Continuing the Practice

Source: Public Practice

In this article Bill Reeb further discusses the case study we covered in our November issue, then addresses moving forward with a plan for continuing the practice.

The first steps normally deal with governance issues and equity interests.

This review focuses on equity interests. Here are some of the key points:

• Make sure the firm is not leaving too much voting power in the hands of the wrong people.
• Large voting blocks should be held by your best leaders. But often, without some thoughtful reallocation process, weaker partners will end up with these large voting blocks.
• This can create a stalemate in making decisions to move the firm forward.
• If you don’t adjust voting rights to give your best future leaders a chance to lead, the departing senior partners will want to sell or merge the firm to protect their retirement benefits.
• So, where to go from here:
  • Assess skills of current partners by getting feedback from all partners (this may offset the strong tendency by senior partners to exaggerate their leadership ability).
  • There are a number of assessment processes such as an informal questionnaire that asks for anonymous upward and horizontal evaluations from staff and peers. Another technique is to determine who the firm values. Asking all partners to anonymously rate other partners as to who is delivering value to the firm is often insightful.

Beware of Unholy Alliances
As firms grow larger, coalitions will likely arise as weaker partners align to protect themselves. These alliances further their own interests at the expense of the firm’s future. This requires a quick reallocation of ownership to stop this very damaging leadership behavior. In some extreme cases, one or more owners must be forced to leave because they can’t stop their self-serving damaging behavior.

For the complete article, click here.

From Texas Society of CPAs, Public Practice, November/December 2008, www.tscpa.org.