what about non-equity partners?
voting is a highly overrated privilege of being a partner.
more: why and how new partners buy in | ownership percentage and capital accounts | 5 key reasons to have a partner agreement
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when you don’t have a vote, it seems desirous and enviable. it appears to be a very special privilege enjoyed only by the firm’s elite. having a vote is synonymous with ownership, power and prestige.
i want to be in the room where it happens, the room where it happens, the room where it happens…
one of the great songs from the smash broadway musical “hamilton” offers a great example. a young alexander hamilton has made a great impression on many of the founding fathers (can you guess whom he has not impressed?) but he isn’t satisfied with mere praise because his roles are supporting others and therefore secondary. what he really wants is to be “in the room where it happens,” the room where key decisions are being made. it’s not really a vote he’s after, but the opportunity to participate in the discussions of major issues and influence decisions about how the country is governed.
when new cpa firm partners get their vote, they quickly see that it’s not that big a deal. here’s why:
most firms rarely vote
that’s right. incredible as it may seem, at most firms, when a decision is needed, the partners rarely take an official vote on the matter. why is this?
- most firm decisions don’t require a vote. in fact, the firm’s partner agreement empowers various members of the management team – mainly the managing partner, the executive committee, the compensation committee and pics – to make these decisions on their own, without even a discussion of the full partner group.
examples of important decisions rarely voted on by the full partner group:
- determination of the services provided by the firm
- staff hiring and termination
- staff salary decisions
- personnel benefits
- appointment of pics and industry team leaders
- transfer of clients between partners
- approval of wip write-offs above a certain minimum
- client acceptance and retention, including credit holds
- insurance policy decisions
- setting of billing rates of all personnel, including partners
- technology decisions
- managing of the client transition process of departing partners
there are important nuances to understanding these issues and voting in general:
- a managing partner would be foolish to make these major decisions in a vacuum. mps should be seeking the advice and counsel of other management team members and other personnel knowledgeable about the areas in question.
- decisions more minor than those listed above should never be made by a vote of the partners, who should have more important ways to spend their time. minor decisions should be made by management, not the partner group.
- the common thread here: partners should not have the inalienable right (apologies to the authors of the declaration of independence) to vote or even be involved in every decision the firm makes. that’s management’s job.
- when a decision needs to be made that isn’t covered by #1 above, the partners of most firms prefer to discuss it and make a decision by consensus rather than taking a formal vote.
true story: a firm hired me to provide consulting on a project. i asked them what made them choose me. the mp responded, “at a partner meeting, our seven partners debated whether to join a cpa firm association. we voted 5-2 to join the association. as a result, we decided not to join the association and to hire a consultant instead.” even though their partner agreement provided for decisions by a majority vote, in practice they would make a decision only if the vote was unanimous. their definition of a consensus was a unanimous vote.
- taking formal votes on an important matter creates a lot of anxiety. should every partner have the same weight behind his or her vote? if not, how should each partner’s vote be weighted? there is no easy and fair way to address these questions.
- weighting of votes usually disenfranchises the new partners as well as existing partners whose vote is low-weighted. these partners feel like their vote doesn’t really count, which often leads them to fail to act like partners.
- adding to the difficulty of #4, it’s common for two or more partners whose votes are weighted heavily to vote together on many issues because of their long-standing relationship. this makes it virtually impossible for partners with opposing views to get the firm to enact their ideas.
important exceptions to “partners rarely vote”
a small number of extremely important decisions commonly require a formal vote. indeed, many firms’ partner agreements require votes on these issues:
- admitting a partner
- expelling a partner
- merging with other firms
- making changes to the partner agreement
- removing a managing partner
- declaring a partner permanently disabled
- making capital expenditures over a stated amount
- entering into leases, mainly office leases, above a stated amount
do non-equity partners have a vote?
firms may define non-equity partners differently. but in general, a non-equity partner is a non-owner of the firm who has most of the rights and privileges of an equity partner. non-equity partners:
- have business cards that say “partner” under their name
- are considered by clients and outside organizations as partners
- are seen by firm personnel as partners
- attend partner meetings and partner retreats
- receive confidential firm financial information (except partner compensation data)
- manage a client base and sign off on client reports if this authority is provided in the firm’s quality control document
so, given that equity partners rarely vote and that, for all intents and purposes, the right to vote is really the right to engage in debate, discussion and persuasion, non-equity partners have very similar roles in “voting” as equity partners. their opinions count. however, non-equity partners do not officially vote on the small number of major decisions reserved for an official partner vote.