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Wayne Berson, CEO of BDO USA, joins Blake and guest host, David Leary, to discuss BDO's recent transition to an employee stock ownership plan (ESOP), making it the first major accounting firm to implement an ESOP structure. They discuss how the ESOP aims to attract and retain talent in the accounting profession and provide employees at all levels with an ownership stake in the firm.
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Chapters
- (00:44) - Why do an Employee Stock Ownership Plan(ESOP) now?
- (09:06) - BDO borrowed $1.3 billion - what is that money for?
- (14:52) - How will ESOP benefit staff?
- (19:06) - Is there a way to pull money out of the ESOP without leaving?
- (29:15) - How do you become a partner at BDO?
- (31:25) - What are my options when I'm a partner at BDO?
- (35:54) - What are your thoughts on the talent shortage and the 150-hour rule?
- (47:47) - What advice do you have for other firms thinking of becoming an ESOP?
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LinkedIn: https://www.linkedin.com/in/wayneberson/
Learn more about BDO
Website: https://www.bdo.com/
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Creators & Guests
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Guest
Wayne Berson
Wayne Berson has been the CEO of BDO USA, P.C. since 2012, during which time BDO has grown from BDO USA has grown from $600 million to $2.8 billion. He previously served as the Atlantic Assurance Regional Managing Principal, and from 2010 through 2012 as Chairman of the BDO USA Board of Directors. Wayne has been the Chair of the Global Board of Directors of BDO International, Ltd. since 2014. He has more than 30 years of experience in all phases of client service and accounting practices and has served as the responsible principal in a variety of industries, many of which are deeply involved in multinational operations. Wayne has been interviewed in national accounting publications such as Accounting Today, Fortune, Journal of Accountancy, Practical Accountant, The Financial Times, and The Wall Street Journal. He has been named as one of the Washington D.C. region’s 100 most powerful business leaders as well as one of Accounting Today’s managing principal elites, named to the NACD Directorship 100, and since 2013 has been included in Accounting Today’s annual list of the top 100 most influential people. In 2016 he was presented with the year’s GWSCPA Outstanding Service to the Profession Award. Wayne is a graduate of the University of Cape Town (B.Comm, Accounting) and the University of South Africa (Accounting Science degree, Honors).
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Attention: This is a machine-generated transcript. As such, there may be spelling, grammar, and accuracy errors throughout. Thank you for your understanding!
Wayne Berson: [00:00:00] Why should the three of us? Because we're a partner and we spend 20 years. We can make a lot of money out of this when we leave. And someone who is on the administrative side not going to reach the partner level gets nothing when they leave. Yeah, now they can get a lot of money as well.
Blake Oliver: [00:00:24] If you'd like to earn CPE credit for listening to this episode. Visit earmark Cpcomm. Download the app, take a short quiz, and get your CPE certificate. Continuing education has never been so easy. And now on to the episode. Hello everyone, and welcome back to the show. I'm Blake Oliver.
David Leary: [00:00:49] And I'm David Leary.
Blake Oliver: [00:00:50] And we have the privilege today of talking with Wayne Berson, the Chief Executive officer of BDO USA. One of the nation's leading accounting and advisory firms. He's also the chair of the global board of BDO international. Wayne has been with BDO for over 20 years, starting as a partner in 2001 and being elected CEO in 2012. Most recently, he led the firm's transition to an employee stock ownership structure, making BDO. The first large public accounting firm to implement an Esop. Wayne, welcome to the show.
Wayne Berson: [00:01:26] Thanks very much, Blake and David. Looking forward to it.
David Leary: [00:01:30] So Wayne Blake really just said it. You're the first major public accounting firm to roll out an employee stock ownership plan. So why now? Like, why was it now the right time to do this?
Wayne Berson: [00:01:40] That's a good question. Yeah, we are the first large one to do it. There are a few others smaller firms. But you know, at the end of the day we were looking at what's good for our, our people. When I started as CEO in 2012, first thing we did was we put together a strategic plan. And that plan, which revolved, are all around people and helping people thrive. And people gets defined as the people at BDO, their families, at home, our clients and the community because we firmly believe you have to give back. You can't just take. So we embarked on a plan to grow over the next decade. We grew from 600 million in revenue to 3 billion in revenue, the largest increase of any firm in public accounting history. That what's interesting about that growth is. 61% is organic and only 39% is expansion, growth or M&A growth. And a lot of people think, oh, they did a lot of deals, which is true. We did 70 deals 70 over the decade and they thought we were just buying our growth. That's not true. Every deal we did was accretive. So as we move forward and we became a bigger player, it was important for us to make sure we had enough people. And you look at the people situation in in America, it's pretty dire.
Wayne Berson: [00:03:25] I mean, you guys have had a lot of discussion around this topic. There was a study done recently between the American Institute of CPAs and the Department of Labor, and what what they concluded was there were there were about 44,000 firms in America. In order to have those, 44,000 do their jobs, service their clients, they need 125,000 entry levels on an annual basis. So then you look at, you know, the typical output from the universities and the business schools are graduating about 75,000. So you have a built in shortfall of 50,000 this year, last year, the year before. Next year. So we said okay, we needed to start looking at this as well. That led to us building a service center in India with BDO India. We went into a joint venture with them and that's gone in in a matter of four years, we've gone from 0 to 2500 people. Now that's a sad thing in and of itself, that we're having to go outside of our country to get people to do the work. But we have the clients. We got to provide service to these clients. So how do we get new people, let's say, all the way to the partner level? Today's generation wants something different to when I was starting out in public accounting.
Wayne Berson: [00:05:05] They want to feel that they can touch something that they contributed to building something. So if you look at our industry, the staff turnover, people leaving is about 35%. In our industry is about 17, 18%. And we're very happy with that number, which is still a bad number. Are 6000 Esops in America. And the average turnover amongst those 6000 is between 5 and 6%. So we said, you know, we may be onto something here. And so then we started looking about it. How what it is. How do you convert to become an Esop? How does this all come together? We started in 1910, and we want to be for another 113 plus years. And this helps us live, you know, our core purpose. It helps contribute to the economic well-being of of all our employees. No firm in history can say in a few years we'll be able to say, we gave away possibly $1 billion. No one else can say that. And it's it is mind boggling when you think about it. But why should only a certain group of people win when there's an opportunity to have everyone win? So so that's been the biggest thing for us is trying, is trying to get there, trying to make sure that this is good for everyone.
Wayne Berson: [00:06:48] And the response has been amazing. Our people. I had people come up to me crying, people that would typically not rise to the level of a partner. You know, more on the, let's say, the administrative side that would work at BDO for 20 plus years and then they'd leave. Now they're going to leave with, in effect, a pension, whereas before there was no such thing for them. I mean, some of these folks came as I said, they were crying and. It really is good to see how we've been able to help people. Now, obviously the proof will be in the pudding, but it's interesting that if you look at some of the large grocery chains, Publix, Wawa, they both esops, I think they're the two largest esops in the country. And then it may be us. And we were when we unveiled this to our partners, and we started talking about it and the whole notion of where we wanted to go. One of my partners said his father was a butcher at one of those two grocery chains, and he worked there for about 40 years, and he retired, never having earned more than $40,000. When he retired, he got a check for, I believe it was about 1,000,005.
David Leary: [00:08:20] That's amazing.
Wayne Berson: [00:08:21] Yeah. It's amazing. It's unheard of. So I think, you know, for us, it's good. Now, obviously we have to perform in order to make this a winner or everyone's going to criticize us, but we're off to the races.
David Leary: [00:08:35] So if I could summarize before Blake jumps in with some more questions, I think make sure I'm what you've told us is. Bdo was innovative. They grew, but in order to keep growing the way you've been growing, you started to realize you can't do that with 35% employee turnover. You have to figure out how to stop this arguably bleeding. And so you recognized having the Esop. You might be able to get the bleeding down to 5%. And now BDO can continue to grow. Like my summarizing that correctly.
Wayne Berson: [00:09:04] Absolutely 100%.
Blake Oliver: [00:09:07] So you borrowed over $1 billion to make this happen. I take it that money is going to buy out the partners so that you now have equity to allocate to the employees? Is that what that money is for?
Wayne Berson: [00:09:22] We don't get into all the terms of our transaction typically, but I do want to make it clear it's not a private equity deal. The first report that came in the media, but one of the news agencies categorized it as a private equity deal, which it's not. It's a private credit deal. So a private credit is like going to your your normal bank. It's a banking relationship. So the funds that we got, it's not incremental debt. We had as an accounting firm, we had a pension plan a deferred compensation plan for when partners left the creation of the Esop. Bringing in the money that came in is, in essence, a reef, a refinance of our current line of credit, plus our obligations to the partners for their pension that they now had to forego, plus the tax benefits. There's tremendous tax benefits. Being an Esop, those three add up to the total amount of debt that was taken on. But you got to remember the debt that was taken on. You've got to wipe out a similar amount as well of other liabilities. So it's almost like a wash. But the benefit of doing it this way is versus, let's say, private equity, who's coming into our space at the moment and buying some firms. The benefit here is this allows BDO to maintain ownership of the firm, and we control our future versus a private equity group controlling our future. So this really helps everyone. Our partners still get their pensions. They're basically getting it up front versus the long term, and there's certain certain vesting that we've got to deal with. But in essence, they're getting it up front. And we had to pay off the other debt that that we had. So it comes out equal.
Blake Oliver: [00:11:46] So to simplify this for our listeners and myself, tell me if I've got this right. So BDO is no longer a partnership. It's now a corporation and the partners are now shareholders.
Wayne Berson: [00:11:57] That's correct. But we had done that before we became an Esop.
Blake Oliver: [00:12:01] Okay. So you did that. I assume that was in preparation for the. No it wasn't. You just did that anyway. Okay.
Wayne Berson: [00:12:07] We did that anyway for various tax reasons. So one of the reason for that was. We and the two were pretty close together, so it does seem like we did it in preparation. It was just fortuitous that to become an Esop, you needed to be a corporation. And we already had gone down that road when when I started as CEO in 2012, our our days sales outstanding was about 100 days, which is really poor for a firm like ours. So one of the things that we've been striving for over the last decade was to bring that number down. Today that number is around 30 days, which means we're getting collections coming into the firm quicker. We're we. As I told you, we grew from 600 to 3,000,000,005 times, five times bigger, and we are collecting three times quicker. All of that added together equals as one big tax problem. And we were a cash basis taxpayer as a partnership. And. You got your cruel financial statements based on how we reward everyone. Our bonus plans, everything else. But we are having to pay cash on the collections which were coming in so quickly that we needed to take advantage of being a corporation, and the most recent tax changes that came into effect in the previous administration. So we took advantage of that to. Sort of rightsize it and create something for our for our partners, where there's some predictability about what it is they're going to pay in terms of tax, not the volatility. And we also have some very large Florida practices Tennessee, Washington state, Texas, Nevada, all areas where they they don't have state income taxes. So there's a lot of benefit for all of those. So so we we moved to becoming a corporation. And then as we continued working through everything, the Esop came up. And you know, sometimes you're better off being lucky than good, right. And ended up in the in the right place. So, so that's why we two separate things.
Blake Oliver: [00:14:52] So we've been talking now so far about the benefits to the partners tax benefits of becoming a corporation certainly benefits. And accelerating their pension payouts in the form of this conversion to an Esop. Let's talk about the staff now. Pretend that David and I are fresh graduates. We just got our accounting degrees. We've been recruited to BDO, we're excited to start. And we are learning about this Esop thing, which we've never heard about. We have no idea. How how would you describe it to us? How is it going to impact us in our first year?
Wayne Berson: [00:15:26] So let's just say, well, let's just say David's going to firm A and you're going to firm B, both of you are going to get a salary. Call it 60,000, $70,000. Let's say both of you are going to get similar benefits. Both of you will get a bonus at the end of the year for maybe call it 5000 just to throw out some round numbers. So at the end of the day, you're going to get 75,000 each, plus all your benefits. But then Blake says to David, you know, the firm I'm going to is BDO and they have an Esop. And you know what happens there at BDO. They give an allocation on an annual basis of 10% of my compensation. So that's 75,000. I'm going to get an additional 7500 for free. They're not taking anything away. It's exactly on top of everything. So David next time we go out I'll buy you lunch because you chose the wrong firm. So what happens is in 1974, the Employee Retirement Income Security Act was issued, ERISA. And the basically was the start of Esops. And what it says is these allocations, you get an allocation account. So, Blake, you would have an allocation account at BDO doesn't take anything away from your salary or bonus or your 401 (K) match that this is all on top.
Wayne Berson: [00:17:06] It's all on top okay. And you can pick a number that you want to contribute into this. We chose 10%, so you'll get 7500 dollars this year. Every stock in stock within the it's it's called an Esop allocation an account. It's not stock like you'd think you're buying 100 shares of Apple. It's the value of you get dollars and those dollars get calculated at the end of the year based on a valuation of the firm. So the firm equates, you know, you value it out and you get the price per share within the firm. Each of the people within the allocation account has a certain amount of shares based on those dollars. So you put the you take the the value per share, put it into however many dollars in your allocation account equates to a certain amount of shares. So it's called a beneficial interest in the earnings of the firm. It's not a something like a pure interest that one would think, but it's the same for the partners. We're also dealing with a beneficial interest. So what happens is you get your your 7500 and the IRS caps the compensation at 330 to have some equality. I mean, the whole point of this act was to create an evenness and equalization of wealth.
Blake Oliver: [00:18:49] And could I ask you a question? There is, is, is that 10% allocation? Is that taxable to me?
Wayne Berson: [00:18:56] When you take the money out.
Blake Oliver: [00:18:58] Okay, but if don't touch it. If I just leave it in there. Keep my interest in. I don't pay tax yet.
Wayne Berson: [00:19:04] Yeah, it's like an like an IRA. Okay.
David Leary: [00:19:07] And when we say when I take it out, is this, like, tied to, like, I can only access it at the end when I leave my turn? Can I let's say Blake wants to, you know, he works there three years. He wants to pull some money out to buy a house. Is there a marketplace? Like, is there a way to for him to pull money out of the Esop?
Wayne Berson: [00:19:23] Yeah, that's a great question because this is the beauty of the Esop. Remember I told you about the the staff turnover in our profession. Like when people people come people go. So the vesting for your 10% in year one, you vest over six years. After year one you're at zero. After year two you're at 20%. Year three is 40, 60, 80. So so when you hit the second year. But then let's just say you didn't get an increase and you're still at the same number. So now you'd have 15,000 in your account, but you're only 20% vested. So if you decide to leave, you get a check from BDO for $3,000. And this is the beauty of an Esop, that 12,000 of yours. Goes to everyone else in the firm. It spread out across the firm. So all the people, whenever someone leaves you just became richer.
Blake Oliver: [00:20:32] If somebody doesn't stay for six years.
Wayne Berson: [00:20:34] If they don't stay for six years, that's that's what happens.
Blake Oliver: [00:20:39] So which is good for everyone else in the firm who does stay because we want colleagues who stick around.
David Leary: [00:20:46] Colleagues that really try to burn people through.
Wayne Berson: [00:20:49] But then when you see, like David was saying, if you want to buy a house after three years, so after three years you'd be 40% vested, all that happens is you just you go through your normal business of saying, I'm going to resign. And you you'd say, when you're going to leave, the firm has a I believe we pay out at the end. At the end of the year, we value the firm and then anyone that leaves gets paid soon after that in terms of whatever their number is.
David Leary: [00:21:22] So Blake would have to leave the firm, get a withdrawal.
Wayne Berson: [00:21:25] I thought you said he wanted to leave and build a house.
David Leary: [00:21:28] Oh, no. He just wants to buy a house. Like, can he still be an employee and still get some money?
Wayne Berson: [00:21:32] All right. Okay. Sorry. I thought you were talking about leaving. No, he doesn't have to leave. But, um, you can take loans against your account, but you're not able to. It's not something that's tradable. You can't say I'm going to cash in on this. Got it.
Blake Oliver: [00:21:51] But can take a loan against my Esop the way I could take a loan against, like, a life insurance 401 (K) or 401 (K). Okay. Got it. All right. And so that actually works.
Wayne Berson: [00:22:02] I mean, it works really, really well, but why it's so well liked is by by the companies like by a BDO is the tax benefits of an Esop are huge. So when we start paying back this debt. The principal and the interest is tax deductible in full. Almost in full. I mean, there's a little bit that's not when we make a distribution into all of our Esop allocation accounts that is also tax deductible. So what happens is at the end of the day, the likelihood of a company that's an Esop paying tax at the company level is pretty remote. I mean, the individuals will play in their own right, but not not the company.
Blake Oliver: [00:22:58] Now, going back to this example, I'm making 75,000 at BDO. I get. 7500in my Esop allocation account after year one. Yes, let's say six years later, I'm fully vested and the firm has. Let's just say doubled in size. Is, is that money now worth twice as much? Do I now have 15,000 from year one?
Wayne Berson: [00:23:24] Well you're going to have you're going to get that 10% in all six years. So you're going to get each of those six years at 10%. So let's just say you stayed at the same salary and you got seven and a half each year for the six years. So you're around about like 45,000. And now we value it and it's gone and it's doubled. Yeah. Then it's worth 90,000. And then you decide to leave. You get 90,000. But all of this in a typical environment. Think about it. When people leave, what are you getting from the company? When you leave, you can get your 401 (K) to roll over into something else.
Blake Oliver: [00:24:06] Maybe some PTO.
Wayne Berson: [00:24:08] Yeah. That's it. Yeah. So and we still have that.
Blake Oliver: [00:24:12] Are you still so you still have the PTO accrual. So I still get that too. All right. Yeah. Yeah I mean I could see like I'm just putting myself into the shoes of a young accountant, I could see hey, I've got an incentive here now to stick around for at least six years instead of jumping out after 2 or 3.
Wayne Berson: [00:24:27] So typically what happens in our, in our profession is you got to really touch points where it's really a flash point in terms of leaving. It's about 2 to 3 years. Yeah, because people have done it for a few years and they say, well, I'm not sure I want to do this. This is not so interesting. I want to try something else. And then it's at about five, six years when maybe some people have started a family and they're looking for different, different schedule that they want to work and they leave then. And normally at that stage, you know, they're leaving the profession now after five, six years. You may think twice about it because in year seven. When you get that 10%, it's 100% vested from year seven onwards. So you don't have to wait six years for that. That's great. So. So all of a sudden, one year later you got another 7500. So and so it adds up. Especially if the firm's winning. And so so what happens is based on all the research we've done on Esops is that the three of us would say, why do we need to have that conference in Vegas or somewhere else where it's going to cost us a lot of money? Why don't we just save it, save the money and do it remote or virtual and everything else? They start thinking with an owner's mentality, right?
Blake Oliver: [00:26:04] So because I'm benefiting in the growth of the firm, the money, the profits of the firm go into the go into that.
Wayne Berson: [00:26:12] Right. Because you were working it out on on EBITDA. So, so you know, they're looking at the earnings before interest, tax, depreciation and amortization. That's what that's the key metric. What is your EBITDA. That's the number that we're working towards. So trying to be the most profitable that's how are we going to value the firm.
Blake Oliver: [00:26:35] You're saying that? Ebitda. Ebitda is how we calculate the firm valuation at the end of the year.
Wayne Berson: [00:26:40] Yeah. That's one of the components. Yeah. Yeah. And we have a we work with an independent trustee that because we have to have independence in working with the, with the firm to make it's got to be legit. So we do that and they engage a firm to do a valuation. It's not doing the valuation. It's them doing the valuation. And and that's how you come up with the numbers on an annual basis.
David Leary: [00:27:11] So Blake is working his way up. But he has vested interest along the way. It keeps him engaged. He's loyal to BDO. He's solving a shared vision shared goals I in the meantime at the other firm hoping maybe if I stay there long enough I might be able to get become a partner or cash in one day. But there's nothing in between.
Wayne Berson: [00:27:31] Right? That's pretty much. That's pretty much how we had it was you put in your time to become a partner and down the road, you know, maybe ten, 12 years later you'll become a partner with us. We still have a partner level, our shareholders, our principals. There's still that level. But from year one, you really are an owner of sorts already. So even though you may not be at the partner level, the highest level where you are, you know, signing audit reports or tax returns and so on, you still are earning something. You're getting a share in the profits of the firm. So David, in your situation, you're putting your time in, you're investing. And what would happen at the end, let's say you make partner at that firm after 12 years. They'll say, okay, we're going to give you x percent interest in the firm and it's going to cost you half $1 million to buy into the firm. In our situation, there's no buy in. You're in from day one. Everyone's in and it's just the classification of what level you're working at that you move to over time. You put your time in, you move to the next level, put more time in, go to the next level. And ultimately you're at the at the partner level, but you're still not having to put any money in because you're an owner yourself.
Blake Oliver: [00:29:15] So okay, help me understand this better. So I'm a manager, senior manager and a director, right. And then I'm voted in like how do I become a partner at BDO? How is it different than firm A?
Wayne Berson: [00:29:28] Okay. So how you become a partner without the economics. Without the economics is exactly the same. You would have to be recommended to the to the to management that you need to be a partner. Every year we make partners. We just announced our class. We became an Esop at the end of August and. January 1st. We have a class of 70 new partners. They don't have to pay in. Whereas a David's firm, they'd have to pay in something in our situation. They wouldn't pay in. So what would happen is you get certain options. So it's like a public company where there's options based on the value of the shares. So now you've got your salary, you've got your bonus, you've got your 401 K. This is Blake. Not you yet David. Um.
David Leary: [00:30:27] And I'm trying to scrounge up a half million dollars.
Blake Oliver: [00:30:31] I'm still buying. I'm still buying you drinks.
Wayne Berson: [00:30:34] Yes. And you've got an Esop allocation account of X. Now, we throw in the options on top of this and say, okay, you're going to become a partner and we're going to give you. A few hundred options. Whatever number, however, we work it out. Those options are like additional shares and get valued on an annual basis as well. So now you have an even further incentive to stay at the firm so you can cash in your options. And that's when you go out for drinks with David and you say to David, look, you're just being clueless. You need to give me your resume and I'll speak to someone at BDO and we'll get you in here. And you can also share in this.
Blake Oliver: [00:31:25] And so when I'm a partner now, I have options that I can take it. I can purchase those options at the latest valued price.
Wayne Berson: [00:31:35] Yeah. So what happens is the options would be there's a strike price for the options. And then they get valued on an annual basis. And that's where you could cash in on some of those options before leaving. Not on the other stuff first but the options you you could.
Blake Oliver: [00:31:55] And then when I leave, let's say as a partner, I decide I want to leave. And a lot of firms guess in the traditional model, if you leave before retirement, you lose a lot. Yes. Right. You lose, you lose, you lose everything you've built up. But here I could exercise my. Can I exercise my options? Yes. And then. And then I get the equity I've built up and I can cash out.
Wayne Berson: [00:32:20] But the options will have the same vesting period as, like the allocation account. So let's just say you've stayed five years. Six years. Yeah. Then you you get paid out on leaving.
Blake Oliver: [00:32:32] So maybe, you know stays 12 years I make partner I stay six years I vested then I, then I can leave and I can take everything with me basically.
Wayne Berson: [00:32:42] Correct. Okay.
Blake Oliver: [00:32:43] Yeah, that sounds much simpler. It sounds like a much better deal for me as an employee.
Wayne Berson: [00:32:47] Yeah, well, think about it. When you, you try to make partner. And what I've always said all along since I started as CEO was we were a firm of, you know, today we're 12,000 people. But when I started as CEO, we were just under 3000. But everyone has a job to do. Every person plays a role. Whether you're an auditor, you're in advisory, you're an administrative person. Everyone has a role to play, and everyone should benefit as well, not just the partners. And this sees to it that people that contribute and spend their time at the firm get the benefit. Why should the three of us? Because we're a partner and we spend 20 years. We can make a lot of money out of this when we leave. And someone who is on the administrative side, not going to reach the partner level gets nothing when they leave. Yeah, now. They can get a lot of money as well.
Blake Oliver: [00:34:01] And it makes BDO competitive with technology companies. I got drawn away. I was a manager at a top 25 firm. I got pulled out of there by a tech company that offered me stock options. Yeah. So if there had been an Esop at this firm, I might have been encouraged to stay.
Wayne Berson: [00:34:20] So what happens is, you know, our profession is sometimes a bit slow on the uptake. So it takes a while for people to realize what the tech companies and everyone else were doing and why they were succeeding so much. And that's all we're trying to do. We're just trying to do the exact same to create opportunities for everyone. The only downside would be if we did not perform right.
Blake Oliver: [00:34:50] And because everybody. But I mean, that makes sense because the employees are now they now have an ownership stake in the company. So if the company doesn't do well, that value is going to decrease.
Wayne Berson: [00:35:03] Absolutely.
David Leary: [00:35:05] And you can't be attracting higher quality candidates. You'll be stealing them from other firms. But just also other industries now like it really puts makes you more competitive as an employer across the board.
Wayne Berson: [00:35:16] And also what happens because of the tremendous tax benefits that I spoke about earlier that gives free cash flow in terms of reinvesting in quality, reinvesting in our firm, in our methodology, in the software, around what we use to provide services to clients, making us state of the art in what we're doing because we have that additional benefit. Whereas in a partnership structure, we wouldn't have been able to do all of that because of the tax situation. So now we're able to do this in a lot easier way.
Blake Oliver: [00:35:55] So if it's all right with you, Wayne, I'd like to go back to the very first question that David asked, which is the why do this now? And to summarize, it sounds like the reason is because we have this talent crisis in our profession. You've got to decrease turnover. You've got to attract people into BDO. That's a big reason to do this. Let's talk about that talent crisis. We talk a lot on our show about the 150 hour rule to become a CPA. We talk a lot about the cost of that additional year of education. What are your thoughts on this? What do you think that we should be doing as a profession to address the gap when it comes specifically to the education requirements?
Wayne Berson: [00:36:35] It is a tough situation. I think it's and it's really. You know, you got to look at the CPA as it's long been a gold standard. You have a CPA. It means something. It says you've gone through a certain level of education, which is why they put in the 150 hours in in the first place. You know, it's a demanding exam. Not a lot of people pass pass the exam. So it's an exclusive club that gets through. So looking at it now, I would say I would not have gone for this 150 hour plan. But now that we're in this plan, it's not that easy to get out of the plan. So I think, you know, like we're seeing a lot of states that are suing and trying to get out of this, but there are a lot of benefits as well, of what the CPA license gives you today in terms of mobility. So I'm sitting in Maryland and I'm I've got a client in California. I can do that. Otherwise I'd need a license in California. And this is right right around. But looking at the dwindling pipeline, you got to look at the reasons why this is happening. And a lot of people are pointing to the cost of that extra fifth year. And that's that is the ultimate dilemma, because just like I told you earlier about us going to India and doing work in India, why would America want to, you know, ship people off to another country or, or employ people in another country versus employing people? Yeah, we all agree we should employ the people here, but they aren't here.
Wayne Berson: [00:38:34] They're just they are not enough people. So you have no choice but to to do this. I'm on the board of the center for Audit Quality. The center for Audit Quality, the CAQ was formed back in 2002 at the time of the Sarbanes-Oxley act, when Sarbanes-Oxley came out. That was with the Arthur Andersen crisis at Enron and so on. And the CAQ has a board that's made up of the eight CEOs from the eight national firms, the CEO of the AICPA and three public interest board members, one of whom now is the former SEC chair, Mary Schapiro. So we're a board of 12, and we look at this. How do we improve the profession? How do we how do we change the disparity that exists in wealth? And that's what the Esop gets to as well, is creating something to help us equalize the wealth creation. That disparity, the CAQ found, exists in many of the less fortunate students, the undergrad students that cannot afford to do that fifth year today. So they have to then leave and they don't become a CPA, so they opt out. The CAQ is locked into design programs and get to work with other organizations to help create opportunities. Maybe it's an internship, maybe it's a it's some other training that you can do while studying.
Wayne Berson: [00:40:28] You can start working at a CPA firm already and then get credit for. Whatever time you do that fifth year. So instead of staying on campus for a fifth year, spending all that money, maybe you can do something else. That is something that is being looked at at the moment. Um, there are lots of opportunities there that you can look at, and I think we will see more people. But I think when you come back to the less fortunate demographics, it's something that we have to look at and address as a way to alter that. And if you look at the. Hbcus, the historically black colleges and universities. There are about 125in America, and not many of them have business schools. So it also creates a bit of a problem in trying to do that, but is encouraging the firms, the members of the CAQ are the firms, and what they're doing is encouraging the firms to go talk at these universities, go talk at high schools, because really at high school is where it all starts and try and work with someone, mentor someone, be a role model for someone. Help them. Whether it's study groups for the CPA exam, exam prep, a lot of the firms do this. They put groups together. But you got to find those population groups that are not getting into public accounting and then say, why. So, you know, a black a the black population only accounts for.
Blake Oliver: [00:42:15] It's like 1% of CPAs.
Wayne Berson: [00:42:16] Yeah. And that's.
Blake Oliver: [00:42:18] It's way under.
Wayne Berson: [00:42:19] Because they never had role models. Their parents weren't CPAs. They didn't see their parents doing something like that. And that's something we have to step back, take note of, and work with them in order to give them opportunities as well.
Blake Oliver: [00:42:42] So setting aside mobility, let's say that we could solve the mobility issues. Would you support a pathway that allows for 120 semester hours and two years of experience?
Wayne Berson: [00:42:53] Yeah, I think that's something that could could be done if you if you're able to do it. But you have the people that are in now that that crisis, I think you're all going to have to step back again to go forward. And that's what a lot of the firms are saying. That's what they want to do. They want to be able to go back. I don't think it's all bad, the 150. But if we take your arguments and mobility is going to be okay everywhere.
Blake Oliver: [00:43:26] Yeah. Let's just say national leadership gets together and come up with a plan to solve mobility. And all the states agree, you know. Yeah, I know it sounds like a lot of work, but you know, we've we've seen a lot of movement on the CPA exam window very quickly going from 18 months to 30 months. If they can do that at the national level, then like, like nurses, for instance, during Covid, the nursing profession very quickly and rapidly adapted by states passing laws to allow nurses with licenses in other states to practice across borders very easily. And now nursing mobility is like really good. It's national.
Wayne Berson: [00:44:07] And I think that's something that could easily be addressed. Now. I came from South Africa 35 years ago to America in South Africa to become a chartered accountant. So when I came here, there was no reciprocity. So I did take a CPA exam all over again. But in order to become a chartered accountant, you have to do three years of practical work at a CPA firm. That's what I would like to see with the CPA exam is do the practical work. So if you had to do four years, you do your four year degree and then you go work at a firm for even if it's one year and that's your fifth year. That should be sufficient in my mind.
Blake Oliver: [00:44:56] Yeah, it makes sense to me. Every I talk to, I ask this question. I say, what's more valuable in your mind? An extra year of education or an extra year of work experience?
Wayne Berson: [00:45:05] There you go.
Blake Oliver: [00:45:07] That's so work experience, right?
Wayne Berson: [00:45:09] I could I could easily support that. And I've argued that already. I think it makes you a better accountant as well. Yeah.
Blake Oliver: [00:45:20] My feeling about the education is just that it's so theoretical and hardly practical at all. Most of what I learned that I use day to day, I learned on the job. I didn't learn it in school. I'm not saying the theory isn't important, but, you know, I'd. I barely remember what I learned in advanced accounting. Honestly, it's it's so hard to remember any of that when you don't do it.
Wayne Berson: [00:45:44] I'm with you. Even when you do it. It's not that easy. No, it's.
Blake Oliver: [00:45:48] I'm. Don't ever put me in charge of a consolidation, Wayne. I don't think my education prepared me.
Wayne Berson: [00:45:54] But that, you know, that's the the thing that the CPA exam and the CPA has done a good job of with Nesbitt changing the direction of the CPA exam. So let's say you want to you don't want to do auditing, you don't want to do tax, but you want to deal with data analytics. You want to get into something more like AI or something along those lines. They've changed the exam where now you can have you still have to do certain parts of it, but you don't have to study like government accounting where you do fund accounting. If you're not going to go into that field, why should you have to study that? And now you can study something like that. And and that has created a lot of people coming in who are CPAs now who can't do auditing. They can't do tax, but they can do analytics. And that's I think will create some more excitement in the profession. And once we got that excitement, more people are going to follow and get into that as well. Well.
Blake Oliver: [00:46:59] David, you have any more questions for Wayne before we let him go?
David Leary: [00:47:01] No, I was just going to thank him for coming on. I feel like, you know, there's a brewery here I go to in Tucson and, you know, it's employee owned and they can say like, you know, employee owned on the cans. And I'm just thinking, like, if I go into a Publix, I'm always now from this point forward, being like, this is just like, oh, this is how the employee owned like this stamp you're going to build to put across every financial statement. It's it's going to be very interesting story to watch. And congratulations, because I think most people think this is just for smaller companies. And arguably when I was researching and preparing for this, I discovered lots of firms that offer Esop services to clients. Yeah, but they don't actually do it for their own firm. So it's it's congratulations, I guess, on the courage to even do this.
Wayne Berson: [00:47:46] Thank you.
Blake Oliver: [00:47:47] Thank you. Actually, maybe we can end with that question, which is do you have any advice for firms that are thinking about doing an Esop? Wayne? Like, what would you tell me if I'm a firm owner thinking about doing this?
Wayne Berson: [00:47:59] So I've gotten so many calls from firm leaders, firms smaller than us, and even some that are bigger than us, and they're not a lot bigger. Asking how we did it, how did we go about it? It's fascinating. And one CEO told me that he actually spoke to his executive team, and he was really upset about it. Why didn't you tell me? And now I've got to have one of our competitors showing us up. Um, I would say think outside of the box. And it's almost like Einstein's definition of insanity trying to do the same thing over and over again. Right. And that's what a lot of the firms, including BDO was doing. And why didn't it work? And and actually looking in the mirror and saying, okay, maybe there is a different way to go about it. I would tell a firm that and I believe firmly we will see some esops probably before the end of the year or soon thereafter. And then it's I think it'll start mushrooming because at the end of the day, an Esop can get you what private equity can get you. And you keep your firm. Yeah. You don't give.
Blake Oliver: [00:49:19] Up that control.
Wayne Berson: [00:49:20] Yeah. I would say to someone, model it out and we'd be happy to talk to anyone that needs help with this. It's just work through it, model it out. See where you could be in 20, 30, 40, 50 years in your projections for your firm and see if it's profitable. See if it makes sense. Then you speak to a bank, and then you start going down that road and you get some strategic advisor to help you along the way. But I think it's being able to think differently, and that will help you attract people as well.
Blake Oliver: [00:49:56] Wayne, thank you so much for your time. David and I have been talking with Wayne Bersin, CEO of BDO USA, really eager to follow BDO in the years to come. And I mean, if you just do another five x on on growth in another ten years, it's going to be a totally different profession. We might have to it's not going to be the big four anymore. So yeah, that'll be exciting. I'll feel like an old man then when it's no longer, you know, like that when that change happens, I feel like a generational change. Me too. No long. No longer the big five or big six. Maybe we can make it go back up. We can increase that number again.
Wayne Berson: [00:50:37] All right.
Blake Oliver: [00:50:38] Thanks. Thank you. Talk to you soon.
Wayne Berson: [00:50:40] Thanks for having me.
Blake Oliver: [00:50:44] Thanks for listening. I hope you enjoyed this episode and that you learned something new. And if you did, wouldn't it be nice to get some CPE credit for it? Well, I've got great news. My new app, earmarked CPE offers free Naspa approved CPE credits for listening to podcasts, including this one. Visit earmark Cpcomm to download the app, take a short quiz, and get your CPE certificate. That's earmark Cpcomm.