On a level

The challenges facing finance directors working within a partnership structure differ significantly to other businesses. There are no shareholders, no chief executive, no board. Instead, the flat structure allows for equal power spread across the partners who are ‘in the club’. For the FD, with no statutory power, the challenge is one of avoiding becoming simply a rubber stamp.

Two finance directors with direct experience of running the finances in a partnership give their views of the peculiar job FDs face when working with partners.

The meeting room was becoming uncomfortably warm. Made-to-measure jackets hanging on the backs of chairs and shirt sleeves rolled up, it was time to make the call.

My boss appeared, a single side of technical briefing in hand. Just five minutes later he said his goodbyes and left; the deal had been done. I was pleasantly shocked and surprised at the efficiency of the process.

This was partnership governance at its best: a decision approved in principle at board level; parameters for negotiation set; a senior manager appointed to get the transaction to its last phase; and a partner with authority to drive the deal home. So much for the image of partnerships as places where decision-making is suffocated by collegiality and implementation is as stodgy as a cheap gâteau.

But for every example of incisive thinking and streamlined execution there is one which appears to run in the contrary direction. As a result, often the biggest challenges are more about implementation than the decision-making.

Many accountants will, at some stage after qualification, work in a line management role in a partnership environment. And a good proportion will find that over time their roles broaden from the technical aspects of finance into the suite of disciplines of “administration”.

The partnership organogram may, superficially, resemble that of a traditional organisation with a main board and various derivative sub-groups. However, the owner-producer-manager model creates an operational environment with distinct challenges.

In particular, the equity partners with full voting rights are likely to be spread throughout various departments in the business. So although an initiative may have board approval it is highly likely that a significant minority of partners will not accept the decision whole-heartedly. This may include influential opinion-formers such as key client relationship partners on whose performance the business depends.

Even if they are a board member, to be effective in the role the accountant must be able to work with such individuals: some will be directly and outspokenly opposed to a project; others passive-aggressive; and others still unobtainable because of client pressures. The accountant will have to use best efforts to persuade them that a given initiative makes sense for them as individuals and the business as a whole. This may be no easy matter.

Somehow the accountant who has joined from outside the business must gain the respect and confidence of such key players. They must develop the ability to lead “beyond their authority” – to use a phrase popularised by leadership expert Julia Middleton. But those who seek to build consensus purely on a numerical basis may find themselves disappointed at progress because the “tipping point” – identified by writer Malcolm Gladwell – is unlikely to be achieved simply on numbers alone.

Partnership politics are more complex than this: progress can be can be distinctly “lumpy” based on the persuasive authority of a handful of key partners.

So how does the accountant tasked with implementing board policy cut through this structure?

There is no silver bullet. However, one useful clue may be gleaned from the work of management professor David Maister et al. His concept of the “trusted adviser” is aimed at lawyers, accountants and others building relationships with third-party clients.

However, the internal adviser faces exactly the same challenge. Following Maister’s progression, the accountant would strive to build relationships and, in time, move through the following steps:

• subject matter expert or process expert;
• subject matter expert plus affiliated field;
• valuable resource; and
• trusted adviser.

There is much theory behind these stages but a key theme throughout is that the client – in this case the partner – increasingly accepts the accountant has his or her best interests at heart in the questions they ask and advice they give.

This applies even when the initiative being progressed appears directly to challenge some aspect of the partner’s current (and familiar) working practice.

The building of ‘trust’ does not diminish the importance of exercising the highest levels of professionalism at each stage: but it does allow a potentially difficult conversation to take place on a controversial project in a constructive and conciliatory atmosphere. And in a tough business world, you can’t ask much more than that.

DO:

• Be persistent;
• Get partner champions for new initiatives;
• Provide rigorous argument to support proposals;
• Build an understanding of the partner’s working day; and
• Use clear logical costings and link to unit profitability to give partner context

DON'T:

• Get disheartened;
• Use accounting jargon;
• Waffle with non-essential detail – get to the point;
• Overplay your authority (it’s the partners’ firm); or
• Underestimate the ability of a small number of partners to disrupt a project

I think being the FD in a partnership is very much about winning hearts and minds by convincing the partners that what you’re saying is right, rather than simply saying, ‘this is the way it’s going to be’. There’s much more ‘sell’ than ‘tell’ and I think that’s one of the fundamental differences.

I also think the partnership system itself is an odd one in that it can feel a little like a club, and if you’re a member of the club, ie a partner, you are treated rather differently to those who are – for want of a better word – servants to the partnership.

As a result, for the FD, authority within a partnership is earned and not given. Simply giving someone the title finance director or CFO can mean very little.

In those circumstances, it’s very much up to the individual to demonstrate authority through the force of argument and by demonstrating their ability to get on and do the job.

In my experience, in a partnership, the day-to-day management will normally centre on a very small group of people. That will generally be the heads of the back office functions – IT, HR, marketing, finance – and alongside will be a small group of partners, generally the managing and senior partners who are effectively the executive management of the firm. So, you have a lot of people getting involved in the management process.

Naturally, the number of people involved in delivering the management is relatively limited. What you therefore have is a very flat structure, where the managing partner doesn’t have the power on his own to hire and fire.

Conversely, support department heads don’t have that power either. The partnership will need to be consulted on areas of importance, from talking to the bank about extending the firm’s financing facilities to opening a new office or bringing in new partners. All of those things are reserved to the partnership, so there is partnership, so there is a limit to what the functional head can do day-to-day besides the day-to-day stuff.

One of the frustrations with the partnership environment – certainly with professional partnerships – is that sometimes it can take forever to make your decision, not least because you have to take account of the demographics of the partnership.

As well as that, it can be very lonely and deeply frustrating in the sense that because it’s a professional partnership where partners are very good at doing what they do in their profession, they are not necessarily terribly good business people. They often don’t have a deep understanding of what finance is about.

In that situation – and this is something that has become very clear to me over the years – we have a set-up where the sales force is effectively running the business, as both the owners and managers.

I was at SJ Berwin for 13 years, and over that time, the firm went from being effectively a single office in London to being an international firm with offices principally in Western Europe but also further afield in Asia and the Middle East. The FD role changed along with that growth. The fundamental difference is that the FD role is now seen as much more credible and important than it was. Although the FD continues to be challenged from time to time, there is much more acceptance now that what is said is said for a reason and it’s generally a good reason.

The FD coming in after me perhaps has an easier passage than I did. Looking back I suppose what I did was take the role from being financial controller to finance director – I had to get beyond the scepticism that existed. It was a fundamental change, from being one who was just responsible for the numbers to being a much more integrated part of the business management and the firm’s strategic direction.

• On a level
  Finance & Management Magazine, Issue 210, May 2013, p.12-14

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