10 specific duties.
as firms evolve in size, many things need to change.
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one of the biggest changes over time is how the firm is managed.
three stages of firm governance
stage 1: firm startup. the firm is in survival mode and has two, three or four partners. it’s common for the firm to be managed by the partner group as a whole. duties are often split between the partners, one of whom may even have the mp title, but this person’s time is heavily dominated by client duties. this stage could last for as many as 10 years.
when firms are small or newly formed, the firm’s management philosophy is characterized by:
- frequent partner meetings are convened and all partners participate in all decisions.
- lack of a coo. the partners feel they are too small to afford a full-time coo or firm administrator, so they all pitch in to perform admin duties to save the cost of hiring someone.
- lack of accountability. partners are pretty much free to do whatever they want. accountability isn’t even in their dictionary at this stage.
stage 2: management starts to get formalized and the mp job is seen as more important. generally, this stage begins when the firm has five to eight partners. (important: just because something is common doesn’t make it a best practice. visionary firms are well advised to adopt a strong mp position well before reaching five to eight partners.)
- these firms increasingly find that democracy doesn’t work because organizations can’t be managed well if a vote has to be taken every time a decision is needed.
- they see that management by committee waters down and delays decisions.
- firms in which mps perform a lot of admin work find it more economical to gradually hire professionals for admin, hr, marketing and it, enabling the partners to focus more on partner-level work, and keeping them away from admin.
- partner accountability appears on their radar screen because partners are just like everyone else in the world: they perform better when they are accountable for their performance and behavior.
most firms at this stage operate primarily with a structure that is limited to an mp empowered to make decisions, an administrator with no client duties and perhaps a few department heads, mainly audit and tax. notably absent is an executive committee, mainly because firms feel that with five to seven partners, it makes little sense for three of them to be on the ec.
stage 3: management is now seen as more critical than at smaller sizes. firms at this stage often form an executive committee. this stage generally begins when the partner number exceeds seven.
management committee vs. executive committee
a management committee (mc) is a group of partners, each of whom is assigned a distinct area of the firm to manage. examples include admin, hr, marketing and quality control. usually one of the members of the mc is the managing partner, though he or she often functions more like an admin partner than a true ceo. management committees are found most often in smaller firms. their presence rarely reduces the number of general partner meetings convened by the firm.
let’s make an important point:
management by committee does not work.
some readers who are partners at firms that manage by committee may be annoyed with me, but hear me out.
let me tell you why management by committee doesn’t work.
- decisions get watered down and delayed.
- many committees feel they have little power because all their decisions need to be approved by a vote of the full partner group. thus, their work is limited to overseeing and making recommendations to the full partner group.
- the committees are not accountable to accomplish anything. remarkably, the other partners seem to be ok with some or all or the committees being ineffective.
often mc members are not compensated for their time, which should be quite significant if they are doing their jobs properly. as a result, i have repeatedly found that firms with management committees are quick to agree that they don’t meet very often and don’t accomplish much.
an executive committee (ec) functions much like the board of a corporation. the ec’s main duties are oversight of the firm and counsel to the managing partner. ecs are most common at firms with nine or more partners and consist of a small number of partners, usually three including the mp, who serves as chair. generally, when firms get to 15 or more partners, they may increase the ec to five partners.
when firms initially form ecs, the number of general partner meetings may not be immediately reduced. but as the firm’s management structure begins to play a more substantial role in firm governance, fewer general partner meetings are needed.
other suggestions
- the mp should be an automatic member of the ec and serve as its chair.
- at the vast majority of firms, ec members are elected by the partners by majority vote.
- regardless of the selection method used, the overarching principle should be that every ec member must be seen as highly credible and trustworthy by the other partners. avoid rules that every partner should have a chance to serve because it is highly likely that at least one partner will not be seen as credible and trustworthy in a management position.
- as firms get larger, there is a higher incidence of the mp being empowered to appoint some of the ec members. it’s common but by no means standard.
- term for ec members. a common approach is three years, staggered terms, so that in any year only one person comes off the ec. in the year the ec is created, one person has a two-year term and the other a three-year term. thereafter, revert to three-year terms for all members.
- there should be no limits to consecutive terms. if ec members are doing a good job, they shouldn’t be required to come off.
executive committee duties
general
when the number of partners in a firm gets too large to involve all partners on all issues, firms create an executive committee to work with the managing partner on the firm’s strategic and high-level governance issues, functioning as a board.
specific
- provide high-level advice and counsel to the managing partner.
- provide assistance to the mp as needed.
- administer the firm’s system for allocating partner income, with the mp as chairperson.
- brainstorm with the mp about various strategic issues and the direction of the firm.
- make recommendations to the full partner group for partner nominations.
- initiate preliminary discussions with merger candidates.
- research pros and cons of changing the partnership agreement.
- discuss sensitive and confidential problems involving personnel.
- plan periodic partner meetings and retreats.
- evaluate the mp’s performance and provide feedback to him/her.