Dave Cain: Welcome to Unsuitable on Rea Radio, the award-winning financial services and business advisory podcast that challenges your old school business practices and the traditional business suit culture. Our guests are industry professionals and experts who will challenge you to think beyond the suit and tie, while offering you meaningful modern solutions to help you enhance your company’s growth. I’m your host, Dave Cain. Stepping down from your leadership role in your business can be nerve wracking and exciting all at the same time. One of your biggest concerns is choosing your replacement. Joining us today is Rea’s outgoing CEO, Lee Beall. Over the past few years, Lee and Rea’s Board of Directors carefully prepared to transition leadership to the next CEO of Rea & Associates.
While your succession planning process will be a unique journey as with most efforts, there are some best practices available to help you along the way. Today, Lee will share some of the successes and challenges the team found during the process. Welcome back to unsuitable, Lee.
Lee Beall: Hey, Dave. How are you doing today?
Dave: I’m doing well. Thank you for joining us. Before we get started, as I read your bio, I saw one of the things you wanted to do as a 10-year old was to be a professional basketball player. Do you remember filling out that information in your bio?
Lee: I do.
Dave: Who would that professional basketball player be if you could-
Lee: Gus Johnson who was a power forward for the Washington Bullets, one of the Baltimore Bullets who was from Akron, Ohio.
Dave: Since you could not become a professional basketball player, I guess you couldn’t hit the jumper from the elbow so you decided to become a CPA.
Lee: That’s correct. I always aspired to do that.
Dave: Great. Great. Looking forward to the next few minutes sharing some ideas with you about the process you and the board of Rea & Associates went through to select the new CEO. As you know and as you’ve experienced with your clients, you just don’t wake up in the morning and begin to select the CEO. Before we get into that, maybe a little facts about Rea & Associates. Rea was founded in 1938 by Richard Rea. Currently, how many employees are with Rea & Associates?
Lee: Right now, it’s in the neighborhood of about 240.
Dave: 240?
Lee: Yup.
Dave: My understanding is according to your state of the firm address, Rea & Associates just finished up with a record year from a revenue perspective?
Lee: We did. We exceeded 2015, which was our best year ever in terms of revenue. We exceeded that by 6% or $1.8 million. We’re very proud of that.
Dave: What do you attribute to some of that growth?
Lee: It’s been a long slog. When you get into this discussion about CEO, I took over Jan. 1, 2009, which many of us remember was the beginning of the great recession. The first thing we had to deal with that year was losing 15% of our top line and having to downsize by 73 people. That’s a very interesting baptism under fire when you take over an organization.
Dave: That’s a great intro to what we want to talk about next. Rea & Associates, as you began to select the new CEO, when did you begin to process? When did you begin to think about, “Hey. It’s time to train and find my replacement.”
Lee: One of the things I really appreciate about our firm is we have a very sound governance structure for our firm. It was very clear that you must redeem your stock in the firm when you turn 65. One of the issues that we’ve had over the years since I took over with principals retiring in the firm was the transition of their client base and the retention of those clients. The process to replace me actually started many years ago when we decided to change our employment agreements with our shareholders to require a transition period of no less than two years and preferably three years. I actually started thinking about my replacement when I started to think about when do I need to give notice to the firm to make sure we transition those clients and my responsibilities?
Regardless whether it’s a CPA firm, a contractor, manufacturing, all businesses should begin this process sooner than later without question.
Dave: I understand you’re also a fan of the Cleveland Browns. They’ve made mistakes in their draft choices over the years to say the least. Businesses can make the same mistake if they don’t study and prepare.
Lee: We might be able to afford to make one or two mistakes but they seem to consistently make mistakes year over year. You simply can’t afford that in business.
Dave: You bet. You bet. Walk us through the process. What was the very first thing you had to do that was on your plate was to identify the attributes that were needed within the company?
Lee: We reached out to a couple of other firms in our business that we really respect that had gone through a successful transition. We just sat down with them and said, “Can you tell us how you went about it?” Two firms in particular, they walked us through the process. They were great at sharing with us how they did it. We basically picked the components of their transition plans that we like the best and then adopted it for ourselves. Once we did that, as you suggest, the first thing that we decided is we needed to understand what attributes we decided were critical to being a successful CEO in a professional services organization?
Dave: In your years of experience, there are some companies that simply make the choice or the selection based on a popularity contest or seniority.
Lee: That’s right. That is a mistake. You can assume that somebody has the skills and attributes because they were a great partner, they were good to work with. They handled clients really well and you transferred what you saw in them that they were successful with to what was needed to run the firm and just assume they had those skills. Many of us often find we really weren’t prepared for that. We need to understand much better what the role is. We need to be trained for it.
Dave: Do you suggest or recommend a series of testing?
Lee: Funny you should mention that, Dave. When we decided to talk about the attributes, we had to figure out how do you identify the attributes that a person has? We looked at a number of tools. We ended up using a tool that we asked every principal on our firm to take. That tool identified certain attributes that individuals had. We then surveyed our principal group and said, “Which attributes are most important to you?” We took the top 10 attributes. We then went to the testing organization and asked them, “What were the top 10 attributes?” It just so happened, five of the attributes we picked were the same as five in their top 10. We used our additional five. We used their additional five. We went with 15 attributes.
The assessment tool then said, “Okay. If these attributes are important to you, we’re going go to into the tool and we’re going to pull out those attributes and identify them with certain people. We’re going to give you a rank if you will of people who had those attributes.” That process was pretty eye opening for everybody who participated in it. It helped each of us identify what our wheelhouse was.
Dave: Is being a CEO, is that a 24/7 job?
Lee: Let’s just say it’s more than an add up eight-hour day job. Unfortunately, with technology, you’re always connected. There is an expectation that you are paying attention and you’re responding. You have to learn how to manage that and how to set aside time and determine what’s really important for you to react to in real time and what is not, which takes some time. All of us being in the client service business, we’re all accustomed to if the client needs something, they need it now. They need it in real time. Now, my clientele is different. It’s not the clients I serve. It’s the people I serve in our organization.
Dave: How do you cultivate leadership within the organization? Again, I’m talking just not a CPA firm but your clients that you dealt with over the years. What are some attributes there connected with some leadership?
Lee: I think the first thing you find out in leading an organization of 240 very diverse people from the receptionist at the front desk to the highly technical partner down the hallway, forces you to see if you’ve got some skills that you never imagined you might need. Consensus building, communications, change management, there’s a whole lot of things that we deal with professionally with our clients that we’re not accustomed to because we’re not running their organizations. They’re running their organizations. Then you try to reach out to some of the clients that you’ve worked with over the years that you think are very effective. You sit and talk to them. I will tell you that it’s a small circle of business owners. They love to talk about their business and they’re of tremendous help.
Dave: Let’s go back to the attributes that you were mentioning. Can you comment maybe on three, the top three? Maybe it’s your favorite three or the top that came through that you would look for or advise a client as they were selecting a new leader?
Lee: Communication skills were probably number one amongst all of the principal group that was involved in this. There’s two levels of communications. There is the communication to those exterior users that you interface with. Your clients, the vendors, the bankers, the lawyers, and then there’s the communication internally in terms of communicating with your people. Communication was number one. Dealing with change, being a leadership and being a visionary about where the organization should go and then working with the organization to help them accept that and deal with the change that’s required to do that is a real challenge.
When you take over this position, you need to get outside the organization and avail yourself of maybe different training, talking to different people, trying to communicate with thought leaders in your profession and get a sense for where they see the landscape going for your profession and where you need to be not next year but five or 10 years out. The other difficult component of that, Dave is we bring a lot of young people into our organization every year. Their view of the world is so much different than mine and trying to anticipate how the organization will be structured so that they fit in comfortably and can become successful. There’s a big communication piece. There’s a strategic planning visionary piece and then there’s the change management implementation piece.
Dave: Lee, does it get alone at the top?
Lee: I’ll tell you when it gets lonely. When you are absolutely certain that the path you have selected is the right path for the organization and those around you question it and I’ll give you a very specific example. You and I are both sitting here today wearing our Rea Way logo shirts. There’s a new brand that we adopted many years ago with a different theme for the firm and a communication that we wanted to present to our users. The night before the presentation or the roll out of that logo, I had a key partner on the phone with me for two hours telling me it was the wrong thing. For you to deal with that and then go into that presentation the next day and do that presentation and do it confidently, knowing there are some people that are doubting the direction and then complete it. Then have that person come up to you afterwards and shake your hand and say, “I was wrong.”
You’ve got to have a lot of backbone to be able to hang in there for that. I guess there’s a certain amount of ego you have to have in order to withstand some of that turmoil.
Dave: You definitely have an ego. There’s no question there. That I can attest to but it is extremely important. As you go out and you advise your clients on succession and strategic plan in selecting a new leader, it’s one of the things that you recommend. Should they have a mentor? Even a seasoned veteran taking over as a CEO in any organization, do you suggest a confidant, a mentor?
Lee: I’ve always had mentors in my career. They weren’t so much to help me with any particular role I was in. It had more to do with where are you in your career? Where are you going with your career? Do you have a career plan? Are you being true to your plan? Having those people hold you accountable for your career plan. Now with regard to a CEO position, one of the things that’s a culture in this firm that Mr. Rea taught all of us a long time ago was to get involved in other organizations in leadership positions in non-accounting and finance positions. In other words, if you’re going to be involved in your professional society, I don’t want you on the tax technical committee. I want you on the marketing committee. I want you on the leadership committee. I want you on the strategic planning committee.
I want you challenging yourself and learning from all the people in the room that you observe and that’s been a great culture to help all of us prepare. I think that’s why our firm is as successful as it is.
Dave: Okay. Let’s go back to where we started and maybe close that loop a little bit with you and the Board of Directors began the process. How long did that take from start to finish?
Lee: From the first time that we sat down with the entire principal group and not just the board to map out the process and explain where we were going, and then getting their feedback on the attributes, it was about a year and a half process from when the board laid it out, to meeting with the principal group, to coming to the conclusion.
Dave: Your advice to our listeners and our clients that it does take time. That’s probably one of the main items in your strategic plan that you should take the time.
Lee: It does take time but there’s another aspect of that in. That is you’ve got an organization, it needs to be prepared to accept the new leader. Number one, they need to absorb the fact that you’re going to be stepping aside. You can’t just spring the new leader on them all of a sudden and say, “Here’s your person.” You need to go through the process. You need to engage them in the process. One of the steps the board asked me to do when we got it down to the final three candidates was to meet with every single principal in the firm for at least an hour and let them discuss with them their view of the candidates. In a 30-day period, I met with 40 different individuals. That was a pretty packed month because, Dave, you know, we have 10 offices. I wanted to get around to them. I didn’t want to make them come to me.
I wanted them to sit in their office where they were comfortable. Let them have had time to absorb it and make them feel comfortable enough that they could open up and communicate to me. I thought that was really critical to prepare the organization to accept the decision.
Dave: Many organizations struggle when they select a new leadership team, whether to keep it with an internal person or go to the outside and bring in outside individual in, that entirely new perspective. Can you comment on that process and how you went through the process there?
Lee: The Rea culture embedded in the Rea Way is very strong in our firm. You’ve lived it longer than I have inside the firm. We all embrace it. There’s a lot of literature out there in the business community about selecting a CEO. There are a lot of studies about organizations that went outside the organization and how successful those CEOs were versus picking somebody inside the organization. You go outside the organization and you find a person that’s got all the skills. They need to learn your culture. If you expect them to hit the ground running, it takes them time to be able to do that. You pick somebody from inside the organization, they already know that. They don’t have to learn that. They don’t have to test it. They don’t have to learn hard lessons. They understand that.
The conclusion we came to is number one, let’s do these assessments. Let’s see if we have a talent pool. That was one of the very first things we did. Then we realized, “Yes. We do have the talent pool. We can cross off the list doing an outside search.” If you’re a large enough organization, you’ve got enough people to assess, but Dave, this starts even sooner. Dave, I need to compliment you here because you really were one of the drivers behind getting our NextGen program back up and running inside our firm to take our young leaders and bring them into a formal training program to teach them the business of our business and to teach them other skills. They’re important in terms of management.
As a result, we have a pool of people because we were conscious about addressing this many years ago. What was even more interesting to me in the process, we ended up with a pool of really good people to take my position when it’s time. I’m really excited about the pool of people that’s behind them, really excited. I have no doubt that after my successor retires, we’re going to be in great shape.
Dave: As we wind down the program, let’s talk about maybe your biggest challenge you faced as a CEO of Rea & Associates.
Lee: Well, the biggest challenge was early on 2009 when I started. We just had our best year ever. We were kicking it. The first six months, we were just posting record numbers. I sat back one day. I go, “Well, this is the easiest job I’ve ever had. If these partners find out how easy this is, they’re going to demote me.” Then we hit the wall. All of a sudden, the revenue stopped. Then I had to figure out in short order what to do in a culture that really embraces its people and really is prideful about retention of our people and sit down and address with our leadership that we have to survive financially. Quite frankly, we are a little late to the realization and then you’ve got to then decide who stays and who doesn’t. That was the most difficult challenge. Given that this was the worst economy since the depression, I’m not sure how you ever get trained for that.
Dave: How about the reverse side? What makes you proud? What puts a smile on your face?
Lee: Our younger people, the development of our younger people. The next generation program that we did and identifying talented people who have a great future and putting them through that. Then most recently, we started an internship program. We just started this two years ago in which we are committed to have at least one if not two interns every year in every office no matter what. We are committed that if those people are talented, we will make them a job offer whether there’s an opening or not. I am really proud of that because it is elevating the skill sets of our people. It is bringing some diverse talents into our firm and it is creating for me a level of confidence that the future for this firm will be in good stead.
Dave: Great. Great answer. Great, great insight. It’s amazing. Rea & Associates was founded in 1938 by Richard Rea. He was our first CEO or managing partner. Here we are 78 years later and you’re the fourth CEO of Rea & Associates. That’s pretty incredible. I want to congratulate you on a great, great run.
Lee: Well, you got to be careful about that because every now and then, one of my partners goes, “Well, which one was the best CEO? Who are the top three?” They like to pull my chain a little bit.
Dave: I’m your host, Dave Cain. We’ve been visiting with Lee Beall, CEO of Rea & Associates. I want to note that it was noted earlier that Lee is retiring as the CEO but he’s not retiring from Rea & Associates. You will be consulting with CPA firms and businesses across the country with strategic planning and finding new leadership opportunities within. I want to thank you again for being part of the guest list today. Normally, we ask a really great question but we’re going to bypass that. Usually, we have a gift for a retiring CEO like a rocking chair or a shawl or something like that. We’re going to bypass that. We really don’t have a very strong budget so we’re going to bypass that. The only thing that we think is appropriate is that we let you sign off this version of unsuitable. Now you only have one take, so you get to sign off on your last version as CEO of unsuitable. Take it away.
Lee: One of the things I’m most proud of about my tenure is the fact that unsuitable was something that was identified by one of our partners and that our marketing group has taken and run with it and it’s become as successful as it is.
Dave: Now before you sign off, we have to encourage our-
Lee: I thought I was signing off.
Dave: Well, you are but before that, we have a commercial we have to get in. We have to encourage our listeners to go to our website at www.reacpa.com and find out many, many articles including a picture of you. Go ahead and sign off.
Lee: We would also love to hear what you think about unsuitable on Rea Radio. Comment on this episode on SoundCloud or review the podcast on iTunes. Until next time, I’m Lee Beall encouraging you to loosen up your tie and think outside the box and get your strategic plan updated.