John D. Abernathy, III, CPA, has been Chairman and Chief Executive Partner of BDO Seidman since 1983. He will complete his second and final term in june 1990. Prior to this position of CEO, he was at various times Managing Partner of his firms's New York Office, National Director of Accounting and Auditing, and Managing Partner of the High Point, NC, Office.

Mr. Abernathy has been very much involved with the profession having served as a member of Council of the AICPA and its Board of Directors. He recently completed his term as Chairman of the AICPA SEC Practice Section Executive Committee and serves on the Financial Accounting Standards Advisory Council. He is also active in charitable and cultural organizations and has received many awards in recognition of his efforts.

The editors of The CPA journal conducted an interview with Mr. Abernathy recently to get his views on the events occurring both within his firm and elsewhere during his leadership of BDO Seidman. Our appreciation goes to Mr. Abernathy for participating in the interview, and our very best wishes to him as he continues in important positions at BDO Seidman and its international counterpart, BDO Binder.

The CPA Journal: Your second and final term as Chairman and Chief Executive Partner of a major accounting firm ends next june. In effect, John, you were BDO Seidman's CEO of the 1980s, a period of major change in the accounting profession and for your firm. What were some of the significant changes that impacted the profession during those years?

John Abernathy: The first thing that comes to mind is that managers of CPA firms began to pay more attention to the business aspects of operating an accounting practice. Specifically, I can think of several areas where firms have had to do a better job in this competitive climate:

* First would be the area of marketing. Belonging to a luncheon club, playing golf with the right people, participating in cultural and community-based organizations is no longer enough. Now a CPA firm needs a formal, focused marketing strategy. By this I don't mean to suggest that most firms are heavily into advertising. I'm referring to the use of a public relations firm or the development of an in-house PR staff to let clients know what you do well.

* Second is the emergence of real strategic planning. One of the first things I did as Chairman was to oversee the development of a strategic plan, the fruits of which are still being borne today. All large firms are doing it, and I think that all practice units need to do it, as well. It works.

* Third, especially for the smaller firms, there is the need for more effective recruiting of professionals. I believe that medium and small sized firms often hired "whoever walked in the door." That's changing and must continue to change. We must get away from thinking that the good candidates want only the very largest firms. They want a long and potentially rewarding career, and clearly that can be found outside the mega-firms.

* Fourth is the need for better organization. A partnership is not a confederation of individuals doing their own thing. Tasks that will benefit the firm need to be assigned, and special skills and talent must be used to their fullest. At BDO Seidman we have a formal organization chart at suitable operating levels designed to fix responsibility, with enough flexibility to respond quickly and effectively to client needs.

* Fifth is the area of human resource management. Following the recommendations of personnel experts, we counsel our people, we have a formal evaluation program, and we have created opportunities for flexible scheduling and temporary leaves of absence.

* Finally, the CPA practitioner at every level must engage in cash flow management. With the competitive pressure on fees, a firm can ill afford to have collections of fees extend for any prolonged period.

CPAJ: Where else have you seen dramatic change during your leadership?

JA: There has been a tremendous expansion of the scope of services we offer clients. This is a client driven development. As surveys show, the CPA is highly respected in the business community, and, as a result, when there is something important to attend to, clients and businesses ask their CPA to help. I can think of five areas where our scope of services has expanded, and this by no means is exhaustive. Expansion has occurred in personal financial planning, risk management, litigation support, corporate finance, and appraisal services. To show how we respond to client demands I mention the insurance crisis. We began offering risk management services when insurance costs were going through the roof and clients cried out for help. As another example, when our clients told us their transactions, mergers and borrowing needs were below levels that would interest the large brokerage houses, we created our corporate finance group to help. You can see on my bookshelf the "tombstones" in the plastic cubes representing the successful mergers with which we have recently been involved.

During my Chairmanship there as been an expansion of management consulting. Human resource management, manufacturing methodologies, information technology and executive recruiting have all grown at rapid rates.

Another place where there has been dramatic change has been in continuing professional education. With so many states requiring minimum levels of CPE, a whole industry of training specialists has emerged, many of whom are CPAs.

And finally, no discussion of the last eight or 10 years would be complete without mentioning peer review, and now quality review.

CPAJ. Regarding quality review, the AICPA will be marshalling many of its highly qualified people and will be using the significant resources of state societies to pull this off. Will it be worth it?

JA: I believe it will benefit all, both the reviewed and the reviewer, and it will create additional consumer confidence in the profession. As in the past, additional confidence should lead to additional services that the CPA can provide.

CPAJ. Much has happened in the profession. Now let's turn to what's been happening at BDO Seidman. How has your firm fared?

JA: In 1983 our domestic revenues were approximately $63 million. Today they are at the $200 million level.

CPAJ. So your strategic plan paid off.

JA: Yes it has. Moreover, out of the strategic planning process came our client service program. Under this program each client service team, in a free-wheeling brain storming session, decides how the client can best be served, where the client is headed and how we can help in achievement of its goals. As part of this process we also analyze where the client is contributing to our profitability goals, and how, through better service, we can move that client up through our client classification system to become a "STAR. " Here, let me show you our chart See Figure 1 . It's based on the old Boston Management Group approach, with a few modifications. Clients are placed on the chart based on their profit contribution and their potential. The lower left is the spot where we place clients where our fees are clearly inadequate to compensate us for our work and the energy we spend in serving them. Through better client service and demonstrating value-added results, we hope to move them up and to the right.

CPAJ. Thank you, our readers will certainly find this of interest at all levels. What do you see for the future?

JA; Change will continue at an increasing rate. A most important change will be about people. The demographers say that the percentage of the total work force below the age of 25 will decline substantially. The traditional pyramid staffing pattern represented both workload and staffing complements. Now while the workload continues as a pyramid (no one is reducing accounting or tax rules) the staffing complement is now in the shape of a house. Let me show you See Figure 2. The corners of the pyramid that will be empty because of fewer entry level staff will have to be compensated through technology, computers, the use of artificial intelligence, and the employment of para-professionals. Retention will also continue to be a problem in the senior ranks. The young person, with perhaps a young child and seeking to buy a home, will still be lured into industry for the $5,000 to $10,000 more in salary. Flexible work schedules, parenting programs, and the like will play an increasing role in human resource management. And I see continued expansion of and changes in the services we provide clients.

CPAJ: Can you be more specific?

JA: The technology compensating for fewer numbers of entrants into the profession will include artificial intelligence, networking of computers, interactive software, and telecommunications. The use of technology will become more structured, with entry of information into a computer leading to a prescribed or programmed conclusion and course of action. Greater flexibility in work schedules will be required. And breaks in service for maternity or other reasons will be commonplace, with the employee or partner being able to resume work without detriment.

Firms will continue the trend of acquiring specialty consulting businesses to add to their services. Personal financial planning, litigation support, and other non-attest services will be pursued aggressively. We will also begin to see the effects of the agreement with the FTC on commissions and contingent fees. While I am opposed to CPAs receiving commissions, I do believe there is a place for contingent fees in very specific situations.

CPAJ. Will it be more fun?

JA: It has always been fun for me and there is no reason for this not to continue. Working as a team, either in a client situation or otherwise that attempts to solve common problems is very stimulating. We must continue to maintain an environment where people can work hard, make mistakes, rebound and ultimately achieve their potential. It can be a lot of fun, and rewarding in many ways.

CPAJ. No discussion about changes in the recent past and what's in store for the future in the profession can occur without the subject of mega-firms. What can we expect?

JA: In my opinion, the mega-mergers have and will continue to create profound and fundamental changes to the profession. The differences between those firms and the second tier will be accentuated. These recent actions clearly indicate the commitment of the megas to the top 2000 international business entities. Special and intense service will be given to the largest, most profitable clients. However, there may well be a deterioration of service to clients below that level because of the disparity in fees. The big clients will pay the big fees, and the best people will want to work on them. The future is less assured for staff working on the smaller client, which ironically often takes a broader base of knowledge, with the smaller fee.

CPAJ: That sounds like windows of opportunity will be created for you and the rest of the profession.

JA : Yes, there certainly will. Opportunities will abound to serve the kind of client that is the mainstay of our practice. While the recently merged megas digest the effects and significant costs of combining, we and others will be able to show our expertise and commitment to middle market businesses.

CPAJ: There seems to be a thinning of the second tier firms as they combine or may combine in the future. Do you think there will be an ascendancy of regional or other firms to the national scene to replace the merged firms and take advantage of the marketing opportunity?

JA: There is no present indication that this will happen. If you look at the large firms beyond the top 14 or 15, you see high quality regional firms who dominate a location or have carved out a niche where the very large firms do not have a significant presence. It would be difficult, in my opinion, for those regional firms to come to the major markets with any force or impact. Time will tell, of course.

CPAJ: Are there fundamental structural differences between the megas and other firms?

JA: Absolutely. In a word or two, it is "Tall versus Flat." In order to operate the mega-firms a taller management structure is required with added layers of supervision. The tougher and more important the technical issue, the more layers that have to be consulted. Getting to all the right people within a client's time frame is no easy feat. And immediately following a merger, those who are to give the "OK" will be leery when dealing with people from the other" firm until they get to know them. Staff and partners can become discouraged as the tall structure slows their ability to do their job. Clients can become unhappy when a former decision maker must consult with so many before committing the firm.

In the flat organization it is easier to get answers. Everyone knows who to go to, and answers come quickly.

CPAJ: Are there economies of scale?

JA: Not at the mega-firm level. At BDO Seidman we believe we have economies of scale. But certainly there will be added costs arising from the mega-mergers as facilities are consolidated and a standard approach to providing services is developed and implemented.

CPAJ: What are the real reasons for mergers? Is it the stated reasons, or the desire for prestige and power on the part of those in control?

JA: For each of the mergers, the stated reasons differ, and yet, based on my analysis, seem to make sound business sense-up to a point. Questions do come to mind. Does the huge cost of combining, in economic and human resource terms, justiy the better coverage in this or that part of the world or the "opening of the door" for consulting services to Fortune 1000 companies? Certainly, there is no clear evidence that clients are clamoring for the mergers.

CPAJ: Now I would like to turn to other pressing issues. I will identify the issues and seek your initial reaction. First, what do you think of the 150 Hour Education Requirement.

JA: It's long over due. The explosion of the body of knowledge during my career is mind boggling. Add to that the technological improvements, and the fact that Johnny and Susie still can't read or write any better than at the time I entered the profession. The 150 Hour Requirement will better prepare those entering the profession. It will add to the cost of our business, but it will be worth it.

CPAJ: Expectation gap SASS. Some observers are not all that thrilled try them. Some clearly are improvements, others, such as SAS 55 on the control structure, have in the opinion of some, created a monster, which at best is presently being gripped at the tail by most practitioners. What is your view?

JA: We have turned this development into a marketing opportunity. We have had seminars and other educational sessions to explain the new SASS, which have proven to be very helpful. They have truly demonstrated the profession's commitment and sense of purpose to be responsive to our critics.

CPAJ: Self-regulation?

JA: We have come a long way. Peer review has been very positive, and by the time you publish this, I expect the vote on mandatory SECPS membership for auditors of SEC reporting companies will be in the affirmative.

CPAJ: Do you think the SEC will back off from its thoughts of regulating SEC auditors if the vote is in the affirmative?

JA: Yes, I do. Although there are new people at the controls of the SEC, I'm optimistic the Commission will withdraw from this arena.

CPAJ. Accounting principles standard setting?

JA: I am not in favor of detailed standards, but believe in setting standards in the form of broad concepts. Writing standards in great detail results in the need for more detail. SFAS 87 on pensions has led to an exposure draft on accounting for post-retirement benefits which no one seems to like. It snowballs.

CPAJ. Can this trend be reversed?

JA: Only if those impacted, including your readers and the many users of financial statements, make their views known. An outspoken player in the game of applying the standards will, when joined with many others, make an impact.

CPAJ: Will the use of OCBOA in the preparation of financial statements provide relief from the standards overload?

JA: We must distinguish between accounting principles of display and of measurement. Right now, there is some recognition of simplified display and disclosure requirements based on size and ownership. We need more of this. I am not opposed to the simplification of measurement standards, again, based on size and ownership. However, there needs to be specific guidance for this, from a standard setting body. So rather than an expanded use of "other comprehensive basis of accounting," I favor adjusting GAAP itself to reflect the size and ownership of the business entities to which they apply.

CPAJ: Ownership of CPA firms?

JA: I'm all for permitting the practice of public accounting in a limited liability form. In my view, non-CPAs could be owners. However, the entity should be controlled by CPAs, and all owners would have to be active in the business.

CPAJ. Progress of women in the profession. Why don't we have more women partners in large CPA firms?

JA: I expect the number of female partners will increase at an accelerating rate. Although half the entrants into the profession are now women, it will take 40 years from the beginning of that development until half the partners are women. However, we will still have to make it easier for the woman who wishes to take time out to have a family to pursue and attain the partnership goal. It will happen.

CPAJ: john, thank you for devoting your time to this interview, and especially for your thoughtful and insightful comments.