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The accounting profession is adding far more nonequity partners to its ranks than equity partners, which means power is concentrated among fewer owners but stand-out pros are getting the opportunity for more responsibility, more autonomy and more money.
It’s a trend that’s remained solid for at least the last 15 years. According to the 2023 IPA Practice Management Survey, the number of nonequity partners among the IPA 100 (excluding the Big 4) has increased by more than 320% over the last 15 years versus just 85% for equity partners. The IPA 100 in 2023 included firms above $48.8 million in net revenue. The data also shows the practice has accelerated over the last five years.
For example, at Kreischer Miller of Horsham, Pa. (FY23 net revenue of $42.3 million), the number of nonequity partners has increased from 12% to 59% of all partners since 2019. The numbers represent a shift in thinking, says Christopher Meshginpoosh, who goes by the title of managing director because partners are called directors at his firm.
The only thing holding back some “phenomenal” performers from becoming directors was business development experience. There’s room for both. “If we can get an outstanding business developer surrounded by people who can help them on the delivery front, make them more efficient and free up time for them to go out and make it rain even more, then that’s a really good answer for the firm.”
Not every director needs to excel in every aspect of the job, Kreischer Miller leaders concluded, so they spent more time looking at strengths and weaknesses of their top performers and crafting guidelines to recognize this.
Consultant Kristen Rampe of Rosenberg Associates can see few downsides to adding more nonequity partners to the mix. “By minting more partners, even if they’re not owners, it allows the firm to serve more clients without having to add to the number of cooks in the kitchen of business ownership.”
At Kreischer Miller, equity directors are more involved in bringing in business than nonequity, but beyond that, there’s very little difference between the two. Both types serve clients the same way, sign reports, lead industry groups or service lines, and serve as thought leaders. Nonequity directors don’t vote, but there aren’t many issues that need to be voted on anyway, Meshginpoosh said.
He cites the following benefits of nonequity partner growth:
Higher Retention – Meshginpoosh said it “felt wrong” to let the unique skills and contributions of excellent professions go unnoticed. Besides, competition is tough and the firm needed to avoid watching good people walk out the door for a title they could get elsewhere.
Another Rung on the Ladder – For about half the nonequity partners at Kreischer Miller, the role is a steppingstone to equity partnership while they work alongside other industry group leaders to build a niche. The other half are satisfied in the role being technicians, teaching younger professionals and serving clients without spending as much time on business development. Rampe said some firms require their equity partner candidates to spend a couple of years in the nonequity role before being offered equity partnership. “I’m in favor of that because it gives people a chance to try it – on both sides.”
Wider Market for Recruits – It doesn’t make sense for everyone to pursue equity partnership. Kreischer Miller has recruited former partners who had hit their mandatory retirement ages, for example. For others who prefer more technical roles, equity partnership has little appeal. Rampe adds, “Some people have an inordinate anxiety around the risk of being a business owner and just want nothing to do with it.”
Meshginpoosh also offers the following potential downsides to other MPs thinking of increasing the number of nonequity partners:
Perception – “The biggest challenge I think is trying to make sure that you’re not creating two different classes where one feels like they’re in and one feels like they’re out.” Avoid doing anything that would create tension between the two groups, he advises. Rampe adds that the role should be clear – at some firms it’s a stop on the way to equity partnership and in some firms it’s a permanent position – and firms shouldn’t differentiate between who’s an equity partner and who’s not.
Lower standards – “We don’t dilute the meaning of a director in the eyes of our clients or in the eyes of our people because there is a base level of technical skill, interpersonal skills, leadership skills and client service skills that you expect to see out of anybody who has that title whether they have equity or not,” Meshginpoosh said. At the same time, the firm needs to challenge itself in considering new nonequity partners: “Do they have those traits or are we just trying to take the easy way out?” They key is to set clear standards for the role and hold people accountable to meet those standards.
In the end, it’s all about retaining high performers, Meshginpoosh concluded. “We’re committed to our independence and the way you stay independent is by doing your best to help grow that next generation of leaders.”
