Band of brothers

Law firms in England and Wales have been permitted to incorporate since 1992, but so far relatively few have exercised this option. By contrast many have converted to limited liability partnership (LLP) status since this became possible in 2001. The Legal Services Act raises the possibility that more law firms will abandon the partnership structure as they are acquired by corporations, or even consider flotation.

Collective interests reconciled

In a partnership, a key task for management is to arrive at a clear understanding of the collective interests of the partners and to communicate these coherently and consistently so that they become the established 'truth' within the firm. Leadership in this context may need to be subtle and indirect, guiding partners towards an understanding of how their individual interests can be reconciled with those of the collective.

The ability of senior management to exercise effective leadership in a partnership is severely hampered by the ambiguous nature of their authority and the highly contingent governance structures within which they must typically operate. They have been elected by a majority of their peers and can be deposed by them at any time.

There are three components of the formal governance structures which are particularly important in determining the nature and extent of managerial authority in a partnership.

The first is formally delegated authority '“ specifically, what issues require a full partnership vote and what size majority is required for key decisions? What decisions can be made by the managing partner and their team? The second is the process by which the management team is selected. Is the managing partner able to nominate or select practice heads? Are they required to work with whoever the partners in that practice choose to elect? The third is the delineation of roles of managing and senior partner. Specifically, to what extent is the senior partner, or anybody else, formally tasked with monitoring the actions of the managing partner and the management team on behalf of the partnership group?

But the formal governance structures only represent one aspect of managerial authority. There are various personal factors which distinguish effective managers in partnerships from their less effective peers.

Partners praising their senior managers usually speak in the following terms: first, the individual was an exceptionally gifted professional, either with clients or in technical terms.

Being perceived as 'cleverer' than your peers, or at least harder working, is an important source of your authority as a manager in a professional service firm.

Second, it is equally important not to be seen to seek or enjoy power. Many successful senior managers have led their colleagues to believe that they were more interested in the advancement of the firm than in their personal advancement. Whether this was true or not is irrelevant '“ the point is that their fellow partners believed it to be true.

Third, the most effective senior managers were able to combine a clear sense of direction with a tolerance for ambiguity. They were able to step back from the day-to-day complexities presented to them by their fellow partners and retain a clear sense of purpose, both for themselves and the firm as a whole.

Phrases like 'One for all and all for one' and 'Band of Brothers' can be cited as expressions of the ethos of partnership. It is worth remembering, however, that while the English knights at Agincourt submitted to the authority of their brilliant and inspirational leader, the Three Musketeers were an extremely heterogeneous and ill-disciplined collection of individuals who won through because of their remarkable skills with the sword. Some law firms resemble the Three Musketeers '“ others have more in common with Henry V and his knights. A partnership ethos may operate very powerfully and effectively in either case.

Imitate partnership elements

There were only three musketeers (and D'Artagnan), whereas the English knights at Agincourt numbered 900. If a large partnership must inevitably adopt more 'corporate' practices, should large partnerships simply bow to the inevitable and incorporate? If partnership is the optimal method of balancing the competing claims of its professionals, owners, and clients, then it is logical to conclude that professional service firms should make every effort to remain partnerships.

Indeed, some corporations have deliberately set out to imitate aspects of partnership, to try to create the ethos of partnership within a corporate form. For example, the management consultants McKinsey & Company incorporated in the 1950s but, to the outside world and to its consultants, it still embodies many of the qualities of a partnership. For example, the managing director is elected by 270 of the most senior 'partners'; the term 'partner' is still used informally within McKinsey. Whether McKinsey is genuinely like a partnership is not the issue '“ what matters is that it has sought to create the impression of partnership among its clients and professional staff because it can be 'useful' in business terms.

But the Legal Services Act creates the possibility that more law firms will opt for incorporation and abandon the partnership structure altogether. Will the incorporation and flotation of a partnership inevitably have damaging consequences for its shareholders, the professionals that work within it, and the clients they serve? Not necessarily. The pressures to change may be strong but they are not inexorable. Within alternative legal forms of governance, as the McKinsey example demonstrates, it is possible to imitate the most valuable aspects of a partnership without necessarily being restricted by its legal form. However, for this process to be effective, professionals and their managers must be strongly committed to the partnership ethos and work actively to create and sustain it. Incorporation and flotation may not automatically destroy the partnership ethos, but they certainly do not encourage its survival.

The partnership ethos can survive within the challenging contemporary context in which professional service firms must compete, but only under certain conditions. Managers of professional service firms must develop a sophisticated and subtle understanding of what exactly the partnership ethos means within their firm and how to use their systems, structures, and socialisation processes to ensure that this ethos adapts and survives. In other words, it is up to the managers of professional service firms to ensure that the partnership evolves rather than simply becoming extinct.

A balance of needs

While the partnership ethos reconciles the tension between individualism and collectivism within a professional service firm, the precise manner in which it is manifested and enacted will be highly context-specific. It is important for managers to understand what it means within their own particular firm and just where the balance should be drawn between the needs of the individual and the needs of the collective.

Perceptions of the partnership ethos may vary considerably within the firm, between junior and senior professionals, among junior and senior support staff, as well as externally with clients and with potential recruits. While the partnership ethos can meld a disparate group of senior professionals into a collective entity, the very exclusivity which makes it attractive to those within the partnership serves to 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? Does the partnership ethos relegate high-quality senior professional managers 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? Are clients and potential recruits aware of the partnership ethos and do they understand its significance?

By addressing these questions carefully, managers can develop a clearer understanding of what partnership means to the key stakeholders. What has it meant traditionally? What is challenging traditional attitudes? What aspects of partnership are vital to preserve? How can the partnership ethos adapt to the changing competitive marketplace? 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.

As socialisation processes cannot easily be observed, they are also very difficult to change. Formal processes can be redesigned but individuals may struggle to articulate the plethora of informal ways in which they signal to their colleagues what is and what is not legitimate within the firm.

As well as being difficult to change, these socialisation processes represent 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. Evolutionary psychology argues that we humans are hardwired to be drawn to people who are like us and to distrust people who are different. In contemporary partnerships 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 professionals who embody it, but by dealing with those partners who do not '“ and making this obvious to their fellow partners and to aspirant partners. Partners may grumble that more explicit procedures for selecting and sanctioning partners smack of bureaucracy and will inevitably lead to partners becoming corporate clones.

In reality these developments may instead encourage heterogeneity, by making it easier to recognise and accommodate the strengths of idiosyncratic individuals who nevertheless embody the partnership ethos. In seeking to promote professionals 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.

Delegation of authority

As partnerships grow large 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 which 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 safely delegated to management through the 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 oversight of their activities. By contrast, in some growing 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.