The Diamond Org Chart Is a Succession Problem in Disguise
What happens when a firm stops turning managers into partners?
That's the real question hiding behind the "diamond" org chart everyone in accounting firm management is suddenly talking about.
In a recent piece for CPA Practice Advisor, Luke Frye, CPA and Accountant in Residence at Canopy, argues AI is cutting the traditional firm pyramid into a diamond. A smaller entry-level layer. A fat middle of managers who review what the staff using AI produce. A small layer of partners at the top doing strategic advisory work.
We picked this apart on Episode 500 of The Accounting Podcast with guest co-hosts Adam Zaki (CFO.com) and Adrienne Gonzalez (Going Concern.)
The more we looked at it, the more it didn’t add up.
The setup
Most versions of the diamond chart assume roughly equal numbers of people at the staff and manager levels.
That only holds if nobody leaves the firm.
In a normal firm, people quit, get poached, or burn out. If you shrink the entry-level base and still expect the middle to stay just as fat, you need something to keep refilling it.
A shrinking base can't refill an equal-sized middle forever. That's the math problem.
The rebuttal
A commenter on our podcast livestream had a smart answer to this. Firms don't actually need to hold onto every person to make the math work. They just need to stop promoting managers.
People still enter each stage. People still leave each stage. The firm just stops advancing them upward.
Keep someone at manager for 12 years instead of 5, and the middle of the diamond stays fat without the firm needing anything close to 100% retention.
That fixes the arithmetic. But creates an even bigger problem.
The cost
If a firm stops making partners, why would people stick around?
Managers already have options. Recruiters actively target experienced staff, and AI only makes that talent more portable.
Ask someone to stay at the manager level indefinitely while their skills get more valuable outside the firm, and you shouldn't be surprised when they leave.
But the bigger issue is succession.
Why this matters
The traditional partnership model dies because the partners at the top retire, and nobody underneath them is ready to take over.
That's what happens when a firm stops promoting people through the pipeline that used to produce its next generation of partners.
Once you break that pipeline, a firm's succession plan is selling to private equity.
This is why I think we've been looking at PE roll-ups the wrong way.
Private equity isn't the root cause of what's happening to CPA firms. It's the symptom.
PE shows up because firms broke their own succession pipeline first, whether they meant to or not. A firm that can't promote its way to a next generation of leaders doesn't have many options left when the founding partners want out.
The diamond chart looks like a forward-looking response to AI. Underneath it, for many firms, it's the last few years of a slow-motion decision to sell rather than pass the firm on.
What to watch for
If your firm is talking about a diamond structure, ask what's happening to the promotion timeline for managers. Ask who's being groomed to eventually run the place.
If the honest answer is "nobody, we're just going to keep good people at manager longer," that's not a staffing strategy.
That's a firm already on a path to being acquired - it just hasn't announced it yet.
