Partner's Report for CPA Firm Owners

July 2005

Exercising Leadership: New Ideas for Dealing With Your Firm’s Problem Partners

Does your firm have a problem partner? If you do, you know that this individual may be holding your firm back from changing or improving not to mention driving you and your fellow owners a little bit crazy.

Is there anything to be done about problem partners? PR likes the suggestions we recently came across from someone who deals regularly with law firm partners (who some believe can present even greater challenges than any CPA partner ever could!). Blane Prescott is a shareholder with Hildebrandt International (San Francisco; brprescott@hildebrandt.com), a professional services consulting firm.

Diagnosing problem partners. Symptoms can vary, but Prescott says the following areas are usually the ones that indicate trouble:

1. Partners with mechanical issues. These are the ones who don’t get timesheet information done on time, can’t get bills out, and have trouble with collections. These are largely organizational issues often fairly easy ones to fix, Prescott said.

The impact on the firm: Organizational problems can have a serious effect, bringing with them low realization rates and dissatisfied clients.

How to handle these problem partners:

Identify and correct issues early and often. It can be harder to encourage a powerful senior partner to change his or her ways, so identifying and working on problems early in a partner’s career is the best approach. To prevent these problems before they reach the owner level, teach staff about the importance of organizational skills.
Confront offenders. Financial penalties seldom have a strong effect on behavior, unless they have a significant impact on partner compensation. Face-to-face meetings with offenders can help, Prescott said.
Get help with timekeeping responsibilities. Is there a staff person who can assist with these, so that the partner’s administrative duties are handled and he or she can focus on other work? Another step that can help all partners is shifting billing and collections responsibilities to an accounting or other administrative person.

2. Underproductive partners. As CPA firms grow and change, partners must keep pace and can’t live on yesterday’s triumphs. Underproductive partners can’t do the work and keep their productivity high, which can be a real challenge to your firm’s growth and profitability. Possible solutions:

Look beyond compensation. In the law firm world at least, cutting compensation only works about half the time with the underproductive partner group, Prescott noted. In fact, if you use compensation as a punitive tool, you may end up with morale and turnover problems, rather than the improved productivity and profitability you seek.

"Cutting somebody’s compensation is the most reactive, retrospective kind of solution. You’re not solving the problem as it occurs, you’re solving it at the end of the year," he said.

Tackle the issue head-on and face-to-face. This is not an easy thing to do in a firm that may pride itself in being very collegial but Prescott believes it is one of the better solutions. "If you want to solve individual performance problems, start by sitting them down and saying, I’ve got a problem with you. We’ve got to go through and figure out the cause."

3. Partners with quality and/or service issues. These partners clearly present the most serious problems for your firm. Prescott offered the example of the "rogue partner" who does things that firm leaders are unaware of or who makes bad decisions because judgment and ethics have been compromised by their desire to keep the client.

Symptoms of partners with quality and/or service issues include:

Client complaints. Client-related problems can be subtle, but getting regular input that you actively solicit means the firm can correct small issues before they become huge problems.
Low realization rates.
Difficulties maintaining client relationships.

Steps to take:

Stress genuine practice management, with practice groups headed by leaders who take responsibility for monitoring the performance of partners in their groups.
Give authority to practice group leaders, and seek their insight on issues that may not turn up in firm benchmarks before setting partner compensation.
Conduct partner compensation interviews. Make every effort to have a two-way conversation that provides insights on strengths and weaknesses. This should also include comments from practice group leaders.
Avoid formula compensation systems for partners. Although these are popular at both CPA and law firms, Prescott feels the systems don’t motivate partners to stretch themselves or respond to requests from firm leadership to correct problems. Instead of a pure formula system, he suggests a system that includes other factors.
Conduct client interviews as a quality control mechanism. The managing partner or other key leader should interview the firm’s top clients. Prescott believes such interviews will bring more candor than a written survey.
Walk the halls. Managing partners and firm administrators who make the effort to connect with partners and staff are more likely to hear about problems before they escalate.
Raise your partnership standards. "Great firms tend to be very, very tough about who gets into their partnership," he said.
Know when to say when. Sometimes, despite all of your best efforts, the relationship just isn’t working any more and the firm needs to fire the partner and move on.

More good reasons to address underperformers. If your firm tolerates underperformers, high performers tend to resent it and think the firm should invest the money in someone else. These warning signs can indicate that high performers are thinking about leaving the firm:

Once outspoken partners withdraw from discussing issues. As Prescott quipped, such partners have already quit and not told the firm.
You can see they are unhappy and you know their children are still in school. If they’re still paying for private school or college, they can’t afford to take the hit to profits caused by unproductive partners.
They know your competitors’ numbers, usually because they’ve had conversations with leaders in these firms and are preparing to leave.