Twenty years ago, partnership was the pre-eminent form of governance in most major professional sectors. In the 1980s, it began to decline in sectors such as accounting, consulting and investment banking to the extent that almost 50 of the top 100 accounting firms are now organised as privately-held or publicly-quoted corporations. So far, law firms have been slow to follow their lead, but in the
Does this decline in the partnership form of governance matter? Should we care? The answer is, unambiguously, yes.
Partnership and professionalism have been inextricably linked for as long as professionals have worked together. The danger is that in abandoning one of these concepts professionals risk jeopardising the other. Commentators have suggested that the trend towards incorporation will lead to directive top-down management and a loss of autonomy for professionals and that a single-minded focus on profit combined with an absence of collective responsibility will result in lower ethical standards.
For the past few years I have studied partnerships and corporations in a variety of professional sectors, seeking to understand the distinctive characteristics of partnership, why it is so well suited to the management of professionals, what exactly is threatening its survival and how it should adapt in today’s changing world. My research has revealed that it is fundamentally important to distinguish between partnership as a legal form and partnership as a state of mind. Essentially, partnership is an ethos — a shared set of beliefs and behaviours that define a community — and managers can do a great deal to ensure that it survives and thrives.
Indeed, my research has revealed that it is possible that even publicly-quoted corporations can embody the most meaningful and valuable aspects of the partnership ethos while avoiding the legal trappings of partnership. But it is not easy. For the process to be effective, professionals and their managers must be committed to the partnership ethos and work actively to create and sustain it.
The partnership ethos reconciles the tension between individualism and collectivism. However, the precise manner in which it does so will vary from firm to firm.
In some law firm partnerships, the balance may be tipped towards individualism — partners are free to pursue their personal priorities, whether it is income maximisation or self-actualisation. In other law firm partnerships, the balance may be tipped towards the interests of the collective (i.e. the firm). Senior management will have a clear mandate from the partners to manage the firm on their behalf for their common financial gain.
It is important for lawyers to understand what the partnership ethos means within their own particular firm and the implications this has for all those within the firm as well as their clients.
While the partnership ethos can meld a disparate group of senior lawyers into a collective entity, it can also exclude, and potentially alienate, all those outside the partnership. Do salaried partners, for example, feel included or excluded from the partnership? Do junior professionals understand the partnership ethos and do they aspire to be partners? Are high-quality senior professional managers relegated to the status of second-class citizens? Are junior support staff expected to tolerate extreme and inappropriate behaviours from partners who view themselves as owners of the firm? Is the partnership ethos visible to and valued by clients and potential recruits?
By addressing these questions carefully, lawyers can develop a clearer understanding of what partnership means to the key stakeholders. With this foundation of understanding in place, the next step is to understand how the systems, structures and socialisation processes can be managed to ensure that the most valued aspects of the partnership ethos evolve — to survive and thrive in a changing world.
The socialisation processes encompass the myriad formal and informal ways in which lawyers are taught what it means to be a partner, how they should behave within the firm and what they should believe. They are very difficult to change. The formal processes may be redesigned, of course, but they are arguably less powerful than the subtle signals sent out by individuals, that are so ingrained in their behaviour that they would struggle to articulate them.
This represents a potentially serious block to change more generally. By socialising and selecting individuals to join the elite company of partners, a partnership risks becoming a self-perpetuating collection of clones. We humans are hardwired to be drawn to people who are like us and to distrust people who are different. In contemporary law firms this is no longer an adequate or appropriate basis for partner selection. Geographically dispersed and diversified partnerships need the ability to recognise high-quality professionals working in different countries and in different kinds of businesses.
In this context, it is vital to make the processes for socialising and selecting potential partners explicit. The partnership ethos can be strengthened not just by promoting those lawyers who embody it, but also by dealing with those partners who do not — and making this obvious to their fellow partners and to aspirant partners. In seeking to promote lawyers from diverse backgrounds, partnerships can still remain exclusive and homogenous, but the homogeneity and exclusivity will no longer be based on class, gender, racial, or religious grounds. Instead it will derive from the extent to which individuals embody the partnership ethos.
As partnerships grow larger it is inevitable that governance structures will evolve, requiring partners to delegate authority to a select group to manage the firm on their behalf. This is a necessary precondition for growth. This delegation of authority need not lead to the destruction of the partnership ethos, however. The worst elements of ‘corporate’ style management structures can be held in check by retaining and developing socialisation processes and partner management systems that support and sustain the partnership ethos. If the systems and socialisation processes are strongly aligned with the needs of the partnership, then greater authority can be delegated safely to management through governance structures. Management will not act against the interests of the partnership as a whole because they have been socialised appropriately and know that they will be rejected by their fellow partners if they overstep their mandate.
Managers of publicly-quoted companies are subject to increasingly stringent controls. By contrast, in some growing law firm partnerships, managers are formally delegated authority without a concomitant increase in the oversight of their activities. The roles and responsibilities of non-executive directors of corporate boards are clearly defined and are becoming increasingly onerous. The roles and responsibilities of senior partners and partnership boards in relation to managing partners and management committees are resolved on an ad hoc basis through each firm’s partnership agreement. As partnerships evolve, one of the key responsibilities of the senior partner should be to exercise this oversight of management and to act as a custodian of the partnership ethos.
There is much, therefore, that the senior management of law firms can do to preserve the partnership ethos within their firm, whether they choose to retain the partnership in its legal form or to move towards incorporation or flotation. The key is to recognise what exactly the partnership ethos means in the context of their own firm, what is threatening it and, specifically, how it can remain valuable in a changing competitive context. As a law firm grows, and its structures, systems, and socialisation processes evolve, senior managers are responsible for ensuring that such changes serve to support, rather than undermine, the partnership ethos. Ultimately it is up to the law firm’s management to ensure that the ethos of partnership survives and thrives in a changing world.
Dr Laura Empson is director of the Clifford Chance Centre for the Management of Professional Service Firms at the