Traditional partnership model being tossed aside

The way most professional services firms are organized is the partnership, which more often than not is based on the premise that the people who bring in the most business earn the biggest cut of the take. Some firms have begun to question the wisdom of this model, and are moving to an organization that splits up the income evenly amongst all partners.

Is this good for growth? In what dimensions is growth measured? Revenue or profit? Client satisfaction? Is revenue growth a proxy for a satisfied client base? What about other goals like developing and retaining top talent?

A recent survey conducted by Grant Thornton of mid-size professional services firms inquired about the two opposing partnership models as well as value pricing, which is another idea finally seeing the light of day.

Mr. Moore says there are storm clouds on the horizon and firms that don’t address the changing environment risk failing.

One of those clouds is the focus on an eat-what-you-kill business model. It promotes stars and rainmakers, those who bring in the bulk of business, who are tight with clients at the expense of the health of the overall business.

I don’t see a problem with promoting stars, and neither should firms that want to grow and prosper. Bringing in business is good on all levels of the firm, from the lowliest junior staff to the managing partner, and there’s no reason why firms should stop encouraging this.

Mr. Moore says more law firms need to adopt a team-based model that stresses firm-client relationships over individual-partners relationships and which deploy alternative billing schemes.

I think we’re already doing this on some levels. Clients build working relationships with the lead partner but also the tax partner and other concurring partners brought in for their specialized skills. Senior managers and managers are increasingly being brought in right from the beginning, and even senior staff if they have certain special skills.

I’m not against the main premise of the article — the so-called “eat-what-you-kill” model attracts a certain type of person and promotes a certain type of culture. And an organization that is essentially the opposite will affect the opposite. It will foster greater teamwork as it attracts those more inclined to lean on their teammates.

But I’m not convinced that those are the firms that will outlast the other ones just yet. Nor am I sure whether I would prefer at this point in my career or later on to work at one of them.

5 replies on “Traditional partnership model being tossed aside”

  1. Reading this article reminded me of a book “Final Accounting”

    http://www.amazon.com/Final-Accounting-Ambition-Arthur-Andersen/dp/0767913825

    The book is about the final days of Arthur Anderson. The author, who worked at AA, talks about some of the dysfunctional practices she saw and how they lead to AA’s downfall. One of the practices is called the “fee f*ck”. This involved playing internal politics to get credit for a new client and the billings they brought in. There were a lot of ugly and wasteful internecine struggles whenever the person who got the client worked in a different office than the staff who actually worked on the engagement.

    Anyway, the lesson of this is you need to be careful how the eat-what-you-kill compensation model is structured. You need to ensure that it is reasonably fair to the rainmaker as well as the staff who actually serve the client. I think a firm also need some sort of quick and efficient dispute-resolution mechanism to prevent squabbles over fees.

  2. As I recall, it wasn’t the “fee f*ck” issue specifically that caused AA’s problems with Enron (and thus the end of AA). But a firm with a problem like this is likely out of control. I think the author was trying to make the point that if it had not been the Enron affair that lead to AA’s downfall, it would have been something else. This is in contrast to another theory that AA was simply unlucky to be Enron’s auditor – i.e. it could have happened to any other of remaining Big 4 firms.

  3. AA was not unlucky to be Enron’s auditors. They were there by natural selection . It was natural for them to be selected, grow, and prosper with that client because the aggressive, success-at- any-cost culture was compatible. It didn’t hurt that there were enormous egos on both sides and mutual benefits from meeting each others needs. However, that’s where all the firms are the same. Even now, doing more business is their sole measure of success rather than serving the clients interests within the context of being an ethical “professional” above all else.

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