Difficult Partner Dynamics: The Issues and Timelines

You’ve been there, or you’re in the middle of it now: a challenge with one particular partner (or maybe more than one) that’s making partner relations, progress, profitability, or all three difficult. We polled CPA firm leaders to find out what the most pervasive issues are, how long they’ve been around (or how long they persisted, if resolved), and what gets in the way of more timely solutions.

Most Problematic Issues

We asked respondents to select the top issue they are currently facing with a partner, recognizing that there might be more than one. Here is the reported incidence of the main issues.Respondents selected “Difficult to move forward, adopt necessary change, or undermining initiatives” as the most prominent issue, followed by “Billing is untimely or insufficient.”

Based on comments in the “Other” choice, we inserted a new category into the chart above for partners who were coasting or not performing at a partner level. Coasting was clearly depicted in the comments:

• Two of my three partners slowed their production to less than part-time without adjusting salaries.
• Not driving the firm forward. Doing very little of shareholder value but wanting to get paid like a shareholder.
• Doesn’t pursue additional work during the slower times of year. Takes too much time off and only tends to work about 3 days per week during off season.

Respondents shared examples of “Other” issues:

• None of the partners could trust them. Always going behind others’ backs to get what they wanted. Could not take ANY criticism.
• Employed their child, who really isn’t qualified to work and basically does very little and has a cavalier attitude.
• Since receiving PE money, the partner has been very difficult to work with. Morale with staff is low.
• Inability to retain and develop future leaders.
• Many “other” comments included a combination of the factors above.

The distribution of these issues didn’t surprise me. It’s rare for a firm to keep a partner on too long with a decline in technical ability. And it’s not uncommon for firms to struggle for far too long with some of the challenges that are more difficult to rein in.

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Lingering Nature of Challenges

What did surprise me—or dismayed me, rather—is how long these issues linger. Before we get to the worst news, here’s how long it took to resolve issues respondents had reported.

And yes, the most common response you see here—1 to 2+ years—is not actually the worst news. It often takes time for these matters to rise to the level of an “issue.” At first, we extend grace, try different approaches, and adapt. But at some point, it’s healthy for a leadership group to recognize that “we keep talking about this,” and that those conversations are no longer driving the firm forward at an acceptable pace. At that point, they begin holding us back, and resolution is required.

The firms in the chart above went through the full cycle of identifying and resolving an issue in a median of 1.5 years. That’s not quick, but perhaps not awful compared to those who haven’t bitten the bullet.

Ready? For firms that haven’t resolved their issue, we asked how long it had been in place.I can’t get this image out of my head — 5+ years?! Life is full of challenges, and some do linger despite our best efforts. But I believe firms and partners can do better. You probably agree, because if you’ve lived with an unresolved challenge for years, you know how draining it is. Next time, maybe we should add another option…10+ years?

On that note, here are the ways these issues are negatively impacting firms. The results reflect only those who reported a “significant” or “large” negative impact. Responses of “Somewhat,” “Little,” or “No” negative impact were excluded.

If we dovetail the number of years some issues have been going on and “time spent on the issue” being a key negative outcome, I’d imagine the “Lower Profit” impact is higher than reported here.

As a conservative estimate, if you assume four partners agonize over the issue only two hours per month for five years, here’s the impact:

4 partners x 24 hours per month x an approx. bill rate of $375 x 5 years

= $180,000 spent on the issue

The time spent is often greater when you consider fielding complaints from other partners and staff. Add in the loss of an employee or partner (the high performers) and any direct efficiency losses (profit, cash flow), and that figure could easily be doubled.

Why is dealing with difficult-partner dynamics so difficult?

We asked our respondents what holds them back from resolving the issue. Here is a sample of the comments:

1. The partner group is uncomfortable holding people accountable.
2. Afraid to deal with conflict.
3. No one wants to do anything.
4. Too busy to devote time as a partner group to resolve.
5. Can is continually kicked down the road, partner says he will improve, new excuse every year.
6. Managing Partner and other partners avoid conflict and key partners use him for his vote on key issues.
7. Offending partner holds majority interest.
8. This partner along with one other founding partner control the vote of the partners. We are finally, after approx. 13 years, close to signing this partner’s retirement agreements (which I feel he is being paid a premium, but I call it the PITA premium to get him out of the partnership).
9. Partner not willing to step back retains majority ownership.
10. Compensation and lack of agreement to change it. Lack of trust between equity partners. Pointing fingers instead of working together to resolve matters timely.
11. High producer.
12. Large book and good paying clients.
13. Lots of factors, but a lack of partner alignment is causing some of the disconnect.

Is this just a baker’s dozen of excuses? Or does it reflect the very real human challenge that exists in managing people—and the monumental difficulty of overcoming resistance from those in leadership or controlling positions?

In our analysis, the most common barriers were an overall lack of leadership, with conflict-avoidant mentalities a close second. Other reasons issues were difficult to resolve included:

• Lack of alignment
• Majority stake held by the partner
• Not making time to resolve
• The individual’s unwillingness to engage in conversations/resolution
• The partner’s high production or other positive contributions

What to do?

If you’re grappling with a partner issue (of any duration), consider these actions:

1. Specify the problem.
   • The clearer you can be about the specific issue, the easier any constructive conversation will be.
   • A non-specific example: The partner isn’t billing on time.
   • A specific example: The partner has provided review comments to staff two to three months after being submitted for review, for seven of their last eight engagements. Our firm’s standard is to provide review comments within two weeks.
2. Specify the impact.
   • Be clear with all stakeholders that there is an issue, and explain how it impacts the firm or an individual partner’s buyout. Without this clarity, making change becomes a steeper uphill battle.
   • Anchor the discussion in shared values and firm goals. For most CPA firms, these include quality client service and retention, talent development for succession planning, process efficiency for profitability, process consistency for talent retention, and adoption of technology and other trends for sustainability.
   • Recognize that some less critical issues might be best treated as temporary “annoyances.” Setting them aside can reduce unproductive, circular conversations and other time-wasting impacts. For example: a mindset like “I wish Paul would adopt the new AI system as fully as the rest of the team, but it’s not worth the fight anymore, and their lack of participation isn’t causing serious problems for the firm. I’m going to move on for six months and revisit the impact again at that time.”
3. Support them differently.
   • If you can find a change that sufficiently addresses the issue for both parties, even if it’s outside the norm, it may be a great solution.
   • For example, if a partner struggles with timely billing, involve a manager plus another partner to make sure the new process gets embedded. Make it clear that billing needs to be done, and their performance is below expectations, so the process needs to change. If the problem is time entry, have an admin sit with them or call them at the end of each day to record and enter their activities into your system.
   • The “cost” of this type of additional support is far less than the ongoing agony of non-performance. True, “other partners don’t need this help,” but providing reasonable accommodations can be worth it.
4. Set a timeline.
   • The negative impact of partner-dynamics issues is compounded by the amount of time they remain unresolved. As a leader, it’s critical to establish clear and reasonable timelines to bring the challenge to resolution.
   • Determine how long you’re willing to work on achieving the change, and identify who will be the captain responsible for driving the necessary tasks forward.
5. Make (potentially difficult) decisions.
   • If the timeline ends without meaningful progress, it’s time to decide on next steps. Options could include increased social accountability, changes in role/responsibilities, compensation adjustments, or, in some cases, termination.
   • One of your jobs as a leader in public accounting is to make important business decisions, even when they are difficult.
   • If the person at issue is also the legal decision maker (e.g., a controlling-interest founder), it’s important to define how long you’re prepared to tolerate the situation before recognizing that moving on may be the best option.

When you commit to resolving big issues, you and your team will feel the benefits, and you’ll often wish you had acted sooner.

In our blog on Sept. 3, we take a closer look at how these issues affect partner compensation, as well as some of the solutions and silver linings that have emerged along the way. Click here for that blog.