Business partnerships have an ebb and flow of participants over time and professional partnerships (like accounting, law firms and engineers) are usually owned by leaders who are experts in their fields and who (understandably) have good confidence in their own intelligence, skills and abilities. These businesses also have an added relational component that is unique and different than a traditional employer-employee relationship.
Unfortunately, partners moving in and out of the business is not something most professionals do on a regular basis and they are generally not experts in how to do this well. What’s more, since partners are often equals in their shareholdings, the power dynamic of making such decisions, especially when individual partners have conflicting ideas, can become a challenge.
Professional partnerships need an efficient mechanism to move partners in and out of the shareholding structure in ways that help each of them reach their goals while protecting the business. When the rules for transitioning people in and out are not clear or appropriate, partners can become stuck or get into conflict. This can also create a major challenge inside the business, since the partners are also often the senior leadership team.
Before engaging in decision making on partners entering or leaving the business, it is critical that a company and ownership strategy be in place to identify the goals the business and partners have over time. This strategy can then inform the many decisions that need to be made about partner succession and its impact on the business. A good process is also needed to engage in conversations and decisions which are not a normal part of the operating business. The usual management or owner meetings and processes are not designed to do this. Further, since development of new partners and exit of existing partners takes time to do smoothly and well, there needs to be adequate time allowed to move through the decision-making and change processes.
A key aspect of effective partner succession is getting alignment across the partner group; on the strategy, on the needs for partners (coming or going), the plans and timing to make the changes in the partner group and the accepted impacts for the business of making the transitions. Technical components of partner succession (partnership agreements, buy/sells, tax strategy, corporate structures, etc.) are generally well understood by lawyers, accountants and others who work in these areas and tend to be relatively straightforward.
However, the missing pieces are generally upstream of such technical work and the transactions involved in succession. Getting the strategy right, having a good process to maintain partner relations and creating true alignment all take time and are hard for partners to manage themselves. An objective facilitator can make the process more effective, smoother and faster for all.
Changing partners within a partnership group usually creates a significant shift in ownership and leadership and has far-reaching impacts for the business. It is worth doing well and planning thoughtfully, in line with the strategy for the business and its owners and mindful of implications within the operations. What’s more, the relationships of the partners are often decades in the making and succession is worth doing well as a way of honouring those long relationships and years of work.
