Ask any fresh-faced graduate in a professional services firm, (all the way up to Big 4) whether they want to make partner. Almost all of them will say yes, unequivocally. Who doesn’t want the status, glory and rewards of partnership? However, do they really know what it means? In this post, we look at the reality behind the trapping and status of making partner. Much of this post is taken from my chapter 1: “What does being a partner in the 21st century actually mean?”of my book, “How to make partner and still have a life”
What does it really mean to make partner in a firm?
Professional service firms, where people sell their knowledge and expertise for money, are often very different to a big multinational or a simple ‘limited’ company. This is for many reasons. But typically this is because they have chosen a partnership structure over the limited company structure. When you understand the fundamental differences between a partnership and the more normal company structure, it becomes more apparent what the role of a partner in a law, accounting or consulting firm actually does.
The Partners own the business
The owners of the business, the partners, work in the business.
The leadership team of a firm is normally voted for by the partners every 3-4 years. How influential a partner is normally determines whether they will get elected.
The senior decision makers are partners. The level below partners are normally called directors.
Normally, partners are considered by the tax authorities to be self-employed
The shareholders own the business
The owners of the business, i.e. the shareholders, often don’t work in the business.
The leadership team of a business is appointed on a permanent basis, and based on their skill set and ability to do the role.
The senior decision makers are directors.
The directors of a business are normally employed by the business
A good way to think of the partner role in a firm is this is where you have someone who is both player, manager and owner. Or as an owner-managed firm with lots of owners who still all work full time in the business.
When someone makes partner in a firm, they have normally proven the following things to the partners in their firm:
- They are excellent with clients
- They can make more money for the firm than they take out from the firm
- They can win work both for themselves and others in the firm
- They can create a business within a business. (Or as you may hear, a practice within a practice)
- They can build a strong team beneath them to service their business
Listen to me explaining in this short (under 3 minute) video what it really means to make partner.
The different ranks of partners within a firm
When I talk about a partner, there are lots of different types of partners within a firm.
Salaried partner: These are normally partners who have the title but are not an owner of the business. They may also be called ‘associate partner’ (EY) or ‘Executive Director’ (EY) or Principal (BDO). They will be employed by the firm. Normally they receive a fixed salary each month topped up with a bonus depending on their performance.
Fixed share partners: This is normally the first rung of the partnership structure in any firm. These partners will pay for and own a small sliver of the business. (Yes, you did read that correctly, they will have bought a small equity stake in the firm.) They are viewed as ‘self-employed’ and are nominally paid out of the profits of the firm, i.e. drawings. Typically people in these roles will be guaranteed a certain amount of ‘drawings’, topped up with a bonus. This bonus is heavily dependent on the firm’s performance AND the individual’s performance. These partners may have a vote on some partnership matters, but not all.
Full equity partners: These are the most senior partners in the firm. They have full voting rights. Their drawings depend on what the partnership agreement dictates. When you see articles in the trade press about the eye-watering amounts partners in Big 4 and large law firms are making, it’s only the full equity partners who are taking home this amount.
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What does it really meant to make partner in a law firm? Is it any different to a ‘normal’ partnership?
Most fixed share partners in a law firm have proven to their law firm that they can win their own work. And enough of their own work that they can hit their chargeable time targets without needing to be ‘fed’ work from the other firm partners. Indeed in law firms, fixed share lawyers who can’t generate enough of their own work to be fully chargeable, will not last more than 18 months or so.
As a fixed share partner in a law firm you are expected to grow your business so that you can keep not just you, but a team of people fully chargeable. All whilst helping put more profit into the firm’s coffers than you (and your team) take out in wages. Many fixed share partners in law firms never quite make the transition to keeping a team of people fully chargeable. After all, law firms still expect very high personal billing targets from their fixed share partners. That really doesn’t leave much room for business development, people management and partnership matters.
What does it really mean to make partner at an accounting firm?
The mid-tier accounting firms are typically heavily reliant on audit and tax income. They are firms with stable client bases who have a significant amount of recurring work each year. You may hear this recurring work being called ‘Gross Recurring Fees’, or GRF. In fact, accountancy firms with under £1m of fee income are almost always valued on their GRF rather than their profitability.
Often making partner in an accounting firm means the firm trusts you to sign off on the audit file. Or becoming a ‘responsible individual’ or RI. Some accounting firms will let their salaried partners, principals or trusted directors become an RI. But this is quite rare. After all, making mistakes on an audit could seriously damage an accounting firm’s reputation. Or even in the very rare cases bring a firm down, such as what happened to Arthur Andersen.
It is good practice for businesses, particularly not-for-profit organisations, to rotate their auditors every so often. Firms will try and circumvent losing their audit client by bringing in a new audit partner. You may hear this as ‘rotating on’. As a result of the RI status and audit rotation, new audit partners may not have their own client portfolio before becoming a partner. What they will have proven to their firm is that they can:
- Generate their own work-winning opportunities
- Take a main role as part of a team on a pitch for new work
- Build a strong team beneath them on the audits and jobs they run
What does it really mean to make partner in a Big 4 firm
For many consultants and accountants, being part of a Big 4 firm (PwC, EY, KPMG, Deloitte) is the ultimate professional accolade. These firms are tough to get into, pay the most and have the greatest professional prestige and credibility associated with them. These firms, to an outsiders eyes, are often portrayed as large international firms. What is not known widely is that ALL the Big 4 firms are separate partnerships in each country, sharing a common branding and many common ways of working and doing business. Until its collapse Arthur Andersen was the only ‘big 4’ firm which was one whole firm across the world. After the collapse of Arthur Andersen’s US business brought down the whole of Andersen’s business globally, the Big 4 firms decided against becoming ‘one whole firm’. Too much was at stake if something went wrong in one of the countries they had a presence in.
Making partner in a Big 4 firm means, in the eyes of your peers, you have really made it. You have been given the biggest badge of approval for your professional competence. The reality is often something slightly different. You have to work many, many long hours and sacrifice a huge amount to make it to partner. And then when you make partner in a Big 4 firm, you can’t rest on your laurels. You start at the bottom of a long, long partnership ladder.
It’s not just putting ‘Partner’ on the business card
There is more to making partner than ticking off a goal. You become a business owner. Yes, that means you own part of your firm. This is another responsibility that you didn’t have when you were a director, and being the owner of a firm really changes your way of thinking. Now as well as keeping your team and clients happy, completing assignments to time and under budget, winning new business . . . you also have to run the firm. Oh, and you need to buy your stake in the firm when you are asked to join the partnership. In my days at BDO, this was £60k, and most new partners took a bank loan to fund their stake in the business.
As mentioned previously in this article, when you make partner, you become self employed, and are paid according to your share of the profits that the firm makes. This means that in a year where the company struggles to make a profit, you may not actually make any money. Of course, in big firms, this is very rate, but it is still very real.
So, why do people want to make partner?
Despite the downsides, at the end of the day, making partner is still the holy grail of professional services. When I ask people why they wanted to make partner, they usually reply with something along these lines:
- Isn’t that what everyone professional wants?
- The status that comes from having Partner on my business card.
- More autonomy and control over my work.
- More interesting work.
- The financial rewards that come with making partner.
- The security of owning part of the firm.
- I wanted to be the person making the decisions.
These are all very real and valid reasons, and many people who make partner have a very fulfilled and mentally stimulating career. It’s a question of balance, and I assure you, it is possible to make partner and still have a life!
My point really is that making partner is not something you have to do. It’s a choice, and one that you should not take lightly.
You may like to read my post on the pros and cons of making partner, or sign up for your free career kitbag, where you will find everything you have ever wished for (and other things that haven’t even occurred to you) to help you along the tricky path to making partner.