Creating a More Effective Corporate Structure for Professional Partnerships
In our article entitled “Unique Challenges of Developing Strategic Plans for Professional Partnerships” we discussed the difficulties that they way that professional firms are structured causes when developing and implementing business strategy and implementing business plans for professional partnerships.
This main issue is that in partnerships the ownership, management and service provision roles tend to overlap which means that the partners have to wear may hats, not all of which fit very well! I have experience of both working in these types of firm, as well as working with then to develop strategic plans and have seen first hand the problems that this type of company structure causes.
The problems are intensified when there are a large number of partners as there are simply too many decision markers involved in the process, making it inefficient and difficult to make any serious decisions, including strategic decisions relating to the future direction that the firm should take.
In addition partners are given roles that they have absolutely no skills or experience in. A common example of this is in the Marketing role where many firms put a partner in charge of the marketing function even though they have no marketing training. Similar situations exist with IT, HR and the normal functions that one would see in a traditional board of directors.
In recent years there has been a change in this attitude with many professional partnerships employing ‘Directors’ with skills in these specialised fields. The problem is, however, that they tend to be director in name only and their decision-making power is limited since a partner remains on overall charge of the function.
If we look at this dispassionately, other than the legal structure of the firm, a partnership is not really any different to a normal business if you substitute the word shareholder for partner. That is effectively what a partner is – they own a proportion of the business and take the profits our as remuneration rather than dividends as would be the case in a traditional business structure.
Can you imagine what would happen if a load of shareholders turned up at a business demanding a seat on the board! They would be shown the door pretty quickly! So why to most partnerships, especially in the professional services sector, continue to operate in a structure that would simply not be tolerated in a traditional business? If you ask partners they would be able to give you plenty of reasons, many of which would seem legitimate, some may even have some legal implications, but mostly they would relate to the need to feel in control and perhaps a bit of ego.
The question, therefore, is not is there a better way? There is most definitely a better way. The real question is would the partners in the firm would have the foresight and courage to agree to implement it?
Having worked in and with various professional services firms, including partnerships, I have seen first had what works and what does not. Partnerships where there are a small number of partners (2 or 3) supported by experts in the specialist fields needed to run the business (e.g. IT, Finance, Marketing) work very well as decisions can be made quickly and are able to be implemented by people who know what they are doing. I have also worked with partnerships with over 25 partners and even though they have a CEO, chairman and are supported by specialists they still suffer from slow decision making and, more importantly, from a strategic perspective, they lack focus and direction.
In my opinion, partnerships that have a large number of partners should adopt a more traditional structure for their business. Partners should be seen as shareholders who happen to work in the business but should not be responsible for day to day running of the business or for creating and implementing the strategic plans. That should be left to a board of directors who have the necessary expertise and experience required to successfully run a business. It can be useful to have one or two partners on the board to represent the interests of rest of the partners.
In partnerships that operate in the professional services sector this model is especially effective as it allows the partners to focus on what they are good at – dealing with clients and delivering services to those clients.
I realise that in some types of business professional bodies dictate how their members should structure their business but this should not be seen as a deterrent or used as an excuse not to implement the structure that is best for the firm. There are always ways to create a proper company structure while fulfilling and professional or other regulations.
If you are a partner in a firm that is ‘top heavy’ think about what is best for the firm as a whole and not just for you as an individual. Remember if the firm performs better then you will reap the rewards while being able to concentrate on the work that you are good at. It is a win-win-won situation for everyone involved.