Partnerships: Time to question the role of partnerships - Despite Goldman Sachs’ decision to become a public company, many PR agencies still believe that the partnership ethos has a role to play in consulting firms

Investment bank Goldman Sachs has maintained a partnership structure for almost 130 years, only to announce this month that it will float off 15 to 20 per cent of its equity and become a publicly-listed company by the autumn. The move has raised questions over the continuing relevance of the partnership structure adopted by consultancy companies such as financial advisers, law firms and accountants.

Investment bank Goldman Sachs has maintained a partnership

structure for almost 130 years, only to announce this month that it will

float off 15 to 20 per cent of its equity and become a publicly-listed

company by the autumn. The move has raised questions over the continuing

relevance of the partnership structure adopted by consultancy companies

such as financial advisers, law firms and accountants.



The motivations behind the partial flotation hold lessons for the PR

industry, as agencies face similar decisions over maintaining

partnership structures, forming incorporated companies or going

public.



The decision of Goldman Sachs’ 190 partners to go public has clear

advantages.



Six senior executive committee partners alone are expected to share over

pounds 1 billion. Perhaps more importantly for the business, the

decision creates the possibility of Goldman Sachs using shares to make

large acquisitions.



On the other hand it may lose a structure which engenders staff loyalty,

dedication and adherence to the culture and ethos of the business

because the bank is wholly- owned by partners who receive a share of the

profits at the end of each year.



Such a culture is generated at a cost, says Richard Joyce, head of

executive coaching at the Institute of Directors. He explains:

’Partnerships can face difficulties when addressing internal change. The

voting and internal lobbying involved can be a tortuous process.’

Decision making can become highly charged politically with logical

voting upset by personal and emotional issues between partners, says

Joyce.



A further issue of concern is the fact that partnerships exist outside

codes of corporate governance and compliance. Partnerships are not

subject to scrutiny. They are not obliged for instance to release

financial figures, disclose information on internal change or divulge

the size of directors’ salaries.



In the PR world few, if any, of the top 50 agencies are structured as a

partnership in the legal sense. There are straightforward reasons for

this.



First of all, the industry is not as steeped in tradition or a set of

professional values as accountancy or law. Peter Thomas, chief executive

of Lopex, the listed company which owns Grayling, says: ’The same

traditions are not established in marketing services or PR. The best

partnerships in our sector tend to be those with two people together who

then make their money by selling off the partnership.’



PR is more personality-based than law or accountancy. If a PR agency

loses a founding partner its value can be severely affected.

Partnerships in other consultancy industries are less susceptible to the

loss of a single partner because of their sheer size and because of

consistency of professional standards across those industries.



The range of liabilities in a partnership structure can be too daunting

for many PR agencies. Thomas says: ’One reason to go public is to get

access to growth funds. With a partnership a bank looks at it and says

’we want your house’ in return for investment funds. So many partners

hold back and only take the business to a certain level.’



Surrey-based agency Peter Prowse Associates recently made the decision

to convert from a partnership to an incorporated company in order to

raise funds with less liability and also to introduce a share option

scheme for its employees. Managing director Peter Prowse says: ’It

enables us to reward employees other than founding partners. It provides

more of an incentive for people throughout the company.’



However, some believe that the ethos of the partnership structure is

worth preserving. While Chris Matthews, managing director of financial

agency the Hogarth Partnership, formed the agency as an incorporated

company because of tax and other liabilities, he says: ’There is a

future for the partnership ethos but not the legal structure. It can be

a very positive way of doing things.’



Matthews says that a partnership helps to engender a feeling of loyalty

and unity in a team. He adds that it can also bring cost savings over a

structure which contains several competing teams. With competing teams

each has to have its own specialists and administrative support,

particularly where teams function as separate profit centres as at

agencies such as Shandwick and Hilland Knowlton.



Nick Miles, chief executive of Financial Dynamics (FD) sees the agency

as operating as a partnership despite having incorporated status: ’The

only difference is there are less liabilities involved,’ he says.



At FD, 21 partners share the vast majority of its equity. The agency

operates very much like a management consultancy or accountancy firm in

that decisions are taken by all the partners, rather than a group of two

or three senior executives as in some companies. This is in marked

contrast to FD’s previous ownership structure. Last January its

management bought a majority share back from advertising agency GGT.



Miles says the reason was simple: ’It enables people to look down the

road and see the future. We now have the ability to attract new people,

especially at a heavy hitting level, by offering equity.’ The arrival of

Tarquin Henderson, Logica’s director of communications, at FD later his

month is testimony to this strategy.



Outside PR the continuing relevance of the partnership structure is

currently being questioned. The move by Goldman Sachs is evidence of

this. And within the PR sector legal partnerships don’t seem viable for

firms which have grown beyond a certain size. The financial risks and

ownership intricacies outweigh the benefits.



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