staff employee providing services for a firm is not an inherently fungible commodity.

Compensation

This issue is somewhat self-evident: Because of a greater degree of education, licensing or certification, and specialization, professionals are paid a great deal more than other vendors of a corporation. They have paid a price to obtain their degrees, licenses, credentials, and knowledge, often in the form of school loans, missed business opportunities, and a heavy investment of time in their career. Professionals expect to earn significant compensation not only for their expertise but also for the price of being on call at the clients behest.

At some point in time, almost every client will question not only the fees that it is paying to the firm, but also the value that the client receives in exchange for the fees. This presents almost an inherent conflict of interest for the managing partner of a firm. He or she must pay market compensation rates to keep the firms professionals happy. But at the same time, the decision makers at the client will often wonder at the level of compensation that the professionals receive and are likely to shop the competition if prices are too high.

Personality Issues

By definition, professionals are specialists who have a level of education and expertise in areas that others do not. Some aspect of their personality caused them to achieve a level of success, be it academic or otherwise. The corollary is that professionals also often have an attendant part of their personality that makes them difficult to manage. For the sake of clarity, let us simplify this issue by avoiding euphemism-professionals often have out-sized egos that many other industries simply do not have or do not have in the abundance that a professional services firm does.

Suppose, for example, that Company XYZ is in the business of making widgets. The widgets are mechanical devices that are manufactured by piecing together a series of five separate components. Without all five components, there is no widget, but the process itself of assembling the components requires no specialized skill or knowledge. Company XYZ has a team of 10 persons that assembles widgets, two persons for each component. All of these people know the process by which they handle their own particular component, but none of the others. Therefore, it takes at least five of the persons on the team to manufacture a finished widget. Now, assume as well that Company XYZ has a CEO who started the company making widgets in his garage and has built the business into a multimillion-dollar enterprise. He knows everything there is to know not only about assembling the components but also about sales, marketing, accounting, shipping, and everything else necessary to run

the business. None of the 10 people who assemble the widgets have the same level of expertise as the CEO, but the CEO has the knowledge and skill of all 10 people on the component team because he started out doing it all by himself. In Company XYZ, therefore, there is one person who is indispensable. Also, there are 10 people who are in some form or fashion dispensable because there is always someone who can do their job if they decide to leave, and they also know that they do not have the knowledge that the CEO has.

In a professional services firm, most often all the professional staff have the same basic education, the same basic licenses or permits to work, and have undergone the same basic life experiences to gain those assets. Therefore, they may not have started the firm and may never have managed a firm in their life, but they still have the same baseline starting point as the managing partner, who would otherwise be the CEO. Furthermore, they may also have a specialty that the managing partner does not have (e.g., ERISA law) that is necessary for the provision of services to the client. Therefore, that professional thinks that he or she is indispensable and should be accorded the same compensation or other perquisites as the managing partner. Add to this the unique structure of many professional services firms, and the problem deepens. Many firms, unlike corporations, are partnerships. In some way, each partner has input, if not a full vote, in how things are run. The end result is that the managing of such egos can be difficult, and it takes a unique leader to effectively run a business among equals. Chapters 9 and 3 deal with partnership structures and organization issues in more detail.

The partner must evaluate any person being recruited with the idea that that person would eventually take his or her place as a partner with the other professionals. Therefore, if there are ego or team-player issues with a recruit, they need to be immediately identified and may justifiably form the basis for a negative hiring decision.

Liability

This issue cannot be overemphasized, especially if the firm is recruiting younger staff direct from professional schools. Most professional services firms have some type of fiduciary duty or quasi-fiduciary duty that informs every decision they make concerning the client. Therefore, there is a fiduciary or quasi-fiduciary liability that attends each persons work for the firm. If a bad hire is made in the world of commerce, productivity might go down or a bad product might get shipped. If a bad hire is made in a professional services firm, the firm could easily be exposed to liability that could threaten its existence.

Further, apart from legal liability, there is the issue of institutional reputation. The clients of a professional services firm provide its lifeblood, and without new clients the firm ceases to exist. But apart from selling the firm to new clients, the existing clients must be serviced in a way that conforms to

all applicable standards of care and conduct. Professional services firms rely solely on their human capital to generate revenue. If the human capital is flawed, the client relationship is damaged and the institutional reputation of the firm is at risk.

Retention for Professional Services Firm versus Other Businesses

The concept of retention is viewed with disdain by many professionals. It is seen as a New Age or touchy-feely addition into the firm, an unfortunate consequence of the me-first mentality of the modern world. In almost every firm, there is at least one partner who the associates refer to as old school and who can always be counted on to regale new employees with stories of how it used to be. This person invariably thinks that the junior employees are paid too much, are asked to do too little, and have no idea what it was like just to be happy to have a job, any job. This is the professional equivalent of your father or grandfather telling you about having to walk to school through five feet of snow, uphill both ways.

The truth of the matter is that this curmudgeon is 100 percent absolutely right. Never before in the history of our country have new graduates from school been paid so much in comparison to their (practically nonexistent) level of experience. Graduates of the top business schools and law schools often earn more money in their first year out of school than the top level of salary that their parents supervisors made at any point in their entire career.

What the curmudgeon fails to take into account, however, is the immutable law of market forces. Simply put, barring a nationwide financial crisis, the salary level of new graduates from business, law, architecture, and other professional schools is dictated by the market, and is not likely to decrease by any significant margin. Therefore, the concept of retention, while unseemly to many veterans, is here to stay. Firms ignore it at their own peril, because for the most part, young professionals always have a continuous market for their services.

Because professional staffsalaries are high and competition for professionals is so intense, firms have had to institute retention policies to keep professionals in the firm once they are hired. This is distinct from many businesses for several reasons.

First, the revolving door that characterizes much of American business is even more pronounced in the services business. Thirty or 40 years ago, the expected career path of young professionals was to get a job with the best firm that they could find and, once hired, pay their dues with the ultimate goal of making partner, managing director, principal, or other appropriate level within their industry. Once you made partner, in the former reality, you