Meet the ‘fat mid­dle’

Accounting Today - - Editor’sdesk -

You are prob­a­bly fa­mil­iar with the “pyra­mid model” as it is ap­plied both in in­di­vid­ual firms (par­tic­u­larly large ones) and in the pub­lic ac­count­ing pro­fes­sion as a whole: The per­son­nel hi­er­ar­chy is built on a broad base of in­ex­pe­ri­enced en­try-level hires who pro­vide mass la­bor for au­dits and tax prepa­ra­tion and book­keep­ing, and whose num­bers are grad­u­ally whit­tled down through at­tri­tion. Even as their skills in­crease, more and more of them leave pub­lic ac­count­ing — of­ten to work in in­dus­try, but too of­ten to work out­side the field en­tirely — leav­ing nar­rower and nar­rower tiers of per­son­nel un­til the penul­ti­mate culling of mak­ing the cut for part­ner. Those lucky and ded­i­cated enough to be­come part­ners and firm lead­ers make up the pin­na­cle of the pyra­mid, and rest se­cure in a po­si­tion based on that very broad base of la­bor.

That fa­mil­iar model, which the pro­fes­sion has re­lied on for half a cen­tury or more, is on the verge of rad­i­cal change.

With in­suf­fi­cient num­bers of young ac­coun­tants en­ter­ing the pro­fes­sion, tech­nol­ogy and out­sourc­ing of­fer­ing re­place­ments for rel­a­tively un­skilled la­bor, and the move for many firms to em­brace higher-level ad­vi­sory ser­vices, pub­lic ac­count­ing is look­ing at more of a “di­a­mond model” — or, as it’s some­times called, “the fat-mid­dle firm.”

In this model, the broad base of en­try-level staff is sig­nif­i­cantly re­duced, with much of their work per­formed by tech­nol­ogy or out­sourced else­where. The per­son­nel hi­er­ar­chy then broad­ens from that nar­row base to a “fat mid­dle” of ex­pe­ri­enced pro­fes­sion­als who can bring valu­able ad­vi­sory ser­vices to clients. The top tiers then nar­row again to the usual cadres of firm part­ners, lead­er­ship and top ex­ec­u­tives.

This looks set to be the com­ing model for pub­lic ac­count­ing. Over­all en­try-level hir­ing has more or less stag­nated among the largest firms — in fact, hir­ing of ac­count­ing grad­u­ates has de­creased, but the Big Four and oth­ers are re­plac­ing them with grads whose skills lie in tech­nol­ogy, data anal­y­sis, and other trans­for­ma­tional ar­eas. And tech­nol­ogy is rapidly prov­ing it­self ca­pa­ble of per­form­ing much of the grunt work that new grads were needed for.

The shift to a “fat mid­dle” makes sense — but it also raises some in­ter­est­ing ques­tions. First, and per­haps most ob­vi­ously, if the pro­fes­sion isn’t bring­ing in as many new ac­coun­tants and rais­ing them up through the ranks, where will all the ex­pe­ri­enced hires come from to fill up the mid­dle? For years, pub­lic ac­count­ing has re­lied on the large firms, par­tic­u­larly the Big Four, to train up and then re­lease new gen­er­a­tions of ac­coun­tants, but EY has al­ready an­nounced that it will hire two-thirds as many ex­pe­ri­enced pro­fes­sion­als as en­try-level staff in 2019. Sim­ple math makes it clear that a smaller base of ty­ros can’t grow into a broader base of veter­ans; how will the dif­fer­ence be made up?

The answer to that may seem ob­vi­ous: Many of them will come from out­side ac­count­ing — and they’ll bring tech­nol­ogy and other skills the pro­fes­sion is go­ing to need. They and their skills and per­spec­tives are wel­come, but the ques­tion then arises of how nar­row a base of new mem­bers the pro­fes­sion can stand on. No one en­vi­sions a real di­a­mond model, where pub­lic ac­count­ing bal­ances on a tiny point of new ac­coun­tants; nonethe­less, if too few of the new gen­er­a­tions who are brought in ev­ery year are ac­coun­tants, it risks chang­ing the very tenor of the pro­fes­sion. What’s more, it risks a vi­cious cir­cle where di­min­ished hir­ing of ac­count­ing grads leads to fewer ac­count­ing ma­jors — which leads to less hir­ing of ac­count­ing grads, and so on.

Any new model re­quires care and mon­i­tor­ing and a weather eye for un­in­tended con­se­quences, and the same ap­plies to this new firm struc­ture, at least un­til we can fig­ure out whether it’s a di­a­mond in the rough — or a punch in the gut.

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