committee (see later discussion). Still others rotate the position among the executive committee group.

Other firms choose to hire a professional manager, an administrator (not one of the firms professionals), to oversee all administrative and marketing functions. Practice management is still usually controlled by the firms professionals, either in the form of a broad-based committee or through the managing partner for the specific practice area.

Candidates for these positions, who often carry a chief operating officer (COO) title, come from all disciplines. Those with marketing and administrative experience, often having earned an MBA or similar degree, are typically the firms best choice. Policy decisions typically remain with the firms inner circle of professionals.

Rebellion in the Ranks

While professional services firms have traditionally sought ways to maximize profitability and demonstrate strong leadership, it can be a struggle. One early client, a professional services firm with several offices and more than 800 professionals, was being run by a chairman and an executive committee. Committee members were unhappy with the amount of time managing the firm took away from their billable time. The chairman was so busy with his management duties that his practice was declining. Consulting intervention pointed to some process improvements and recommended the hiring of a professional manager as CEO. The leadership group agreed with this strategy and a search was conducted. A candidate was found at a large financial institution and was hired. The chairman was delighted and very supportive. Committee members were initially pleased but were in open rebellion within eight months, forcing the ouster of the CEO and leading to the chairmans resignation from the firm. The partner who led the rebellion was soon serving as the new chairman, and the firm retained this model until several years later when they were acquired by a large financial institution. The reason cited for the rebellion was that the professional manager never absorbed the culture of the firm.

Executive Committees

Many professional services firms use an executive committee approach to firm governance. Firms large enough to have a professional administrator often use the executive committee as a mini-board of directors to interface with the administrator and moderate his or her decisions. In the smaller firm, this committee frequently serves as a virtual office of the president,

making day-to-day decisions for the firm and submitting these decisions for ratification by the board of directors when they meet or by poll. Most often, executive committee members are also members of the board of directors of the firm, and operational and shareholder issues are handled simultaneously (though specific resolutions may be required to meet legal requirements). Firms that do not follow the bylaws they have established or fail to maintain complete and accurate records open the firm and themselves to potential risk. When in doubt, it is always better to draft a simple resolution and get it approved by the larger board than to take the risk of a future challenge to an oral decision.

Practice Management Teams

In this model, members typically rotate on and off a small team that may focus only on service quality or may involve itself in both service quality and business results. Decisions are often determined by consensus, and few substantive issues are decreed by the teams chair. The span of control for the team may entail only setting goals for their specialty and monitoring progress against plan, or the committee may oversee all issues related to specific performance of the practice specialty.

This model allows those closest to the work to manage the creative and work product unencumbered by the disparate concerns of other firm members, who often operate in different specialty areas that may not share the same operational or profit guidelines. In a consulting firm with a litigation support practice, for example, the work flows and processes differ sharply from those of an applications engineering practice focusing on problem solving and code generation.

Representatives from each of the practice management teams within the firm usually constitute either the board or its executive committee.

Summary

Managing the professional services firm has never been easy. The analogy of herding cats comes to mind. Firms that adopt an effective structure for governance, wealth accumulation, and equity transfer give themselves the best chance for prosperity and growth. Whether the firm begins with one principal or a key group, creating a structure using one of the models identified will enable rather than constrain opportunity and is a first step in increasing the likelihood of long-term success.

Building on this structure, initial equity is allocated fairly, and the processes of the firm govern the flow of equity into new hands. This process is the lifeblood of the professional services firm. In the Four Stages of Business

Growth7 (survival, liquidity, profit, and sustained growth), we see a cycle that many businesses in general, and professional services firms in particular, fail to master. Few survive into a second generation of leadership. But those few firms that do survive have mastered the flow, and their vitality is evident, both professionally and financially.

Principals and professionals in these firms have been nurtured both in terms of equity participation and performance recognition. Sound and progressive compensation programs provide a stable environment that nurtures and sustains high performance professionals. Such policies also facilitate retention and, coupled with a full array of competitive benefits, encourage both the best and the brightest to cast their long-tem lot with the firm.

Successful firms have also identified and documented their workflows and supported those workflows with decision management techniques designed to facilitate process. Mastery of workflows allows for leveraging the potential of each professional and support person within the firm.

Finally, successful firms typically acknowledge that there is no shortcut to improved performance, no magic pill. Success is earned on a day-by-day basis. Structure supports ownership and facilitates reward. Defined processes make the going easier and propel the firm into its future. In speaking to clients in professional services firms over the years, I have often asked what most facilitates growth, given a talented group of professionals. In hard times and prosperous times, the answer is the same: flexibility.

NOTES

1. John J. Reddish, CMC, IPO Decision Tree (included in the Resource CD).

2. Mark J. Gundersen, Esq., PSI 2004 Technology Conference, 2003, pp. 5, 6.

3. Robert Morris Associates, Annual Statement Studies (also known as the Ratio Book) includes comparative historical data and other sources of composite financial data categorized by SIC code, available from www.rmahq.com.

4. U.S. Department of Labor, Bureau of Labor Statistics, www.bls.gov.

5. Several online sources provide individual salary surveys, including www .salarysource.com.

6. One national source for site selection and local demographics is available from www.developmentalliance.com.

7. John J. Reddish, CMC, press release and article, © 1995, 2004 (included in the Resources CD).