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In part two of this conversation, Rob Brown continues the discussion with Gary Thomson and David Bundy on one of the biggest challenges facing accounting firms today: governance that no longer fits the complexity of the modern firm.

The conversation explores the warning signs of outdated governance structures, why consensus-driven decision making can slow firms down and how leaders can navigate the difficult transition from partner-led management to more scalable leadership models.

Gary and David share practical insights on accountability, trust, change management and the importance of aligning governance with the firm’s future strategy. They also discuss why governance isn’t just a compliance exercise, it’s a foundational element that either enables or limits growth, innovation, and succession planning.

For managing partners and firm leaders asking whether their current structure is ready for what’s ahead, this episode offers a candid and practical perspective on where to start.

Welcome back to the Inside Public Accounting podcast. I'm Rob Brown. If you haven't listened to part one of our conversation with Gary Thompson and David Bundy, I'd encourage you to start there because in that episode, we talked about why governance matters in today's accounting firms and where those firms are starting to feel the pressure. Gentlemen, it is great to have you back for part two. Thank you for joining us.

Be back.

Good to

be back.

David, just remind us a little bit about your background and your credentials for talking about governance in accounting.

Thanks Rob. I've had a career about 40 years in public accounting, everything from the big four down to small, local and local firms that grew into regional. I've been in a lot of different leadership positions in that, including in the CEO seat. I'd oversee that. Ready to shift into another stage in a career, if you will, to be an advisor to CPA firms. Got a lot of experience I think I can bring to the table, but very excited to work with Gary.

who I consider probably the best advisor out there. So I'm very excited to join him.

He's definitely up there in the top one. Gary Thompson, it's wonderful to have you back. Tell us about your role in the accounting game, Gary.

Rob, thank you. It's good to join you and appreciate IPA's opportunity to do this with Dave, who I greatly admire as well. Similar to Dave, like I started my own CPA practice in 1989 after an early career in the Big Eight, which dates me a little bit. And just had the privilege of seeing it go from a sole proprietor to a five partner firm to a 20 partner firm and then end up in the top 15. So governance, governance structure has been something that I've seen evolve.

throughout my career. Enjoyed sometimes seeing it evolve, other times resisted it just like most of us do, but it's a big part of what my career trajectory is included. And now six years on the side of the profession working with firms has given me a different perspective.

Well, in episode one of this two part, we talked about the what, what governance is, and we talked about why it matters and the pressure that firms are under and the tensions where weak governance starts to show those cracks. Today, we're picking up on the harder question, how do firms actually change? So we're going to get into this. David, let's start with a practical scenario. A firm has grown, complexity has increased, decisions are perhaps slowing down. We know that's one of the

triggers of weak governance, what's the first signal that governance in a firm is no longer fit for purpose?

I think it's to me, everything in a firm reconciles, right? That's a phrase we like to use in the accounting industry. It is very good, but I think it's also very practical. And so you've got this great firm, right? You've had this great success or you wouldn't have the growth, but something's not working today. It's not reconciling. The decisions are getting more clunky. They're getting harder.

It's a good accounting term.

⁓ There's a lot more emotion around stuff that doesn't need to be there. It just doesn't belong. Those are some signs that you need to start to evaluate exactly how to ⁓ address your governance. It has to be looked at.

And Gary, I'm thinking when we take our car into a garage, as we say in the UK, you say garage, something's missing. You need to talk to the mechanic. There's a noise. Something's not working right. We don't know what it is. We've got a sense that something's wrong, but we're not in a position to diagnose that. Firms need some external help in thinking, I know something's wrong, but what exactly is wrong, right?

They do, I'm a Corvette guy, so thanks for bringing up cars, right? Sometimes I think I'm diagnosing what's wrong or not wrong, and I take it to someone who knows, and it's something completely different. So yes, and because the way you framed your question, the way Dave answered his response, because firms have been successful, and because firms have grown, it's easy for us to diagnose what's going wrong as a challenge other than governance.

Yes.

We can look all different places, but oftentimes the route does come back to how we make decisions, what system or process of that. So yes, it's good to have an outsider just take a look and say, what am I missing here? Do I have a blind spot? Particularly if we're the leader, I think sometimes it's difficult. We probably have a tremendous intellectual understanding of it from.

reading things like Inside Public Account and going to conferences and things of that nature, the practical diagnosis sometimes is difficult.

Yeah. And you mentioned the C word in episode one, consensus. It is really important. That's where things start to stop working, Gary, isn't it? When governance weakens.

Yeah.

It does. And David, I'll be the first to tell you, we still want consensus. But on what is the big question, right? So if we have to have consensus on routine basic things, or we have to have consensus on things that requires to act in speed, we're going to have troubles. If we need and want consensus on large things, significant transactions, modification to our governing documents, that's great.

So there are still some things in which consensus are slowing us down a little bit. It's good for business. But what I would say is there's only a handful of those that don't affect a firm anymore. Most of them, consensus gets in the way of other decisions.

going to say something controversial, but it's a quote. The partnership model is broken because partners cannot be managed. Now that was Mark Koziel who heads up the AICPA now. And he said that at a London conference where I introduced him a couple of years back. And we aren't getting a move to the C-suite model in different operating models. when it comes to consensus based decisions, trust is really important and partnerships are really important. And

It's difficult to get consensus because people have different agendas and different directions of travel. Just talk to us about the importance of governance to help keep that trust in place.

I think it becomes kind of that ⁓ steady influence, if you will. ⁓ Sometimes trust is there, sometimes trust has to be re-earned, if you will, as a decision is made. Because that partner, as you grow, and it's kind of buried kind of within some of the conversations we're having, they're not as involved in some of the decisions anymore. And that could impact them. That elicits an emotion that you have to work through.

And so therefore you have to, there's a process to go to where ⁓ they have to get comfortable that the governance model in place is going to keep the firm going. I like to use this phrase that people create cardboard empires, right? What's important, what makes me important. And I don't like that being torn down and changing a governance model is going to threaten a lot of individuals as you go through it, but it's necessary for the organization to move forward.

Yeah it is and we're talking here about the shift. We're going to look at what good looks like in a moment but it doesn't happen overnight Gary does it? If we decide something's wrong or we get it pointed out by maybe you guys coming in and getting that external perspective there's a process involved here but it's got to start somewhere maybe that starts with the decision that something's wrong and we've got to start putting it right.

That's right. think that the process is one of self-diagnosis. However, that's facilitated. It's an important where are we, where aren't we, kind of a swatch, strengths analysis, whatever you might want to call it within a firm. And then I do believe for most of us, there is some transition change management planning that becomes super important. Now, there is a terrific balance in this, as we know. Change management can't take too long or else it's going to be super ineffective.

But if we're going to make changes in governance, we begin to ask ourselves a number of questions around what will support a healthy transition. Right up to your question to Dave, and then to tie it into what I just articulated, different perspectives are super important in an organization. We need those perspectives, right? But we also need to understand those perspectives in transition, that some will thrive well.

and ambiguity and less information, being in the room less, others will really struggle with it. So how do we build into transition, communication protocols, et cetera, that enable all of us being able to get it at a better pace? We're not going to all get there. And we're not going to all get there at the best pace. But how do we make sure we enable most of us to get there in a way that says, one day I was in the room making these decisions

Now I'm just going to be informed about the decisions and I'm going to get comfortable with it.

Yeah, David, I'm hearing many of our audience saying, okay, just give me a checklist. Give me the process I need to go through, but there's no typical progression. Is there in how firms evolve, say from partner led decision making to a more formal leadership structure? There's a lot of steps along the way and it can be long or short.

Yeah.

There's a lot of steps in between each of those. I think depending on the firm, its culture, its history, how it got there, the steps are going to be different. One firm can go from step one to step four, and another firm has to go from one A to one B to one C, then to two. And it's just how you process it. Now, there's similarities, right? And I think you've heard us talk about that in the answers. You're going to have less input in more routine decisions.

you're going to have less interaction with the decision makers. There's going to feel a gap, right, as a partner who's not involved in a leadership role. Even those who are involved in leadership role, your role may change because of the advent or the introduction of C-suite members who take over some of those responsibilities. And now you may be on a peer level with a C-suite making decisions about the organization operationally going forward.

So there's some similarities that may look the same, but the path to get from A to B different for each firm.

And Gary, you mentioned the word transition. It could be an overhaul. It could be an evolution, whatever we're going to call it. There are key ingredients for a successful transition. Maybe some steps that no firms can skip.

Yeah, it's a great question. If you begin with a diagnosis, honest diagnosis, not one that's built on superlatives that are unreasonable. And then I think you look at what you want the end state to look at. We get here we are, here's where we want to be. Then we can begin this process, Rob, of planning. Who do we need to get buy-in from? How?

What's the timeframe for that? We certainly need to document it with clarity so that people really understand it's not just what Rob said or Dave said, there's no ambiguity about that. Oftentimes, particularly for getting multiple people involved in helping us change. They'll hear one thing from Rob, one thing from Dave, one thing from Gary. We know that it's consistent, that there's a thread, but our style and our way of saying it.

may cause people to hear differently. We see this in firms where the audit partner talks to the audit team and the tax partner talks to the tax team, CAS partner, the advisory partner. Next thing you know, we have four versions of it out there inadvertently so. But I think it is important that we have a strong unifying voice that we document well. And then Rob, one of the things that we see firms do miss is accountability to what we just decided. It's not uncommon to be in the room with a group of partners.

And they all go, yes, this makes sense. Thumbs up. Let's vote on it. But what they really said was that's good for Rob, but not good for Gary. That's good for Dave, but not good for Gary. And so if we don't put some accountability around it, then I find no matter what the speed we transition with, what the end game looked like, we're going to struggle. Because our people who aren't in the room for this decision.

are going to look at and say, well, wait a minute. I thought we changed, but is it the way that Dave's doing it, the way that Rob's doing it, the way that Gary's doing it? So end game in mind, start where we are, to have a transition, have it formally documented, and then build accountability until it becomes very important.

Dr. Mark Coziel's quote that partners cannot be managed, it's really illustrative of how everyone has a different agenda and it's really difficult to appease so many different stakeholders. It must make some governance transitions, David, actually fail or take such a long time or be really painful.

It is critical enough and something you don't do again that often, it is risky if you don't get it right or if you don't go all the way. So if a firm goes 90 % of the way there, they're still gonna feel the fact that they have not taken their governance model all the way that they should have. And again, I don't think this is an indication that the partnership model is broken.

or partners can't be managed necessarily. I just think they're harder to manage. In my professional career, I worked with physicians and physicians are the smartest people in the world. If you don't believe me, ask them, they'll tell you that they are. And in any professional service firm, it's difficult to manage because you're managing high-end talent, exceptional people who understand certain things.

Yes.

Hahaha.

Again, just goes back to as a firm gets more complex, that's an inflection point we've talked about, you need to change how it's governed. ⁓ And so if you don't do it right, or if you try to appease the emotions that are listed as you go through this, then you could fail.

Yeah, Gary, there must be some governance conversations that partners shy away from. They tend to avoid and they're tough having them inside frames.

They do. We have some extraordinary practitioners in our business that not surprising to the three of us on this call like to do it their way and their way is best for them. And candidly, I don't disagree with them. I had many partners that I would walk in the room and have a conversation because they weren't aligning to our agreed upon governance structure. And their conversation would be, well, that's not good for me. It didn't help my process.

And we would say, we're not a sole proprietor here. We're a firm. And so it's the firm way of doing things. And oftentimes, Robert would result in someone not being at the firm anymore, even a partner. Not because they were bad people or evil people or any of that, it's that they couldn't convert from this almost sole proprietor within a big group thinking to what's good for the firm. And to realize that firm processes, particularly in today where

Leverage is important. We have to do things in a similar way. We have to. We could go down the list of things. And so you could take a pessimistic view and say, yeah, they just don't want to be in our firm. I just really think they look at it and say, how can I best serve my clients? But they never really figure out it's got to be a firm way of doing it. We have the advantages of being in a firm.

And part of those advantages include, we'll do things the same way, even when it may not, quote unquote, be best for me.

Yeah, let's see if we can land this plane to coin a phrase and give our leaders and our audience some hope here.

David, we like to give practical advice on this show. So let's bring this topic to a close here. Big topic, important topic for managing partners, leaders listening right now. They recognize that their governance needs some attention. They perhaps don't know where to start. What would you tell them?

I'll go back to what Gary said earlier, right? You've got to diagnose the problem. You've got to figure out where you're having that sticking point and how you process decisions, right? As a managing partner, you know where things are slowing down and you look there first. And there could be a lot of different things. It could be a board of directors or an executive committee that's carrying too many decisions and you need to separate that. You may not have enough people helping you from a strategy standpoint.

You may not have the right people looking at the operations from an accountability. You can figure that out and then look at what the structure is and that structure can fit your culture, can fit your history to make sure you're still moving the way that it needs to. But now you've got that governance structure addressed and put in place.

Gary Adam and sharing that I have a phobia of needles and one of my least favorite professionals in the world is the dentist. Now I visited my dentist recently and I've got some structural work coming up which I'm not looking forward to at all. When it comes to governance, what would you say to the leaders here who are scared of what might be coming up or fearful or they just don't know where to get started, they're perhaps a little bit overwhelmed?

I understand that concern Rob, we all look at it and can feel the weight of am I

rearranging the deck chairs on the Titanic or am I doing something that's really enabling my firm to be successful? What I would say, Rob, is even to back it up a little bit. And so what do we want this firm to look like in three to five years? What are their priorities that support that? Then the governance question becomes an easier one. Does our governance help or hurt us achieve our vision or meet our priorities?

Yeah.

Quick example, if one of our priorities is we want to acquire firms, you have to change your governance if you're a partnership model. That's unequivocal. Now, to what you change it to is up to you and your culture, as Dave said earlier. But in today's environment, you can't do M &A the way we used to. And I'm not talking about the financial side of it. I'm talking about the pace of it.

and the decision making side. And that's one of many things. So what Dave and I try to get firms to think about is, you've just said here are three to five priorities. Does your governance structure allow you to achieve that? And so rather than making it, I'm walking in the room and saying, hey, folks, we need to change our governance without an alignment conversation. When we can get people agreeing on where we're heading and what we need to accomplish to get there,

then it does make that conversation a little bit. Maybe like I'm taking anesthesia, maybe it's not general anesthesia, maybe it's local anesthesia, right? How do we reduce the pain of the change?

Yeah. Let me ask you this as well. David, Gary's just answered it, but if there was one question that owners managing partners should ask themselves about governance this week, what would it be for you?

I think are you ready for the future? know, Gary talked and gave a whole long list of things that all firms are facing. Are you really prepared to answer those? Are you established in the best way you can to address those? And be honest about it, because it is not too late to change that governance structure to help you move forward.

Yeah. And Gary, you're very Stephen Covey-esque and beginning with the end in mind, what kind of firm do you want to be? What direction are you going? That dictates the kind of governance you require,

It does. I, you know, back to our earlier trust conversation, David Maister and his book, True Professionalism, I think lays out a really good framework. First of all, get the right people involved in helping you think through this so that people will have trust that this is not about you being motivated to help yourself in governance. It's about, I've got the people who are thinking about the firm. The second thing that he comments on is having a comprehensive process.

whether that be change management, thinking about strategy, supporting it, whatever. But I think the final thing that he mentions among many is that sometimes leaders just have to lead. And as a firm leader, it may be unpopular. You may not start with a consensus, but don't give up and give in to the need for a governance change, where those inflection points exist. So I think it is the role of leaders to say,

I'm about protecting this firm for the future and I've got to push this conversation. I can't be dissuaded. We must have this candid conversation.

Well, we are genuinely challenging here how leaders think about governance on the Inside Public Accounting podcast. Not as a legal structure or even a compliance exercise, but as a foundation, the leader enables or limits everything else your firm is trying to do. And the question is not whether your governance worked in the past. It's whether it is built for

is ahead. Final question for you, David, what excites you most for where accounting firms are going, if they get their governance right in these crazy times?

I just think it is a tremendous opportunity. This is a great time to be a leader of an accounting firm. The opportunities that firms have are ⁓ so much greater than what they've been before. Yeah, there are challenges, there are headwinds, but my goodness, you figure it out and you can take a firm and achieve a lot. And again, think about the core and why we exist ⁓ to help clients succeed, to help people achieve what they want to do and...

we can be well suited to do both those things.

Yeah, and Gary, leave us with some hopeful words. What is your hope for the word governance and the attitude to it and how it is seen by accounting firm leaders as a really integral part of what they're doing?

I want firms to see this as solution to, as Dave said, future readiness. This is our way of thinking about enabling the future. Incredible time in our profession. I love the next generation that's coming behind us. This is an opportunity to not immerse them in the ways of the past. Let's get them future ready. So it's exciting, it's optimistic, but it is the solution for the future.

Yeah, well, Gary Thompson, David Bundy of Thompson Consulting. Thank you so much for joining us today on the Inside Public Accounting podcast.

Thank you, Rob.

Thank you,

Rob.

If this two part series has made you think differently about how your firm operates, then share it with your leadership team. And this is where the conversation needs to happen. And don't forget to like, subscribe, leave us a comment. We love hearing from firm leaders about the topics that matter most to you. I've been your host, Rob Brown. Thank you for tuning into the Inside Public Accounting podcast and we'll see you next time.