Blog3

Changing the model of professional services networks - who sits on your Board?

In my last blog, I talked about the dangers of too much democracy within the governance structure of a professional services network. The ‘one firm, one vote’ concept, still adopted by many groups (largely because of their inability to change rather than a belief that this is a good model for any other than the smallest firms), may appear to be democratic, but in reality it simply hinders the logical decision-making process.

Some groups have managed to vest the management of the group in a small Board of Directors, and they will normally have significant powers, with only key issues being put to the membership as a whole. And therein lies the problem. Or, in fact, two problems.

First, while day-to-day management becomes more efficient, fundamental issues of change remain within the domain of the membership as a whole, with all their diverse interests. Turkeys don’t vote for Christmas, and member firms in membership organisations are primarily driven by the interests of their particular firm, rather than the organisation as a whole. That’s fine if votes on key issues are decided by a simple majority, but I know of at least one large network that requires a 75% majority on any decision of substance.

Secondly, it is fine to vest management in a Board of Directors, but who sits on that Board? Well, almost without exception, the Board comprises senior partners from a number of the larger member firms, together with the senior employee, normally the Chief Executive or Executive Director. Whilst these are normally, I am sure, worthy men and women, there is absolutely no doubt that the most important thing in their business lives will be their own firm, and not the membership organisation of which their firm is a member.

So unless the situation is well managed, there is an inevitable conflict of interests. Directors need to be absolutely clear in their minds about their distinct roles – are they acting as a partner in their firm, or as a director of their membership organisation? Often, there are common interests, but sometimes there are not.

Accountants and lawyers should, through their professional experience and integrity, be able to recognise when conflicts are looming, and act appropriately. However, whilst the professions themselves may be well regulated, the management of networks is not. What is, or is not, a conflict is often less clear cut in the network world, and there is plenty of anecdotal evidence to suggest that the lines can, on occasions, become blurred.

There is a growing recognition of the value of the external director on network boards – an experienced person who has no interest in any one of the member firms. This is certainly a start, and it is great to see some groups going down this route. For the more conservative groups who are still some way from looking at this whole area, they may succeed in keeping their smaller (and, arguably, less valuable) members happy, but I wonder whether their key members, just below the tier of firms that provide directors for the Board, are quite as settled as the network would like them to be.

The more ‘corporate’ the structure can become, with directors who really distinguish between their different roles, the more likely it is that the network will succeed and flourish. I have first-hand experience of such an approach not only working well but, more importantly, being very well accepted by the membership as a whole despite – or perhaps because of – the lack of democracy in the management of their membership organisation.

At the end of the day, member firms want to be successful themselves, and part of a flourishing network too. The pressure on ‘corporate’ networks to perform is clear. If they don’t, the members will leave. But if they do perform, and the member firms can derive benefits from their membership without getting sucked into the management of the organisation, everyone is happy.