As your firm grows and as succession and transition occurs, you must continue to evolve your firm’s decision-making processes to ensure they support timely, agile movement and transparent communication. When you’re working on firm decision making, you’re working on governance.
Typically, partnership decision making is not efficient, often requiring consensus and, unless everyone agrees, which isn’t very often, gridlock is the norm and progress is slow. When partners (or a partner) don’t support change, they might simply dig in and halt forward movement through their resistance.
As your firm grows, this form of decision making will slow or stall growth and it will impede partner and up-and-comer morale, and in the age of AI, it could threaten your firm’s ability to compete.
Instead, the more roles-based decision-making authority that you can convey to firm leaders, the less “churn” and fewer bottlenecks you’ll have in your firm, and you’ll experience more efficiency and productivity, too.
To improve firm governance, you must identify the decision-making authority that each partner carries. For example, if your partner Matt is an industry group leader for the firm, he would be expected to set the strategy for that industry with your marketing leader (if you have one) and with each service line leader. As a firm, you would need to determine if Matt is empowered to make the decision for the final approval for the go-to-market plan and budget or if he needs to submit his plan and budget to your firm’s Executive Committee (if you have one) or if your Managing Partner/CEO would approve it.
When you assign a partner the role of Managing Partner (MP) or CEO, specific expectations should be set, and the new MP/CEO should be empowered with certain decision-making authority. When your MP/CEO is working towards agreed upon goals with accountability structures to report on them, you will yield more results. The same is true when you empower individuals to make role-based decisions, such as service line leaders, your Management and/or Executive Committee, Firm Administrator/Operations Leader and other key leadership roles. By clearly identifying the governance “latitude” of these important roles, you empower these positions to do their jobs and make a difference for the firm.
At the same time, you want to identify which decisions your firm must make that should be made by allowing each person at the partnership table a voice or vote (“one-person, one vote decisions”). The decisions you place in this category will be unique to your firm’s culture, but they should be limited to larger, more strategic discussions, such as approving the firm’s vision plan, annual strategic plan and budget, determining the firm’s service offerings, or agreeing to pilot some new business model shifts. Often times, one-person, one vote decisions aren’t really decided by vote, but instead, plans are presented to the partner group for input and if the MP/CEO and/or the Executive Committee have already vetted the plans, the partners ask questions and the plans move forward.
As appropriate, your firm must also define share-based decisions, or those decisions made based upon the capital shares owned by each partner. These share-based decisions may include change-of-control decisions such as electing the Managing Partner/CEO, the approval to move forward with a merger, acquisition, or the sale of the firm, or major expenditures over a certain dollar amount above what the MP/CEO or Executive Committee’s spending limits dictate. Share-based decisions may also include the addition or expulsion of a partner or undertaking considerable capital commitments (building a new building, signing a large lease, etc.).
Start your governance definition by reading your firm’s current, in-force partnership or operating agreement to understand what it currently says related to any decision-making authority of the key leaders or committees in your firm. You may find that it addresses governance only on a very limited basis – or perhaps not at all. Document what your agreement states in an Excel spreadsheet with the columns being the roles and the rows being the decision-making authority conveyed to each party (see an example of a few rows and columns of a governance grid below). This supplies a snapshot of your “current state.” Then you’ll be ready to explore changes or additions appropriate to create a governance model for your firm structure going forward. This process of reviewing the operating agreement and suggesting changes is usually one assigned to the firm’s Executive Committee and led by the firm’s MP/CEO.
| Super Majority – 67% | Majority (51%) | One Person One Vote (w/non-equity partners) | Executive Committee (EC) | Managing Partner |
|---|---|---|---|---|
| Approves firm ownership structure (buy, sell, merge, PE) | Relocation of firm | Approves annual firm budget and strategic plan after EC | Approves annual firm budget/strategic plan, department budgets and staffing plan | Purchases for operations and facilities up to $XXXk |
| Changes to the firm name | Election of EC members | Approves firm Vision Plan | Scouts mergers, acquisitions and key alliances for later approval of partners | Changes to banking relationship and/or line of capital or credit, once approved by EC |
| Borrowing money over $X million in the Partnership’s name | Approves changes to partner compensation plan | Approves significant firm policy changes approved by EC | Approves larger expenditures within approved annual budget (could be Management Committee) | Appoints Service Line Leaders and Industry Group Leaders (with input from EC) |
| Changes to the powers of the EC, or abolish the EC | Disposing of the business’ good will | Approves significant business model shifts | Allocates partner comp annually; manages partner performance | Approves hires of key operational or non-traditional talent |
If your firm has non-equity or income partners, be sure that your governance model considers where they have authority and a vote or say and when they do not. And, if your group determines that your governance model needs refinement, or a complete overhaul, remember that this will need to be reflected in an addendum to your current partnership agreement or may require a new agreement altogether. Seek the assistance of a consultant to CPA firms and also the counsel of your firm’s attorneys when evaluating the documentation required to change governance in your firm.
Developing a “partner commitment statement” will also help define the behavioral expectations of the partners and supports the performance and skills expectations outlined in the role descriptions and the results expectations defined by each partners’ goals. Your partner commitments are more about behavior or leadership attributes than skills, responsibilities, or experience – they are what you can count on from each other behaviorally. Your partner commitment statement will clarify what’s expected of each partner and will help build trust and loyalty in your team because you will know what you can count on from each other. Then, use your partner commitment statement to make decisions on your strategy, drive your interactions and behaviors, and manage performance against it. Again, the effort to develop this should be led by your firm’s Executive Committee (if you have one) and your firm’s MP/CEO. Then, partners should be encouraged to input to and shape the commitment statement. Once it is agreed upon, each partner should sign it, and you should share it with your entire team.
One of the “partner commitment” expectations should be submitting to the strategy and decisions made by those empowered to make them, in addition to firm policies, procedures and other expectations your partner group defines. A key attribute of an effective leader is the ability to submit to follow the decisions made by their duly elected or appointed leaders. When your team submits to your agreed upon governance and leadership structure, this allows:
- The Managing Partner, Service Line Leaders, Executive Committee, and other roles to be empowered
- Decisions to be made more efficiently and effectively
- Increased productivity
- Less of a feeling of struggle for all involved
The expectation to submit to the strategy and decisions by those empowered to make them, in addition to firm policies, procedures and other expectations should be agreed to for all partners (and future partners). When submission doesn’t occur, straight talk and, when necessary, performance management is required.
When you define expectations for decision-making and firm governance in writing and put your firm’s governance grid in the hands of the firm partners and other key leaders, your firm’s decisions will move faster, reducing churn and inefficiency. As you grow, this is critical to your ability to move nimbly as the market moves, remaining competitive and sustainable well into the future.
This article was written by Jennifer Wilson of ConvergenceCoaching and a form of it was originally published as part of a Partner Accountability Guide licensed to the AICPA PCPS.
