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