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How to achieve a productive partnership.

How can partners avoid or resolve problems and misunderstandings among themselves? By clarifying important issues, according to David Coleman, PhD, an organizational psychologist and consultant with Transition Management Services, 7211 Trescott Avenue, Takoma Park, Maryland 20912, which specializes in strategic planning and dispute management in accounting and legal firm.

Success in a partnership, as in a marriage, requires desire, wisdom, skill and perspective. This article provides a model for examining partnerships. It then identifies the key elements of a business relationship and discusses a process for clarifying that relationship. It is based on a partnership-examination method developed by Deborah Heller and Linda Cunningham of Heller, Hunt, and Cunningham of Brookline, Massachusetts. I have found this framework useful in consultations with partnerships in crisis.


Heller and Cunningham report three key dimensions to successful partnerships:

* Professional competence of all partners.

* Respect for personality differences.

* Clear agreements about the business relationship.

Professional competence. Technical accounting skills (audit, tax, S corporation planning, bankruptcy management) are the foundation for respect from both clients and colleagues. Competence in getting those skills used by the public (that is, in practice development, firm management, strategic business planning) also is essential. Professional competence in both technical and business management skills is a necessary but not sufficient condition for a partnership's success.

Personality. Compatibility of personalities often is emphasized as the key to successful partnerships. My clients' complaints often involve personality conflicts between partners or problems with a key partner who has a difficult personality. I believe. personality differences can be managed by competent professionals when the other two dimensions (professional competence and clear business relationships) have been properly addressed. In fact, it's almost always possible to identify some aspect of professional competence or some part of the business relationship that is at the heart of most partnership conflicts.

Partnerships exist to achieve business goals. Thus, focusing either on the firm's goals or how they're being achieved is much more practical than seeking to change someone's personality. Respect is key to managing personality differences. It's shown by listening to partners and seeking to understand their views.

Clear business relationship. There are nine critical factors that must be clarified in business partnerships:

1. Each partner's degree of autonomy.

2. The firm's business goals.

3. Compensation amounts and process.

4. Decision-making methods.

5. Division of overhead.

6. Procedure for entrance and exit of partners.

7. Division of firm equity.

8. Finn management issues.

9. Type of partnership.

Each firm will make different decisions about these critical factors. There is no correct way to deal with any one of them.

More important than what is decided is how the decision is made. It is critical that each partner perceives he or she has been

* Included in decision making.

* Influential (that is, listened to, understood and taken seriously) in affecting the outcome.

* Given a chance to use his or her resources and skills in arriving at the decision.

If these critical process factors are attended to, partners will feel committed to implementing the decisions made. If not, problems will eventually emerge.


The key reason for clarifying business relationships among partners is to minimize conflict and create trust. Conflicts in troubled business partnerships almost always result from disruptions of expectations. Often these expectations have never been discussed explicitly. Usually, one or more partners either have mistakenly believed there was an agreement about an aspect of the business or have not taken the time to clarify their agreements. Dialogues about key aspects of the business relationship can help turn the implicit into the explicit. Trust is a direct result of making clear agreements and keeping them over time.


Autonomy. This is what a partner can decide alone, without consulting other partners. Limits on autonomy must be clear in areas such as budgets, work schedules, new client acceptance, hiring staff, assuming debt and taking vacations.

Business goals. At the outset, agreements must be reached about what kinds of services are to be offered to what kinds of clients. Eventually, decisions must be made about whether to expand the business and how (such as those on cost leadership, differentiation and focus).

Compensation. Perhaps more important than the amount of each partner's compensation are the criteria and method for making compensation decisions. Will hours billed, dollars collected, clients originated or some other factor be used in determining how much each partner takes home? How will the decision be made? How will the amount relate to profits? When will it be disbursed?

Decision making. Probably most basic among these nine factors is a clear agreement about the decision-making process itself. Three aspects must be considered:

1. Which decisions must involve all partners (hiring, firing, spending, business strategy)?

2. What decision-making method will be used (for example, one person -one vote, consensus or executive comn-dttee recommendation)?

3. Will votes be equal or weighted in some way?

Division of overhead. This determines which expenses (office space, equipment, insurance, licenses, staff salaries and parking) will be shared by partners and which are each one's individual responsibility.

Entrance and exit of partners. Discussions about changing the partnership's composition often are avoided. In admitting new partners, decisions must be reached about admission criteria, the type of partnership to be offered and whether there will be a financial buy-in. For partners leaving the partnership, decisions must be made about disbursement of assets and how to handle the partner's capital investment. In addition, grounds and policies must be set for expulsion from the partnership and for handling a partner's death or disability.

Equity. This includes agreements about how both tangible equipment, furnishings, accounts receivable, clients) and intangible assets goodwill associated with the firm's name) will be divided if the partnership should be dissolved.

Firm management. Partners must reach clear agreements about who is responsible for the tasks required to stay in business. This means determining who will market the firm, pay the bills and taxes, keep the books and serve as lead contact with the outside world. If there is a managing partner, a first among equals, the limits of his or her authority must be determined and a decision made about how he or she will be compensated.

Type of partnership. Clarifying whether the partners are going to be equal or not is fundamental to a clear business relationship. If not, there must be criteria for assigning weights to ownership units, such as investment of capital, book of clients or professional activities and reputation, for example.


This exercise provides a forum for discussing issues that must be considered in making clear agreements about partners' business relationships. The format allows partners to confront tough issues that might otherwise overlooked.

Individual preparation. Partners should schedule a meeting specifically for an uninterrupted discussion of their business agreements with one another. Beforehand, each partner should rank the nine components listed in exhibit 1 on page 114 from most to least important in clarifying their business agreements.

Agenda setting. At the beginning of the meeting, partners must reach agreements on meeting length, the process and ground rules for the discussion and how to handle unfinished business. (Some ground rules are provided in exhibit 2 at left.)

Suggested process. Partners can share their rankings on a flipchart using a matrix in which the nine issues are listed as rows, and the partners' names are listed across the top as columns. Exhibit 3, below, illustrates one partnership's completed matrix.

Each row is totaled and discussion begins with the item with the lowest sum; in other words, the item deemed most important by the majority of partners. For the example in exhibit 3, the discussion would start with business goals, proceed to compensation and then cover type of partnership.

Each partner gives his or her rationale for the ranking and identifies the key elements to be agreed on for that item. The discussion's purpose should be to arrive at a point at which partners can say, "Even though it may not be exactly what I want, at least I can live with what we've decided." To do this, partners must pay attention to what each other says. Each person should try to encourage others, particularly quieter ones, to offer their ideas. heat differences of opinion as a way of

1. Gathering additional information.

2. Claiifying issues.

3. Forcing the group to seek better information.

Do not make early, fast and easy agreements and compromises. These often are based on erroneous assumptions, which, if unchallenged, will come back to haunt the partnership later. Partners should seek to understand one another's views first and then to be understood. This will lead to clear, satisfying agreements that strengthen the partnership and the business.

Once an agreement is reached, one partner should attempt to summarize it on a flipchart. This will test the agreement's clarity. The flipcharts can then be typed up to provide a permanent record for the future.

Next steps. Most partnerships, depending on the size and clarity of existing agreements, will require a minimum of two to four meetings to cover their agreements on all nine factors. While that seems like a big investment of time, it is minimal compared with the time and energy required for grappling with conflict that eventually results when agreements are not explicit.

Older, more established partnerships often can benefit by using the nine factors diagnostically. Partners in these firms can rate their satisfaction with current agreements on each factor. The results can be captured on a flipchart matrix. Discussions then address factors with the least amount of satisfaction.


The work of making a partnership an effective one is never done. Agreements must be revisited as the partnership's market and structure evolve. However, the benefits of continuing this work include satisfaction in accomplishment, personal growth and companionship on the journey.


* THREE KEY dimensions to making partnerships work are professional competence, respect for personality differences and clear agreements about the business relationship among all the firm's partners.

PARTNERS CAN develop a better understanding of their business relationships by ranking the importance of nine critical factors and clarifying how the firm will address each one.

* THE FACTORS to consider are autonomy, the firm's business goals, compensation amounts and process, decision-making methods, division of overhead, entrance and exit of partners, division of firm equity, firm management issues and type of partnership.


Meeting ground rules

1. Speak for yourself.

2. One topic at a time.

3. No interruptions.

4. Restate what you have heard and points of agreement before you disagree.

5. Ask for what you want and need.
COPYRIGHT 1992 American Institute of CPA's
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
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Title Annotation:accounting firms
Author:Coleman, David
Publication:Journal of Accountancy
Date:May 1, 1992
Previous Article:EITF consensuses and the GAAP hierarchy.
Next Article:Compensation for bankruptcy engagements: how do CPAs fare?

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