From a GC reader:
Why would anyone out there continue this rat race when the firms cut partners based upon politics and numbers that they manipulate?
That’s a good question, grasshopper, but really the second question. First we should ask: “What is the value of a partner?”
You might think the smarter you are, the better you are at your job, the more your staff and clients admire you, the more valuable you are as a partner. You would be sort of one-third right. PwC, for example, rates partners on the following criteria (same as staff but with different weighting):
• People
• Quality
• Profitable Growth
• Partnership and Teamwork.
When PwC announced their “Exemplary Awards” last week, a kind of “partner bonus,” the “majority (~80%) of the awards were for efforts relating to growth and teaming on a cross-line of service basis to deliver the firm.”
Firms should grow, especially if that means serving clients (in particular multinational clients) better. But I, for one, believe in the theory, “Small is beautiful.” What’s been lost are strong incentives for quality, technical knowledge, and mentoring staff. That’s what makes a good auditor and what fulfills their public duty to protect shareholders.
Most partners are glorified staff, with no authority or influence over their business, strategy, or staff. They’re valued only for the ability to put deals together, as a team player. Although we’re seeing an increase in fraud and accounting manipulation, the economic downturn and diminution of the Sarbanes-Oxley gravy train means instead partners are being demoted, force-ranked out, had compensation cut, and marginalized. This is happening just when their knowledge, skills, and ability to coach younger professionals is at its peak and most needed. You have to feel for them. There’s not enough lucrative business to support them and fewer staff to justify their existence. On average, “Exemplary” PwC partners received ~$100k bonuses, but the lucky ones were only 4% of the total.
Some partners have been cut off at the knees; one day there’s a job, clients, staff, and a reason to get up in the morning. The next day you’re toast. I hear from them via Linked In, emails, and phone calls. In Chicago, Deloitte demoted and cut many across the board, KPMG and EY did the same in selected practices, and next tier firms cut everywhere.
PwC took a different approach, cutting compensation over time, taking away clients, force-ranking them via performance appraisal hell, pushing them out, “feet of clay” first. Some resisted or settled their legal claims. Severance is not as generous as you might think, being driven by one-sided employment contracts watered down — over and over — with little push back from partners themselves. The firms don’t expect them to fight back, so if they do they win a monetary battle, but typically not the war (you’d have to start a blog to do that).
There’s little chance to move to another Big 4 firm. Next tier firms are not hiring big names unless you bring significant business. But if you had significant business and had been playing the game, you wouldn’t be in this situation.
For some partners, if they haven’t overspent or have minimal family responsibilities, it may be the best thing that ever happened to them. Plenty of time to make real money. Rewards for partners in the Big 4 are fairly modest when compared to those of their client counterparts. For some it was enough, if it weren’t for the lawsuits. When KPMG settled the tax shelter case, partners ponied up, on average, $500k each to cover the penalty. The firms don’t keep much in reserves and borrow for ongoing operational needs via factoring receivables and non-secured lines of credit. But financing choices are limited due to independence.
Most partners know no other life – recruited right out of college and sold a bill of goods: “Do well, do more, and yours too shall be the prize.” The job market for CFOs, Controllers, and Chief Audit Executives is not so hot. Independence rules constrain their ability to go directly to a client. If the partner was not the designated spokesperson for the firm in an industry or a subject matter expert, outside speaking and writing experience is limited. You’d be surprised how many, when Googled, draw a blank, even after 20+ years of working. It doesn’t help they’re not even publicly associated with the clients they served via their signature on an audit report.
Well, maybe in some cases, it does.
Let’s face it – the partners drank the kool-aid and then became the makers of it.
On the way to becoming partner, how many industry people did they encounter who made more w/ better work/life balance. And yet they chose to stay in public. They could have left at any point and they didn’t.
If you encounter dozens of opportunities to improve your situation, but don’t take any of them, then don’t cry about it.
But the worst part is that these same partners will continually try to convince everyone of the value of staying in public even though they are suffering for doing so.
I don’t have any sympathy for someone who gets exactly what they’ve asked for.
Why would a partner ever take a demotion? And a demotion to what? Client service staff? Does this mean they get their equity back?? Not a bad deal if the ship is sinking!
2 – we had partners demoted to directors (Uncle D). I don’t know the inner workings of surrendering the equity, but that has to be humiliating.
1- Good points, though I do feel bad for some of the more decent partners.
Nice article FM, it does give a little perspective on how partners are also hurting.
Nice article. The only thing that matters when partners are cut are numbers – revenues, billings, realization. The points about quality, people and teaming mean absolutely zero. And if you bought that somewhere along the line, you are now gone and treated like crap in the process.
@ FM – In your opinion, what are the advantages of sticking it out to partner (if any?)?
@5
I’m hard pressed to think of too many now. Most that can consider partnership
have never worked anywhere else. If you are a go-along, get-along person or someone in a great niche with great skills, maybe you can make a good career and make it out alive on your own time. If you really like your work, like your clients, have a great team, and you are being treated fairly and can take care of your team, then it’s a great job. But how many partners in Big 4 can say that right now?
This is spot on. I witnessed it at uncle D. Partners were demoted to Director. Humiliating to say the least. And if that were not bad enough, Partners were let go. Of the Partners I personally knew, only the ones who had any moral character, work ethic or genuine concern for those who worked for them were let go. The Partners that remain only care about their wallet and who they can kiss up to in the firm hierarchy. They all headed for cover when the economy tanked. Their only concern was saving themselves. What cowards. The staff that is still here has no respect for the Partners that remain. All the good ones are gone. (Yes, there were some good ones!)