Staffing woes: the 404 talent war.

The word on the street is "Hold onto your staff any way you can. Employees are being lured away with promises of greener pastures, which translate into workplace flexibility and money. Sounds like an old story, but there's a new twist: Section 404, Sarbanes-Oxley's guidance for managing internal controls, is fueling the fire.

"The war for talent is heating up," says Leslie Murphy, managing partner--client services, Plante & Moran, a regional firm in Southfield, Michigan. "Our professionals are being heavily recruited and receive numerous calls from headhunters seeking experienced CPAs. The ante on referral bonuses has increased as much as $7,000 at some firms." Murphy says that Sarbanes-Oxley, especially the extra requirements imposed by section 404, has put a tremendous talent pressure on CPA firms that audit public companies. In fact some of these firms are turning away business and letting go of smaller public clients, increasing opportunities for firms of all sizes. This new demand, however, is causing an immediate staffing shortage. "The phenomenon is a double-edged sword," she says. The opportunities for public accounting firms are endless as long as you hold onto your staff.

"Rule 404 is a huge human resources concern for public companies and their auditors," agrees Chuck Landes, AICPA director of audit and attest services. "From the senior to the manager level, experienced CPAs are needed to document and test internal control systems as rule 404 becomes effective."

Companies need extra CPAs to implement and manage section 404's guidance over internal controls, and CPA firms need to adequately staff their client engagements. The result is a Rubik's Cube effect on staffing, with companies hiring people away from CPA firms and firms hiring away from one another. Local, regional and national firms are actively recruiting to handle the extra compliance work and staff new business. William E. Balhoff, audit and consulting director at Postlethwaite & Netterville, in Baton Rouge, Louisiana, notes that "Rule 404 has given more work to our profession with the same number of staff to go around."

Adding to the crisis, says Lauren Malensek, chief human resources officer of the regional firm Clifton Gunderson (CG) in Peoria, Illinois, is the fact that the baby boomer generation is getting ready to retire. Experts such as Bruce Tulgan, author of Generational Shift: What We Saw at the Workplace Revolution, predict a shortage of workers. By 2006, Tulgan estimates, two experienced workers will leave the workforce for every new worker who enters it.

Attracting and retaining qualified staff is not a new concern for firms. In fact it has been their top management concern for several years, but keeping that talent trained, motivated and inspired is another matter altogether. Skimming the surface of employees' needs on an ad hoc basis might not be the best approach. In a PCPS survey of top talent conducted in 2000, 88% of respondents called respect for work/life issues the no. 1 reason they stayed with their firms. This statistic can be validated from the number of public accounting firm success stories (as well as those in the corporate arena) generated through flexible scheduling programs and creating opportunities for staff to participate in leadership development and mentoring programs.

Firms of all sizes are experiencing section 404 staffing woes: "We are always looking for good people. We are able to find new five-year graduates with strong GPAs from good schools--but finding people with three or four years of experience is very tough," says managing partner Robert Harris of Harris, Cotherman & Associates, a firm of 15 professionals in Veto Beach, Florida. "Everyone wants to do tax and litigation consulting. Finding people who want to be auditors is very difficult--even though rule 404 is not an issue for us." Harris says there is no silver bullet; you simply need to keep looking.

Firms increasingly are implementing strategies to retain staff. At CG this begins during the recruiting process. "We are getting prepared for the crisis--gearing up for the shortage of talent," says Malensek. The firm has deployed human resources professionals to its 54 offices around the country to facilitate training and retention of professional staff. That training includes everything that falls under career development, such as "career pathing," career planning and mentoring. "Management uses the predictive index, a proprietary management tool developed for personality profiling, during the recruiting and hiring process." The index has helped CG identify what motivates people--"their work styles, self-confidence and how they relate to each other," says Malensek--and has been beneficial in team building, training assessment, retention, and promotion and leadership assessment. Krista M. Kaland, partner in charge of Priority One--a plan to improve recruitment, retention and advancement of women--says CG has cut employee turnover in half. Kaland expresses satisfaction with the firm's global use of the predictive index saying "management of CG is not alone in the positive response. Staff members are happy because they're able to apply and focus their passions in areas they enjoy."

Section 404's challenges already have strained resources and affect all firms to varying degrees, even those practices that do not serve public companies. As it presents opportunities for practice growth and expansion, it also puts demands on firms to attract and keep the best professionals.

BARBARA VIGILANTE is manager of work/life and women's initiatives at the AICPA. Her e-mail address is [e-mail]. Ms. Vigilante is an employee of the AICPA and her views, as expressed above, do not reflect the views of the Institute. Official positions are determined through certain specific committee procedures, due process and deliberation.