10

Alex MacBeath

Alex A. MacBeath is an Executive Partner and CEO of Grant Thornton, LLP. He has former and current association with a wide range of community and non-profit organizations such as the United Way ( Campaign Chair and Chair, Living Out Loud Speaker Series); Big Brothers Big Sisters of Canada; Hamilton Art Gallery; Founding Chair and Host, 1995-2000, Grant Thornton Canadian Authors; Series, the Canadian Childrens Authors; Series, the CANSCAIP Collection; Board of Managers, First Presbyterian Church.

Company Profile

· Company: Grant Thornton, LLP

· Size: Large

· Industry: Accounting

· Business Activity: Professional, scientific and technical activities

· Type of Entity: Private Company

· Number of Employees: 500 to 10,000

· Country: Canada

· Headquarters: Toronto, ON

· Yearly Revenue: Greater than $25 million

1. Can you provide a brief history of Grant Thorton. When it started and by whom?

Grant Thorton started in Atlantic Canada. It was formed in 1939 in Halifax and it was a sole practitioner that began the firm, Harvey Doane. At that time was known as H.R. Doane and Company. From the initial base in Halifax it expanded across Atlantic Canada, initially, through a series of mergers and the opening of new offices to respond to opportunities in different parts of Atlantic Canada and to the needs of clients as they expanded through Atlantic Canada. As it moved into the sixties and seventies it began to expand into Ontario and eventually the West, mainly through a series of mergers with local firms. That created a presence in Western Canada and Ontario building on the strong base that we had in Atlantic Canada at that time. There were two major events in the eighties and the nineties that helped create the firm that we have today and really built on the early success that Harvey Doane started. The first was in 1981 when we associated with a firm in Quebec, the largest firm in Quebec, called Robichaud Martin St. Pierre. That created a firm that had a presence in every part of the country. In 1991 we did another merger with a firm called Panel Kerr McGillivary. Panel Kerr McGillivery had a very strong presence in Western Canada and in Ontario but not in the East nor in Quebec so it was a very complementary merger. It created the firm we have today, with a presence across the country and in all the major markets of the country. In 1981, at the same time we associated with the firm in Quebec, we joined a new international organization called Grant Thorton. Grant Thorton was created at that time and we were the third member firm to join the international organization and in fact are the third largest member firm of the international organization.

2. What were the original motivations for the formation of the firm?

If I were to look at the motivators that drove Harvey Doane or created some of the early successes, certainly one was recognition that we were a professional services firm. In terms of providing strong professional services, maintenance of high standards was critical. The second was attention to client service and meeting the needs of clients. By building the capacity in the firm that some clients needed really drove some of the expansion. As client needs expanded both nationally and internationally the firm expanded to accommodate and meet those needs. There was a need to develop, expand and grow the firm so that there would be the critical mass of capacity and capability as client needs expanded and became greater. The key successes over this whole period of time and why a firm that started as a sole practitioner in Halifax in 1939 is today a national firm and a major player in this profession nationally I think a first would be high standards. As well, remembering that the foundation of any professional services firm is high standards, independence and objectivity. The second would be a focus on client service and recognition. You are always striving to meet client needs and recognizing that those needs are always going to change over time and recognizing that you need to change to meet those changing needs. Finally, a real focus on people. We are a professional service firm. We provide professional advice through CAs and other professionals. You need to be able to provide them an opportunity to grow professionally, to grow their career. You need to provide the professional development opportunities and the professional development support that they need to grow professionally and continue to meet the needs of their clients. So those would be the successes I think if you look back over the sixty-five years that we have been in this country.

3. How would you describe the culture of Grant Thorton?

I think the culture of Grant Thorton is different than some firms. It is very open. First of all, all information is shared including incomes of partners and things like that. Some firms have a very closed type of culture where not much is shared with the partners. I think in our firm, the culture is very collaborative. We work very closely together. There are client service teams that focus on working with clients. If you think about the client, there is a relationship partner that maintains the contact with a client. We try to bring in all the other specialist and resources that we have to bear on that client. So we do work very collaboratively. We build within the firm, communities of practice so people practicing in different areas and different sectors work very closely together. It is a culture of equality and each partner has one vote. It is not based around seniority. It is not based around income. If you are a partner, you are a partner. A new partner who has just become an equity partner has just the same vote as I do as CEO. Finally I think it is a collegial culture. We, as partners, and there are 180 of us, genuinely like each other. When we assess a new partner who we may want to admit to the firm, the question that is often asked is will he or she fit? Is he or she a Grant Thornton partner? I think that reflects the style, the nature and the culture that we have built over the years. There is no question that it is one of our strengths.

4. Are you trying to change the culture of Grant Thornton? If so, how is it going?

We are currently guiding the firm through some fairly significant changes. Some of the changes are culturally based and are really trying to alter how we think about the practice and the firm. I would like to describe the change as one starting with a series of individual partners with practices they have built up over the years. Moving from a firm which is a compellation of 200 practices to a practice managed by 200 partners is a very difficult, major cultural shift. What it is trying to do is take our professionals and partners and put them to the highest and best use and have them focus on clients in areas of practice where they have a real expertise. This allows the clients to have access to the best resources of the firm. Not a 360 degree partner who is knowledgeable in a whole series of areas, but rather a 360 degree firm to which the client has access and from which we have a number of professionals delivering the service. So it is an open, collaborative, collegial type of culture.

5. Grant Thorton is a professional services firm. How is it structured differently than the traditional corporation?

Professional services firms are really unique forms of organization. If you think about a partnership, the partners are the owners, the partners are the managers and the partners are the producers of work. It is almost as if all the shareholders of a corporate entity show up for work everyday and they make the decisions and they decide what they are going to do. It is in that sense that the partner represents and takes on a number of different rolls. For someone in my role or someone else in a formal leadership role there is not a lot of authority. Indeed, it is a role without authority so you lead and you manage through influence not through the position itself. You do not have a corporate structure or style or role that gives you power. It comes through influence. If you have a partnership where the owners are there everyday working on par with the management of the firm it does make change on one hand difficult because you really need to get the active buy in of the partnership. On the other hand when you do get that buy in there is a tremendous opportunity to leverage the power of the partners. Once they accept and buy into the change and agree about what you want to do or where the firm is going to go, then the leverage that they bring is really quite phenomenal. It allows you to move ahead with change more quickly then you might in a corporate environment.

6. How does the partnership govern itself?

How do you govern and manage a firm where there are 200 partners or 180 partners, all of whom are owners? Let me speak about that on perhaps two different levels. First, at the governance level, we have a policy board. Our Board of Directors is comprised of twelve partners who represent partners from across the firm. They are elected by the partners themselves and they are there for three year terms so there are four new partners that come onto the board every year. That board has two fundamental roles. One role is as a representative of the partners. A second is to develop the vision and the strategy for the firm itself. Sometimes those are a bit conflicting as it also has responsibility in the partnership agreement for the allocation of income among partners. In terms of the day to day management of the firm we have a management team and a management committee which is comprised of seven partners who are fulltime in administrative roles. There are a variety of roles that they take on. At the practice level we now have fifteen profit centers. We also have forty-four locations but they are grouped or clustered into about fifteen reporting centers. That is where the practice is managed. Some of those office clusters are large and there may be a management committee within that office. Some are smaller and all the partners are involved in the day to day management. The one thing that we are now doing, over the last two or three years, is introducing professional management into the firm. So we now have a number of professional HR managers in the firm. We also have a number of professional business development people in the firm and professional finance and administration people. This brings that expertise into the firm and at the same time allows our partners to put themselves at their highest and best use which is really client service. This has been a major cultural change within the firm and a change of how we manage the firm. One of the things you are always trying to do in a professional services firm like ours, which has offices and locations all across the country, (partners located across the country) is to find a balance between those offices and practices. They have a lot of local office autonomy and are close to the market so they can respond to the local market needs. Those at the far extreme have a more corporate style, where you have a national strategy, and national services which you deliver through a series of offices. So you are trying to find that middle point where you balance the local office autonomy with a local presence and a national strategy that you can translate to all your offices across the firm. The best way I can describe that and how I term it is "strategic consistency" and "operational flexibility". That is what we strive for on a regular basis within the firm.

7. What is the role of a senior partner, a junior partner and a principle?

A senior partner is who we would term an equity partner. That is the real owner of the firm. As I mentioned before, each owner, each partner, has one vote. They may not receive the same income but in terms of equity or voting power they are one. That position has the risks and rewards of ownership - Risk if their results are lower, risk around claims, risk around litigation, but with the rewards of distributive income. When the firm does well then the owners and the partners do well. To look at the role of an equity partner what we did about three years ago was articulate the role, the expectation or the competencies of a partner in a document we call the vision partner document. I could summarize that in perhaps the three roles of an equity partner or a partner in our firm. First would be a preferred advisor to clients. They have the business partner relationship with the client. They have knowledge of the industry or sector that they bring to the client. They have a technical competence that they bring to the client, and they deliver the services. Second you have the entrepreneurial co-owner. That is someone who acts in an entrepreneurial manner to build the business. Who helps to build the practice, who helps to build a profitable practice in their area and who is highly effective in a personnel and communication role. So that is what we would we look for in a partner. A junior partner is someone who has been admitted from a senior staff level to partnership with the full expectations that they will become an equity partner. This is an opportunity for them to grow into the partner role and that is normally about a three year period at which point they are admitted as an equity partner. We have a third position which is a principal. This is a senior practitioner who is usually based in a local office and who has a more local office perspective. You might term the occupant of the position, a local office partner. They would be very strong leaders but usually fill a specific role and perhaps do not have the national scope that you would expect of an equity partner.

8. How does an accountant become a partner in your firm?

In terms of the admission process what we look for is an individual who has the ability or capability to achieve the expectations that we have set out in the vision partner document. It starts with a good knowledge of who the senior staff are that have this capability. We have, in the firm, a leadership development program or leadership development initiative. All senior staff who are within three to four years of being eligible for partnership enter the leadership program so we have a chance to work with them over that period of time. When they are ready to be nominated, usually seven, eight or maybe nine years after their gaining their CA, their office or business unit will nominate them. There is a panel of six partners and myself that interview them. It is really to test their readiness, to test whether they are at the point that they are capable of being a partner. Then there is an approval of the board. In our firm all partners get to vote on the new admissions to the partnership, so there is a partnership vote. This is on one hand an informal process of getting to know the senior staff. Who is capable of working with them to develop their skills so that they are ready to join the partnership. Then there is a formal part which revolves around the process itself.

9. How would you describe your leadership style?

I would describe myself as open. I would describe myself as collaborative, but I would suggest that I am firmly in control of the vision. I would suggest my strengths lie in establishing a vision, communicating that message and communicating that vision constantly and consistently throughout the organization. I would suggest what someone in my role needs to be able to do is see the firm today, see the firm in five years time or ten years time and then connect those two. As well develop the strategies and initiatives to accomplish that. Where my weakness would be is in the details of executing specific strategies. I see myself as the guardian of the vision and work towards accomplishing that. I have surrounded myself with a very strong management team in which I have a lot of confidence. I delegate a lot of authority to them and I expect a lot of them. I work with them and hold them accountable to deliver on the specific initiatives and specific responsibilities that they may have. There is I think a difference between establishing and realizing a vision and establishing and realizing a strategy or a specific initiative. If you have a strategy or specific initiative it is really important to have a clear action plan, clear accountabilities and responsibilities, timelines, and measurable goals. When you are establishing, communicating and working towards a vision, I think it needs to be articulated very clearly, in broad terms and communicated on a consistent basis. There are often many, many details that are missing, so what I try to do is establish a framework. Ensure that working with the people, the specific management team and all our partners and let it be shaped by the owners of the practice. My role is to ensure that the initiative and strategies are within the framework and all employees are working to achieve the vision that we have established.

10. What are some of the most important values that influence your actions on a daily basis?

I think first of all if you look at our value statement it talks about honesty and integrity. It talks about trust and respect. It talks about continuous improvement. Those are very much fundamental to how I think and very fundamental to my role. I think when you are in a partnership it is incredibly important to recognize this and have a core value of fairness. As well balance the interests of the individual partners and balance the interest of the partnership itself. When you are making decisions you fall back to what is right for the organization. What is right for the individual partners that make up that organization and at the same time what is right for the collective organization as a whole. And when you fall back to thinking of your role of leading a professional services firm, you need to balance those interests. You always ask yourself what is right for the partners and what do partners need to know when you are thinking in terms of communication. I think those are the values that are part of how I lead and I think that it is also part of what is important in a professional service firm or a partnership.

11. Are any structural changes being considered within your company?

If you look at the governance side, we have not gone through any significant changes in governance over the last ten years. Although I am in the process now of reviewing our governance structure because the board, which is comprised of twelve members, has two fundamentally different mandates or two fundamentally different responsibilities. The first is as a representative of the partners, dealing with partnership matters, the partnership agreement itself, partner compensation, partner admission and withdrawals. The second major mandate or responsibility is the strategy or the vision for the firm itself. The long term vision involves looking at or responding to, changes that are going on in the market place. Changes that are going on in the competitive environment, and changes in the professional regulatory environment. Those are very different perspectives and I think that sometimes they can be in conflict. What is in the best interest of a partner in a particular location may not in the end be in the best interest of the firm as a whole when taking a long-term view. It is important to be able to reconcile those two very different roles and very different mandates. We are looking now and I have just presented a paper to our board suggesting some changes in the structure that would still allow governance by the partners while fulfilling both of those mandates. And at the same time, I think something we have not done, but do need to do very quickly is add some outside directors to our board to bring a market perspective, to bring a perspective from the environment in which we practice, to assist us as we try to establish and realize the vision for the firm.

12. How does Grant Thornton differentiate itself in the Canadian professional services market?

I think we are able to differentiate ourselves in a number of ways. If you were to look at the professional services market or the accounting firms in Canada there are six national firms with a presence across the country. There are what you commonly refer to as the Big Four and there are ourselves and a firm called BDO Dunwoody. There are also, of course, a number of regional firms and a number of local firms. We are the fifth largest firm in Canada but we are the largest firm that focuses on dealing with entrepreneurial people and entrepreneurial organizations. That is a differentiator in that it is where our services are developed. The expertise we have in the firm is focused on that part of the market. I think we also differentiate ourselves as being the preferred advisor to clients. It is a lot more than compliance and development of financial statements, compliance in tax return preparation and compliance in other areas. Really, we position ourselves with the client at the strategic level so that we can provide the range of advisory services that they need. If you were to look at many of our clients, they are very strong. They are entrepreneurial, and they are growing companies. They often do not have the infustructure internally to deal with the issues that they must deal with on a day to day basis. We are able to add a lot of the professional expertise that they may not have internally. So we really need to understand what their strategy is, and what their direction is. We have developed a lot of diagnostic tools to assist us and the client in assessing what their needs are. I think thirdly we would differentiate ourselves in the accessibility to senior resources. A client of Grant Thornton has access to senior staff, access to partners, and access to a breath of capability in the firm. Fourthly I think we differentiate ourselves in the local presences that we have in many markets across the country, combine that with a national firm’s resources and the international network. We have the capacity and capability, so local presence, but national and international capability.

13. How do professionals in your firm transfer and share knowledge in different geographically dispersed offices?

We have, first of all, a very collaborative culture and that certainly facilitates a sharing of knowledge. We have an intranet within the firm so we have been able to establish communities of practice. We have shared workspaces which allow groups working on a specific client, within an industry, or within a sector, to collaborate. We are in the process of expanding that. There will be a shared workspace with our clients where we can collaborate on the work we are doing for a specific client, offering them access to a lot of the resources and knowledge that we have in the firm. So I think we are using technology quite effectively to be able to share it across the firm. A big part of our practice is obviously audit. We have a common audit methodology that every office and every practitioner in the firm uses. That allows us to share this knowledge across the firm. We can do a file in Halifax. All our files are electronic, so it can be developed in Halifax and reviewed by an expert in Vancouver or some other part of the country.

14. What alliances does Grant Thorton have internationally? What value does this alliance add?

We are a member of Grant Thorton International. It is an international member organization. I think there are 106 countries around the world in which there is a member firm. All are independent member firms so we are totally autonomous here in Canada. What it does provide in terms of value is, first of all, an international network. There is an ability to refer clients if they have needs or operations in another country. The sharing of best practices with some of our colleagues in different parts of the world, so we have the international network. Second is the ability to develop a leading edge audit methodology that member firms themselves would not have been able to develop. The cost of development is high but it is something which is required to be used by all firms. It allows the sharing of best practices. It allows very easy collaboration if we have a client that has operations in a number of different countries. Representatives of Grant Thorton, in another country, would be able to do the audit work using the same methodology that we have. I think there is value in the opportunity for staff secondments and work opportunities. There are long term secondment opportunities in different countries and there are short term work experiences. We had, in 2004, between thirty and forty of our staff in the United States working on projects for four to eight week time frames. That allowed them to gain real experience and also bring that knowledge back to the firm. Last is the value, internationally, of developing the Grant Thorton brand which is becoming very well recognized around the world.

15. How has the internet affected the operations of Grant Thorton?

I think first of all clients are much more knowledgeable of what their needs are, much more knowledgeable of the alternatives that are available to them. It allows them to do much more research. I think there is certainly a much greater ability to share knowledge within the firm and to share knowledge with our clients. I think it has provided an opportunity to work much more closely with our clients on an ongoing basis. Certainly it has provided a lot opportunity for our people to do research. It has had a profound impact. I think we are doing some things with technology, with the internet, and with our intranet, that are at the front end of knowledge sharing in professional services firms in this country.

16. What is the business model of Grant Thornton or how does it make money?

Professional services firms are on one hand, a very simple business, and on the other hand, a very complex business. I think it really comes down to a number of key elements or key metrics. The first is the leverage that you can obtain and we are not at the point or have any aspirations to achieve the leverage that some of the larger firms have. The second is the number of staff to a partner that you have within a practice area and the size of a fee base that an individual partner or senior professional will carry. That is a balance between having a fee base that allows for a profitable leverage practice. At the same time as insuring that that practitioner is able to maintain contact with the clients and be accessible to the clients. That is one of the ways we differentiate ourselves in the market. Third, we sell time. We sell hours. What is the recovery rate per hour? What is the quality of our practice? What are we able to charge for the capability and the services that we have? So it is important that our professionals are very strong, are very well trained with a depth of capability and have access to a breadth of resources within the firm. That capability and that time has to be put to the highest and best use. Our professionals always have a choice to do work from which they can recover a certain amount per hour or a higher amount per hour. So the combination of leverage, the size of the fee base that a partner is carrying and the overall recovery rate that you can receive from that work is what creates a successful business model.