Fortress equity or successful succession?

Posted on: November 24, 2008

Succession is one of those persistent and serious problems in the professions but, with the inevitable staff cuts that are taking place as a result of the economic turmoil, is one that has temporarily been forgotten. But it is sure to emerge again in an even bigger and uglier version in the not too distant future.

Nearly all partnerships are based on a model that requires the development of younger fee-earners up through the ranks and into equity. How sad then that so many firms fail miserably at this task.

There was a time when partners really were owner-managers and regarded their time in equity as a kind of stewardship – a temporary position in their careers where their role was to ensure that they passed on the firm in good shape to the next generation of equity partners while they earned a good living. Sadly, most equity partners these days adopt a rather short term view of things. Which leads to tension with the salaried partners and sometimes the tragic loss of tomorrow’s leaders.

The founders of many small firms have managed to build successful practices by the sheer force of their willpower (or personality) and lead those firms well for many years. But then find that those very characteristics that enabled them to grow their firms, were the same characteristics that scared the next generation of leaders away.

I have observed that many firms have older partners who simply can’t or won’t share their clients. Sometimes this is because they fear that they will not be able to replace the lost income attributed to themselves and feel vulnerable to their fellow equity partners. I like the way the accountancy firms deal with this – each equity partner allocates some of their clients to new partners so that each new partner has a few inherited “legacy” clients on which to cut their partner teeth.

Some partners are so busy serving their long standing clients that they have no time to recruit, develop and nurture the next generation of equity partners. Or to generate new clients and new work. And some partners have clients and work that simply cannot be allocated to less senior people – which the level of fee-earners below finds frustrating as they often lack interesting and challenging work, or sometimes any work at all. These partners need to embrace business and client development techniques to grow a client base that is transferable – but rarely do.

But the biggest sin is the lack of transparency and communication. Yes, I agree that there is always an element of subjectivity in deciding who should join the equity ranks. But there are also a number of requirements that should be articulated so that those aspiring to equity know exactly what they need to achieve in terms of fee generation, new client development, nurturing of younger team members, contribution to the general management of the firm and, well, good firm “citizenship”.

And then some partnerships fail to have an open and honest chat with those that they believe will make it into equity – which means that sometimes the best people give up hope and move away. Why maintain the guessing game – Everyone loses.

But I have seen some great ways to overcome the equity candidate vacuum:

* Giving non equity partners a management portfolio – like assigning them to oversee the technology, recruitment, training or marketing within a firm
* Allowing some non equity partners access to the financial information – and providing expert help in enabling them to interpret that information for themselves
* Having a rotating, non-voting member of junior ranks attend certain partner meetings on a regular basis to give them insight into the way the firm runs
* A “shadow” management committee where non partners are asked to tackle key management issues and report into the real management committee
* Allocating the role of “departmental manager” to a non partner to support the equity partner head of department
* Setting up strategic projects where salaried partners and senior fee-earners take the lead under the watchful eye of an equity partner
* Encouraging non partners to prepare and present papers on critical new business or management issues to the board
* Coaching programmes where external advisers provide focused support and/or training to potential or new salaried partners to help them make the transition
* Mentoring programmes where equity partners take responsibility for guiding and helping prospective equity partners

And it should be remembered that with generational differences, not all new professionals see equity as the ultimate goal – so you need to explore the particular aspirations of those that you really want to retain and find flexible ways to accommodate them. Some firms offer sabatticals or financial support for studying (MBAs are quite popular), some find overseas placements so that international experience can be obtained and some organise secondments in client organisations. These are all win-win situations.

Some firms have successfully introduced a dual career path – for those with great technical or other skills but who don’t want equity but need to have access to more senior status and/or financial rewards. And some allow non equity partners to take a leading role in the day to day management of the firm if their skills and ambitions lean that way.

One of the saddest aspects of the “veil of equity secrecy” is that in these troubled times, I have seen the sacrifices that many equity partners have made for their firms. Yet they fail to communicate this to the rest of the firm from some misplaced sense of pride. I really think that better communication in these difficult times would do a lot to help break down the equity-no equity divide.

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