Performance Starts at the Top
Many firms, large and small, have their share of non-performing partners. These lackluster partners may develop and remain at their firms as a result of many factors: a limited talent pool, succession issues, fear of conflict, personal loyalties, undefined standards for partner performance, ages of the partners and complacency—to name a few.
While all firms face this issue at one time or another, smaller firms ($10 million in fees or less) suffer the worst consequences from the problem. It’s certainly tougher on a firm of ten partners when one partner isn’t performing than it is on a firm of twenty partners or more.
Why should dealing with a firm’s non-performing partners be a key issue for management? In smaller firms, each partner plays a significant role in originating new business. Maintaining an existing book of business with no growth is not enough. A good manager can often do as much.
The attendant costs of a poorly performing partner are significantly more than those of a good manager. Salary, benefits, perks, support staff and overhead for the partner are all costs that must be absorbed by the firm. If a partner is not helping the firm in a meaningful way, odds are he’s hurting the firm.
New, younger partners may often get discouraged with their places in the firm when encountering non-performing partners. If salaries are askew, they will probably wonder why a non-performing partner is earning more when the non-performer works fewer hours, generates less business and doesn’t comply with firm policies.
Age, tenure, name recognition and past performance are often the reasons—but those sound more like standards for an academic institution than for a professional accounting business. A new partner facing such prospects may grow resentful and leave the firm or put in the minimum effort to receive a given level of compensation. Coupled with a substantial buy-in, you could have a systemic process for creating a new generation of non-performing partners. If there’s not enough profit to pay more to younger partners, you won’t be able to retain them. Someone has to be paid less, so why not those who are not performing?
Does your firm have a plan?
If a firm or managing partner is going to seriously tackle the issue of a non-performing partner, several things first need to be examined. There must be an honest assessment of the firm’s real goals. Whether defined in a strategic plan, mission statement or other firm document, a firm’s goals must be clearly defined.
This process must integrate the convictions of the management team. The smaller the firm, the more personal the goals might be; the larger the firm, the more institutional the goals might become. Whether it’s a goal of a specified net income per partner, gross fees, number of personnel, number of clients in a specified niche, recognition in the market place, staff turnover, or whatever—the management team has to ensure that compensation, power, control, recognition, resources and communication strictly support these goals. Otherwise the management team is impotent and wasting its time.
Each Partner in the firm should examine him/herself annually to ensure personal goals are consistent with the firm’s. The firm’s basic goals should be fundamental enough to make this a relatively easy process for partners.
Are they getting the job done?
Management may struggle with the decision of what to do about a non-performing partner, but there should rarely be a question of whether a partner is performing. I suggest keeping it simple. For non administrative partners: perhaps 1,200 charge hours, increase in book of business or controlled billings of 10% and maintaining 90% realization. For administrative partners: specified staff hiring goals, turnover, staff productivity, etc. While it’s difficult to measure happiness as a goal, it’s certainly easier to measure fees, utilization, realization and profit. It probably makes sense to keep these in mind when setting other goals.
Once you have indeed identified a non-performing partner (and it shouldn’t be a surprise), get him or her turned around—or turn that person out. One year is the maximum wait for a turnaround, unless there’s marked improvement. Retire them, spin them out with their book of business, put them on a per diem as an independent contractor; do whatever it takes to get them as far away from the firm as possible. Profitability, productivity, realization and morale will improve, and headaches will go way down. Management will then be able to spend more time on improving the firm rather than making exceptions to policies to accommodate failing partners. Keeping a non-performing partner at the firm does no favors for anyone.
Save yourself a headache
Rather than struggling with what to do about a non-performing partner, consider being more careful about whom you make a partner. Offering someone a partnership interest in your firm, equity or non-equity, shouldn’t be a gift, a reward or appeasement. It should be a calculated business decision that’s in the best interests of the firm and the other owners. You can’t give success to a new partner. That person has to make it happen for himself or herself.
Promoting a senior manager to a partner position merely to keep him or her from leaving the firm may ruin that person. He or she can’t perform as a partner and can’t go back to being a manager. That individual has nowhere to go. Instead, keep him or her as a manager, offer a generous compensation package and make the individual work hard. Given the right job security and compensation, he or she will flourish.
Partners are co-owners of a business. They should always view each other that way. No partner should be consistently carried by the other partners in a firm; there is no privilege, only responsibility. Perhaps we should look at ourselves and our partners on a regular basis and ask the question: “Are my Partners and I better off together as a firm or not?” If the answer for us both is yes, we are performing. If the answer for either is no, it’s time for a change.
About Gregory J. Prudhomme, CPA
Gregory J. Prudhomme, CPA and Partner, Kuebler, Prudhomme & Co., manages the firm’s accounting, auditing, business valuation, litigation, and estate planning practices. He began his accounting career in 1985 at Price Waterhouse in Log Angeles, where he held the position as Audit Manager. Greg's previous experience includes management of accounting and auditing practices at Kuebler, Thomas & Co., and five years as owner of an accounting practice in Rancho Cucamonga, CA.
He serves over 400 recurring corporate and individual clients with tax, accounting, and business consulting services in a broad spectrum of industries. He also specializes in valuation services that include family law matters, business and shareholder disputes, buy-sell agreements, mergers and acquisitions, estate planning/tax matters, as well as attorney consultation and expert witness testimony in legal disputes involving various forensic accounting and financial matters.