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Spotlight on an empty desk | AccountingWEB | Talent shortages driving change for mid-tier firms
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Talent shortages driving change for mid-tier firms

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A new report has pulled back the curtain on the evolution of mid-tier accountancy firms, highlighting some of the trials and tribulations they are facing.

3rd Jun 2024
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Shortage of talent remains one of the main macro trends driving change among mid-tier firms, according to a new study, which also looks at the polarising attitude towards private equity.

The Institute of Chartered Accountants in England and Wales (ICAEW) has published a report exploring the evolution of mid-tier accountancy firms, which draws together the views of managing partners at 42 such firms.

The study has examined the impact of five themes – firm structure and operational model; leadership and culture; talent; technology; and financial performance and service lines – on the evolution of the profession.

Opportune moment

Speaking to AccountingWEB, Sarah Ghaffari, ICAEW director of communities, business and practice, said that given the “many factors impacting our profession, this seemed an opportune moment to pause and reflect”.

She said: “By commissioning this research, we have provided an opportunity for firms to share their thoughts on the key issues impacting the sector now and what these mean for the future.

“By acknowledging that some of these challenges are felt more acutely depending on firm size, our first area of focus was the mid-tier.”

Polarised on private equity

One of the key finds is the “polarised reactions” to private equity funding within the sector, with 57% of respondents ranking it as a top-three macro trend affecting the profession. Additionally, 12% said they had secured private equity investment, while another 12% confirmed they would like to in the next three years.

When discussing the opportunities around such investment, respondents cited the ability to invest in technology, particularly AI and automation, as well as the opportunity for growth.

“With 93% of firms surveyed looking to make further investments in technology, capital injections from PE investors could be a great enabler and allow firms to get ahead of the curve,” said the report.

However, 64% said private equity was “not [or] not at all attractive” to their firm, while 17% said they saw remaining independent as an opportunity.

Talent shortages

So far as macro trends driving change go, 52% of respondents cited talent shortages. There was a similar feeling towards the top three challenges facing mid-tier firms, with 70% listing a talent-related issue as their highest concern and a further 18% listing it as one of their top two.

Only 9% of respondents failed to mention a talent-related concern in their top three challenges, with 13% referring to talent as being a key opportunity.

The report shed some light on why it believes some firms are struggling with retention, noting that Gen Z has “a different outlook on life to previous generations, prioritising social responsibility, diversity, work-life balance and sustainability”.

However, just 2% of firms surveyed described their culture as “environmentally conscious”, despite 38% confirming that environmental, social and governance (ESG) considerations “did impact decision-making at board level”.

“This disconnect may be contributing to the retention challenge within firms, as Gen Z seek employers that resonate with their beliefs and values,” said the study.

“Although, when asked which words best described the culture in their firms, ‘caring’ was the third most popular choice, behind ‘collaborative’ and ‘client centric’.”

Structure

Of the mid-tier firms surveyed, seven in 10 were structured as limited liability partnerships, while 90% were part of an alliance, association or network. When asked about the main benefits of affiliation, 84% pointed towards global reach, with 71% saying client referrals.

For the most part, the research found that these are “long-standing affiliations”, with only 10% entered into in the past three years.

“With only 5% of these firms looking to join a new arrangement in the next three years, the findings suggest that firms are satisfied with their existing provision.

“No firm, however, indicated that they belong to multiple arrangements of the same type, suggesting that the values and benefits derived from each may differ.”

Acquisitive attitude

Of those surveyed, 64% have acquired another firm in the past, while 17% had been part of a merger. A total of 55% said they are “likely to make acquisitions in the next three years”, while 21% said they would like to merge with another in the same timeframe.

The report noted that while some accountancy firms “favour lower-risk organic growth, the mid-tier has been active in using M&A [mergers and acquisitions] for growth to meet client demand”.

“M&A activity is not without its challenges, including cultural integration, internal restructuring, regulatory complexities and client retention concerns. However, these do not appear to act as a deterrent to those who were surveyed.

“Looking ahead, using M&A to achieve rapid growth and build capacity appears set to continue in the mid-tier.”

Surprises

Ghaffari said there were some results that “re-affirmed and validated what we already know – for example, the challenges facing firms in respect of recruitment and talent, but the research has provided more detailed insight into these areas”.

ICAEW plans to use the findings to “help shape the way that chartered accountants and mid-tier member firms are supported in the future”.

“We hope this research provides a helpful baseline in terms of where firms currently stand on various journeys versus their competitors, reassuring managing partners that their perspectives are mostly shared by their peers,” concluded Ghaffari.

Replies (4)

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By FactChecker
03rd Jun 2024 17:17

Back to school for statistics?

".. 12% said they had secured private equity investment, while another 12% confirmed they would like to in the next three years. However, 64% said private equity was “not [or] not at all attractive” to their firm, while 17% said they saw remaining independent as an opportunity" = 105%?

And "57% of respondents ranking (private equity funding) as a top-three macro trend affecting the profession" isn't supported by those figures - or are the majority just saying 'not for us, but a lot of fools are chasing that ephemeral dream'?

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By ArianAcademy
05th Jun 2024 08:37

These percent of percent and percent statements are always off when trying to summarise tables of data and narrative provided in moderately lengthy reports. In the actual report it states "Close to two-thirds of respondents (62%) said that PE was “not [or] not at all attractive”" - yet the table shown 32% under "1-Not attractive at all" and another 32% under "2 - ..." so even the report's summary is off. "80% of that investment had occurred in the preceding three years" - actually 83% from the tables, but we get the idea.

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Cherry
By cherrytelevision
05th Jun 2024 09:01

Why would you assume that having private equity investment and wanting more are mutually exclusive?

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Replying to cherrytelevision:
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By FactChecker
05th Jun 2024 21:39

"Why would you assume that having private equity investment and wanting more are mutually exclusive?" ... no idea as to how you've drawn that conclusion from what I posted.

".. 12% said they had secured private equity investment, while another 12% confirmed they would like to in the next three years. However, 64% said private equity was “not [or] not at all attractive”
= 12% have it + 12% don't have it but want it + 64% don't want it.

There's no figures for "wanting more" - just those that want it but don't yet have it.

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