Is Stewardship Dead?
post # 336 — March 22, 2007 — a Strategy post
Over the years, I have had a lot of people ask me for definitions of (a) what is a profession (b) what is a professional (c) what is a professional service and (d) what is a professional service firm?
On the last question, I have always argued that a professional service firm, as a special type of organization, is one where the current partners develop and pass on the firm to the next generation. (Itâ€™s also called the partnership model)
In the old days, when professional firms acted like they cared, many of them ran on the principle of stewardship or â€œlegacy.â€ The firm was run not only for the current generation, but with an eye to building an institution that would flourish and survive in future years. Partners, so the argument went, held the firm in trust for the next generation.
This was not just a cultural issue. Under the stewardship model, equity in the firm was transferred at book value — in at book, out at book. Partners made their money from the income they earned while working at the firm, not by equity appreciation.
I got a call yesterday from a CPA firm partner who thinks that continuing to think this way today is all hogwash. Firms today arenâ€™t REALLY run to leave a legacy or build an institution for the next generation, and firm leaders should stop pretending that they are. Theyâ€™re fooling no-one, he says.
Todayâ€™s partners want not only to maximize their income, but also (when the time comes) they want to be bought out at fair market value when they leave the firm, not just depart with a token retirement pension.
In part, the commonality of the â€œstewardshipâ€ versus â€œif you want ownership you have to buy it from meâ€ model depends on which profession / industry youâ€™re talking about. PR firms, ad agencies and other marketing communications firms have ALWAYS been â€œowned.â€ Theyâ€™ve always been â€œbuilt to flipâ€ (ie sell to one of the big conglomerates like Omnicom or WPP.) From the beginning, their founders ran them to create a â€œcapital event.â€ They didnâ€™t usually give away equity for nothing to rising young people.
On the other hand, in the profession of law (in the US, UK and Australia, but not necessarily elsewhere) there is still a history of running a partnership model, not a corporate model. The message is still (so far) â€œearn your income while youâ€™re here, thereâ€™s no capital gains to be made from your ownership of the firm.â€ In part, thatâ€™s because in many countries there are barriers to who can own a law firm.
But what do you think is going to happen in the UK when the Clementi reforms are (finally) implemented and outsiders can buy the equity of a law firm? How long do you think it will take for the existing partners to rethink (even more than they have been doing) whether they want to admit new partners without forcing them to buy in at fair-market value? Why give away a part share of ownership in your law firm when you can sell it to Goldman Sachs?
In accounting firms, it depends on the size of the firm. Big global firms still pretend they are â€œpassing on the heritageâ€, while many small CPA firms owners are unapologetic in saying: if you want ownership in my firm, you have to buy it from me!
So, what do the rest of you see going on out there?
- Is Stewardship (or the partnership model) dead, even among the firms that pretend to still have it?
- Should we all just admit that the way firms are being run today is to maximize the wealth of the current shareholders?
- If you ran a firm, would you run it on ownership or stewardship principles (be honest)
- Is there a price to be paid if firms switch from one approach to another?
Phil Garcia said:
Stewardship has been arround since Christ walked the earth… My partner and I started a business built on stweardship and where we had been over the last thirty years in the service industry. There was little if any stewardship.
We like to refer to it as mentoring. Not a new idea. Our turnover is low. Our team members are loyal and share in the profitablity of the corporation with yearly bonus and other fringes. We are small but successful.
Being part of the AVEDA network… we have built our business on their model of sustainability, which is only one segment of their business model. Our hair salon is sustained due to the fact that we all are stewards and believe in serving the whole.
Our business is built in such a way that we know that one of our team (or partners) will buy in or buy us out at some point. If not then what we have created both as a business model and a culture something that will be attractive to someone who wants to be successful.
Stewardship is not dead… It does work..It works from the top down and not from the bottom up. Well it has worked for us. It is possible to maximize income to partners by loyal staff who are all working toward the same goals as the owners. Just ask them what would they do if the business closed tomorrow? What would they do and what business model would they look for to flourish successful.
Stewardship builds a model of sustainability that goes beyond dollars. Serving the client produces positive long lasting results for staff, partners and owners that will be here long after we are gone from this world.
posted on March 22, 2007