Partnership structure risks decision-making “paralysis” but still works, study finds

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By Legal Futures

24 June 2010

Conflict: partners can often turn non-contentious issues into battles

Professional services firms (PSFs) have managed to overcome the potential decision-making “paralysis” inherent in the partnership structure, new research has found.

Work by the Novak Druce Centre for Professional Service Firms, part of Said Business School in Oxford, concluded that the partnership model can often complicate decisions, with non-contentious issues quickly flaring up to the point where they threaten the retention of partners.

The research, which included in-depth studies of 16 PSFs, including law firms, found that such practices are “extremely challenging” to manage because they are by necessity of the work they do made up of “highly-educated individuals who require a high degree of autonomy and discretion to deliver very personal and tailored services to clients. In many instances, their people are notably strong-willed and individualistic”.

Even where partnerships adopt more formal structures and controls to manage their growing complexity, scope and sheer size, “peer control and professional self-monitoring still prevail”, it said.

The study found that PSFs “spend considerable time and resource dealing with seemingly simple issues which quickly become complex because of people issues. Moreover, issues which appear non-contentious often flare into troublesome matters with significant implications for the retention and motivation of key individuals”. The research indicated that this escalation is very common.

The research also highlighted the extent to which individual partners are willing to challenge the authority of senior partners over seemingly trivial issues in a way less likely to occur in a corporate setting. “Partners feel able to challenge even small decisions as they are co-owners of the organisation, work in a context in which this has become culturally acceptable, and are aware of the firm’s dependency upon them. Collectively they feel entitled to veto management proposals even if strategically beneficial for the firm as a whole. They are also tend to use arguments centred on protecting long-standing client relationships, service levels and professionalism as an effective means to derail unpopular initiatives even when none is in danger of being compromised.” As a result, the need for managing partners to build consensus among colleagues emerged.

Professor Tim Morris, one of the authors of the research, said: “It is surprising that decisions get made or enacted at all. When you consider all the factors at play, particularly the diffusion of power within PSFs, the firms could potentially be paralysed and their strategic progress undermined, especially in the largest firms where there are hundreds of partners. But many of these firms have successfully addressed the inherent tensions we observed.

“It is notable that many of them are led by particularly effective leaders who are skilled monitors of the political atmosphere within the firm, broker agreements across factions and build the necessary consensus. Like good politicians these leaders are strong negotiators, often with a flair for rhetoric and a reputation – especially internally – for integrity. These attributes are critical for their success in a uniquely challenging organisational setting.”

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