Paving the Way for the Next Generation of Tax Professionals

Tony Santiago of TaxSearch Inc. discusses how the tax profession is changing and offers advice on developing future tax leaders.

For additional coverage, read Santiago's articles in Tax Notes:

• Addressing the Upcoming Tax Leadership Shortfall
• Prepare for the Biggest Tax Leadership Turnover Ever
• How an EY Split-Off Could Affect the U.S. Tax Profession
• Top Seven Reasons a Future Tax Leader Should Work in the Office

Follow us on Twitter:

• David Stewart: @TaxStew
• Tax Notes: @TaxNotes

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This episode is sponsored by the University of California Irvine School of Law Graduate Tax Program. For more information, visit law.uci.edu/gradtax.

This episode is sponsored by Practising Law Institute. For more information, visit pli.edu/taxplanning23.

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Credits
Host: David D. Stewart
Executive Producers: Jasper B. Smith, Paige Jones
Showrunner and Audio Engineer: Jordan Parrish
Guest Relations: Alexis Hart

Transcript

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David D. Stewart: Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: changing of the guard.

The tax field is in a period of transition. A significant number of older practitioners are heading into retirement, and their roles will need to be filled with new members of the profession.

This week, we're taking a look at how the tax field is changing and what skills younger professionals will need as they advance in their careers. Here to talk more about this is Tax Notes State Editor in Chief Jéanne Rauch-Zender.

Jéanne, welcome back to the podcast.

Jéanne Rauch-Zender: It's great to be back, Dave.

David D. Stewart: Now, I understand you recently spoke with someone about this. Could you tell us about your guest?

Jéanne Rauch-Zender: Yes, I was thrilled to welcome my columnist Tony Santiago, founder and president of TaxSearch.

David D. Stewart: What did you talk about?

Jéanne Rauch-Zender: We discussed preparing for what will be the largest tax leadership turnover in our nation's history, Dave.

David D. Stewart: All right, let's go to that interview.

Jéanne Rauch-Zender: Welcome to the podcast, Tony. It's wonderful to have you back.

Tony Santiago: It's a pleasure. I'm looking forward to it.

Jéanne Rauch-Zender: Me too. We've been working together for a little over a year. Why don't we start with you explaining the purpose behind your column, Tax Pulse?

Tony Santiago: Yeah, it's a great question. I wasn't really planning to do this. But really, once I was reached out to and started thinking about it, I think it was [the] perfect time last year to really start to put some focus on nontax technical issues.

I think you and other organizations do a phenomenal job there, but [in] the tax profession, and especially at the leadership level, there's a tremendous lack of focus on the nontax technical implications, especially at a time when so many issues are impacting the leadership.

I thought it would be a great time to really start to raise these and get more deeper thought on the whole issue revolving around, "How do you lead tax functions in this day and age?" That was the premise of it.

Jéanne Rauch-Zender: I couldn't agree more, Tony, and that is exactly why I reached out to you. I really believe that these nontax yet critical issues really impact how we are running our tax departments and how best to move forward in times of change and struggle.

We launched your column with a five-part series examining the major factors affecting the hiring and retention of tax professionals. How should we use these factors as a guide to help plan for the foreseeable challenges facing recruitment, development, and retention in our industry?

Tony Santiago: I think the biggest thing I've been trying to communicate to my clients directly and through these articles is these should be used as an educational opportunity with your financial leadership and your HR leadership teams. They need to understand what is going on in tax that is, in some ways, quite different than other professional areas they might have responsibilities for, including what the CFO owns outside of tax.

Tax has some unique attributes, like the captive labor pool. The U.S. tax codes are so different. You cannot really move tax offshore effectively at the more senior level, nor bring in talent from outside, where it's more of an indirect tax focus.

The tool I try to explain to people is what we put out should be discussed with financial leadership, as well as HR leadership. A lot of my clients have been very happy about the opportunity to have some piece coming out like these, like we are doing here, to really educate their leadership team. They've had great results with it from what I've heard.

Jéanne Rauch-Zender: Absolutely. The guidance is, I'm sure, very helpful. Now, in several of your articles, you discussed preparing for the biggest tax leadership turnover ever. The statistics you compile indicate that more than two-thirds of all baby boomer heads of tax and No. 2s reporting to them will retire from full-time work in the next four years.

Please dig into this with me. Are we entering the perfect storm as the available pool of qualified tax professionals grows smaller and widespread departures continue to create salary inflation?

Tony Santiago: Yeah, it's a tremendous problem. I hate to use the word "perfect" because in any staffing business, that's a no-no. There are no perfect candidates, no perfect career opportunities, but it is an extremely unique situation. We've never experienced this type of exiting of our leadership team over a short period of time. It's combined with, quite frankly, even a larger demand being put on the tax profession with the spinoffs of these major companies. They create additional head count demand requirements.

We're also dealing with the issues revolving around the public accounting firms that we'll talk about in a little bit, I'm sure, as well: their deconsolidation and splitting up in their own right. We count on them for staffing so much of our profession here in the United States.

The accounting firms and the law firms, it's over 85 percent, close to 90 percent, of all tax professions come into the profession through those vehicles. That will change when they do start to deconsolidate themselves and split up, and that is going to be a ramification as well that we have to deal with.

Jéanne Rauch-Zender: Wow, alarming, alarming numbers. I cannot wait to catch up on the EY (Ernst & Young) split. But before we get there, you mentioned that navigating the changing of the guard requires strategies that focus on communication, development, compensation, and flexibility.

You urge the need to quickly identify and retain top millennial and Generation Z talent because of the future of success that the profession relies in part on getting them up to speed as quickly as possible. Will it be difficult to identify top talent, and how best should we navigate retaining this talent?

Tony Santiago: Identification would seemingly sound easy, but it's not. It's the reason we are in business. It takes a certain level of expertise and knowledge to really align the individual talent in the market to the specific role you have in mind. But generally speaking, I tell everybody, it requires an IQ and an EQ analysis. We have a lot of very smart, technical people in tax. It's a very complex field, as we all know.

The ideal candidate profile brings both the hard skills on the technical side and what some people would call softer skills. The irony is the higher you move up the ladder in leadership, the softer skills become the more critical skills, which is sometimes difficult for a technical person to accept, but it is the reality.

You're looking for people that have the ability to move up the ranks, both from a technical, but later on the pivot will be to more of the nontechnical, skill sets: their communication skills, their ability to identify talent themselves, the ability to develop and mentor talent, the ability to work with both technical and nontechnical leaders in the cross-functional groups and at the business level. Their influencing skills become essential, which will change more and more as we move forward with technology, taking some of the analytical components, the calculations of what we do, and making it simpler.

But the people skills, the ability to influence at the audit controversy side of the fence and then, on the other side of the spectrum, at the lobbying government affairs side, become even more important. You're looking for that ability, that potential talent, and then they need to be developed. That really puts emphasis on progressive mind-sets towards, "How do I get this person to be in a position to lead a subfunction in the department and eventually potentially a complete department?" Some of these people will move out of tax and move into financial roles and CFO roles. This is already happening as they broaden tax responsibilities more and more and more.

Leadership has recognized talented leaders in tax have more potential to do other things, and that's really exciting, but it also puts more emphasis on this ability for leaders currently now to help develop these people to be broader financial executives potentially as well.

Jéanne Rauch-Zender: Tony, are you able to provide the skill sets that the top 20 percent of these candidates tend to have?

Tony Santiago: Yes. Number one, they're extremely intellectually curious. They ask a lot of questions. The candidates I speak to that really get my attention, they're intellectually wanting to dive a layer or two deeper to know what the objectives are of a job and what the responsibilities are, but what are the deliverables, and what will they need to do to get this outstanding evaluation that everybody seeks? What does that client expect of them specifically? They have that element right off the bat.

They also are absolutely willing to do the extra 10 percent that most people are not. They'll go the extra mile to research a company before they go to interview. They will go out there and bring back data and information and questions to me. I can tell that's how they operate. They do not let themselves go in unprepared. They are not in positions where they're selling themselves. They're going in and always evaluating the pros and cons and looking for whether or not they're [an] extremely good fit for this role and whether that opportunity is an extremely good fit for what they're looking for. They just tend to really have a more analytical approach to the interviewing processes.

You can tell, when I do the reference checks, there's consistently this emphasis on collaboration, team skills that they express all the time in their job day in and day out, and also, again, reinforces the burning desire to want to learn to get better. They ask the whys more than the average candidate tends to do. They hold themselves highly accountable. They normally do not point the fingers at other people when a project's gone off the rails. When I ask for an example of that, they talk about how it went off the rails, and they immediately point to the issues that they had and how they learned from it, as opposed to covering things up.

These are some of the things I look for and I think most hiring authorities should be looking for to evaluate, but I would call the nontax technical skill sets. They are so critical going forward.

Jéanne Rauch-Zender: These are the individuals that are driving that salary inflation?

Tony Santiago: Yes. Everybody wants the balance of IQ and EQ, somebody who's willing to put the extra time in. That's especially something most baby boomers feel the younger generations of the millennials and the Gen Z and the very young Gen Xers even possibly lack some of. They look for these things. They're self-aware. They hold responsibility. They put the extra effort in. They want to know the why. They want to understand so they can figure it out.

They have great critical thinking skills. They're in high demand, and unfortunately, we haven't developed enough of these people yet. We can catch up. There's a big enough pool, but leadership has to put more time and effort into mentoring and developing these people to bring out those who have the fundamental skills.

Jéanne Rauch-Zender: I think that lends itself nicely into your next article that actually will be appearing shortly. It is the first of a two-part series that considers the significant changes U.S. tax executives have faced over the last 50 years.

You provide an inside perspective on the demands of corporate tax leadership and the challenges ahead by interviewing Tim McDonald, retired vice president of global tax at Procter & Gamble. What do young tax leaders need to do to build, develop, and retain their teams?

Tony Santiago: Yeah, I really enjoyed talking with Tim. He and I go back decades. He's a great example of being a 20 percenter at an early age. We recognized that we put him in the right roles. He was developed properly, mentored properly, and listened to early in his career by those who helped him get to where he got in his position at Procter & Gamble. And that's what the younger leaders need to do.

It's so important that you understand your staff, especially those that you think are your high performers. Take the time to get to know them and what they want to do in their careers. It is that listening skill that I see lacking in quite a few tax leaders.

In a lot of ways, after two or three conversations, people at our team know those candidates' career aspirations, goals, and what they're looking for at a much more in-depth level than the leaders that have been managing them for many years. That should not be the case.

Tax leaders are technical by nature — they're overworked, but they must make time to do this side of the job and do it right, to be frank. It is time-consuming, but it is necessary. I think once you understand your key staff members' goals and aspirations, your job is to help them achieve that, whether it's at that organization or if it has to be at a different organization, that's fine.

But ideally, you can accommodate it at your own organization, and you should build a plan together to make that happen. This requires a mentoring mind-set, and that's something, again, that A players have. They love to mentor and develop and watch people grow. Not A tax technical members, but A leaders. If we are a leader and an A player leader, you love to watch people develop and grow, and you love to be part of that.

Jéanne Rauch-Zender: Absolutely. I think mentoring is critical, or being a mentor. I will say, I do think it's extremely important that the matchup be appropriate and beneficial for the mentee.

Tony Santiago: We review things as a mutually beneficial situation, and we approach it that way. We have a box for the needs and the wants of the client company, the needs and the wants for the individual. Each party has something to offer the other. We actually compare and contrast those and make a very candid conversation with the candidate and the hiring authority early on to determine if we have a mutual match here. And that should carry over from that point forward in this relationship.

We have a lot of succession planning situations going on right now where candidates are being hired with the intent that if all things work out, if they perform, everything goes as situated, they could easily be in a position to step up into leadership roles.

The successful ones have a lot of communication about this. They are transparent. There's a game plan of what skill sets and relationships need to be developed in the organization so that when that time frame comes, it's a natural decision. The ones that don't work well, they lack in communication. They lack in clarity, a plan to make this happen.

It's just a wish. It's not truly a committed goal and plan for both together. And that's the difference. I think if you want to retain key people, you need to have clarity of communication and expectations. Time frames are very important of when these things might occur. It is not everybody's cup of tea. Sometimes the hiring authorities do not want to give that clarity. They're not sure when they want to retire, and it muddies up the water dramatically for all parties involved.

Jéanne Rauch-Zender: Absolutely, absolutely. Would you care to provide a quick summary of part two?

Tony Santiago: Well, Tim is going to expand upon some of the things. I'm going to set a little bit of an intrigue frame here. I think you're going to find some of the advanced things that Tim did to get him where he's at and what he believes needs to be done for these younger leaders going forward. I think there'll be some critical elements around some of the skill sets I've talked about before: one's influencing skills, one's ability to communicate up to the board in the audit committee.

I think you'll see some of those examples being brought out, which I think are invaluable and, again, a reinforcement on how important it is to develop and have plans of development for your staff to increase retention rates and to build credibility and trust with your financial leadership and your HR leadership as well so that you can be the advocate for your key staff members, so that you can get them the compensation the market demands, so that you can move them into roles that will help them reach their goals and objectives. He's going to add some nice little color to this, and I think it will be an excellent next part of the series here.

Jéanne Rauch-Zender: Before I let you go, we really have to get into the EY split. In September of 2022 Ernst & Young announced its intent to split its audit and consulting functions into two separate entities. This move, internally referred to as Project Everest, is expected to be approved by EY partners worldwide this year.

In November of last year, you analyzed EY's plan to split, as well as how the split may affect the flow of talent and the U.S. tax profession. From your perspective, what's prompted the EY split, and will it motivate its rivals to do the same (although I have read of their intent to maintain their current structures)?

Tony Santiago: Ernst & Young, clearly — I actually had communication with a number of their key global partners after I put that article out. As you can imagine, they wanted to talk. We had a few nice conversations, and they reinforced the point that the regulatory environment was, in their minds, the No. 1 issue. Clearly, they felt like their ability to develop the services their clients needed and demanded was completely being stymied by the regulatory pressures coming both in the United States as well as globally.

The No. 2 reason was, quite honestly, the inability to provide those additional services due to the independence rules. They had opportunities to service clients and produce obviously more larger increases in their revenues that were being stymied by the handcuffs that are being put on them by the SEC and other regulatory environments.

There were obviously other benefits. Some of the more senior partners that were in the firm would be able to increase their takeout of the firm if they did do the split. There was revenue generation for them. It would free up the test group to obviously develop its growth on a different strategy without the consulting conflicts as well. It's a win-win in their mind [for] both sides.

That was what motivated them, I think, at the end of the day. There was some financial pressures there, and regulatory. I think those two things combined pushed it over the fence for them. I do fully expect that to pass. They've already hired their new CFO from a major company already. They were out there aggressively recruiting on all the positions, including their head of tax role for the consulting group. There's going to be a ton of unknowns when this happens, of how many new head counts this is going to create, as the test group is now going to have to staff up a fully functional tax function.

Whereas prior to that, they were able to tap into the tax professionals on the consulting side on an as-needed basis, not annually incurring their costs and to get it at a quite considerable discount from internal pricing. If they have to go to the external market, especially in the current market we're in, they're going to pay a lot more, and they're going to have to pay that year-round. That's going to be a real pressure there. I know the consulting group is already talking about increasing head count because they anticipate that [they'll] take on more work. They're going to need more tax professionals.

As to the other firms, yes, they deny it, but we all know PricewaterhouseCoopers set up their tax function many years ago, probably three or four years ago, to be positioned for this. You'll also see them going out on aggressive technology acquisitions for their consulting groups. It has been relentless, one after the other. That totally lends itself towards the concept of them splitting up as well. I don't see if Ernst & Young does this and they're successful how they cannot do it because they're going to be limiting their market share by the regulatory pressure that Ernst now has been alleviated from.

They're going to be at a disadvantage on getting new business, and some of their clients are going to go to Ernst one way or the other if they're not careful. It's almost impossible for PwC and Deloitte not to do it.
KPMG might be a different story. I don't know if their consulting practice is strong enough to be spun out on its own after they sold BearingPoint. That will be an interesting one.

This will have major implications on the tax profession because we depend on them to hire and staff so many of our junior people, and they would give them back to us under the guise that, wink wink, we would use their services and give them preferential treatment for that.

I don't know as the consulting side will be the biggest employer of tax professionals by far, as opposed to the audit side, and it will be the more interesting side of the fence for most tax professionals. I think that's where the gravitational pull will go. But they will be the hardest one to compete with. Now every corporate tax department will be competing with the tax consulting groups that will be publicly traded, which will also give them equity to use in the negotiations. This is a first ever.

If all three go, it will have a dramatic impact on the pipeline for tax talent coming out the ranks and the cost to get that talent going forward. There's a lot of other issues too. Those are the big ones that I think we have to keep our eye on.

Jéanne Rauch-Zender: Absolutely. Now, is this why you think it's critical that we begin to really focus on building your employment brand so that you can compete for tax talent?

Tony Santiago: I think it adds to it. We already had the problem. We already had a shortage before this. We know that accounting graduate enrollments have been in a decline for quite a while. We have a problem. We have more complexity in work in the tax systems than we have people.

Certainly pillar 2 isn't going to make that any less of a challenge. The technology platforms are still a way off to really reduce the head count dramatically. It's starting to, but it's not there yet. I mean, most of my clients are still wrestling with the global ERP [enterprise resource planning] platforms that are out there, whether they can be dovetailed or upgraded to get ready for the tax stack on top of it.

There's longer-term relief. But in the short run, next five to six years, I think it's going to be extremely challenging, and I do think that you as a tax leader must build a brand. I was just on the phone with one of the top tax leaders, in my opinion. She is outstanding about building a culture and building an internal and external brand for our select, invitation-only symposia group that we have for tax leaders. That group is going to actually get exposed to a two-session program on that because we think it's just so important going forward.

Jéanne Rauch-Zender: What would you like to see? When you, say, build your employment brand, what would you like to see these top firms do?

Tony Santiago: The tax leaders at the corporations need to have a track record of developing talent, whether it moves in the organization or out. To give you an example, when we were rebuilding Tyco Industries, John Evard was the chief tax officer. He was recruited and hired to help rebuild it. Out of the first 20 people we recruited, we went after people who were natural leaders, who were technically extremely smart. They were agile. They were willing to work not the extra 10 percent but the extra 20 or 30 percent. Trust me.

Out of the first 20 people we hired, we developed 12 of those people into global chief tax officers of Fortune 500 companies. That is unheard of, but that is what we need going forward. We need people like John Evard had in his vision to take that message and invest time building these people. The industry needs it. The profession needs it. The economy needs it. That's what I would wish for.

Jéanne Rauch-Zender: It all circles back to leadership, today's leaders and our future leaders, essentially, preparing for the future, which is what I love about your column is that it addresses the issues today but in a broader perspective. It allows for people to make improvements that you will see down the road as well.

Tony Santiago: Exactly. Invest for the future. The dividends will be short-term for you as well. You'll get the payback in the short run. But in the long run, each tax leader should have a commitment in their hearts to develop future tax leaders beyond themselves.

Jéanne Rauch-Zender: Excellent. Well, Tony, this has been so much fun. I want to do it again. We'll have to catch up on Tim's part two. I'm sure that as we continue to work together, more issues will develop that you will shine the light on. It's always a pleasure working with you.

Tony Santiago: Please. Thank you for the platform to be able to get this message out to so many tax leaders and financial leaders and HR leaders. It's a pleasure working with you and your organization. I truly appreciate it.

David D. Stewart: And now, coming attractions. Each week we highlight new and interesting commentary in our magazines. Joining me now is Executive Editor for Commentary Jasper Smith. Jasper, what will you have for us?

Jasper B. Smith: Thanks, Dave. In Tax Notes Federal, Anne Duke and Ellen Best explain how qualified charitable distributions can benefit taxpayers who take the standard deduction. Robert Kovacev examines the IRS's use of algorithms and artificial intelligence, arguing that automation bias must be reduced to protect taxpayers and tax administration.

In Tax Notes State, the latest installment of Raising the Bar advocates that states adopt a corporate alternative minimum tax, countering that conformity raises various constitutional and policy issues. Julianne Jones and Li Wang examine ways that tax provisions could be improved to make college education more affordable.

In Tax Notes International, Lewis Greenwald and Eric Reitveld examine ways consolidated groups reduce their income inclusions, and they review finalized regulations that would treat members of those groups as a single U.S. shareholder in certain cases. Four Deloitte India practitioners evaluate relevant tax proposals announced in India's 2023-2024 budget and analyzed how the proposals could affect multinational enterprises.

In Featured Analysis, Nana Ama Sarfo reviews comments to the OECD's public consultation on pillar 1's provisions on digital services taxes and notes the differing opinions on what will be most destabilizing to the international tax system.

And finally, on the Opinions page, Robert Goulder and Jefferson VanderWolk discuss the problems with the OECD's pillar 2 UTPR, sometimes called the undertaxed profits rule. Nana Ama Sarfo questions the wisdom of Japan's creative efforts to encourage young adults to drink more alcohol and pay more alcohol tax.

David D. Stewart: That's it for this week. You can follow me online @TaxStew, that's S-T-E-W, and be sure to follow @TaxNotes for all things tax. If you have any comments, questions, or suggestions for a future episode, you can email us at podcast@taxanalysts.org. And as always, if you like what we're doing here, please leave a rating or a review wherever you download this podcast. We'll be back next week with another episode of Tax Notes Talk.