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Hiring a New Partner


Dear Dave
We are a very successful eighty-plus person environmental consulting firm. We have grown fairly steadily since beginning our practice about ten years ago. Our founding shareholder has always accepted that he cannot do it all on his own and has been very open and willing to delegate and share management duties and to make stock available for purchase to those key individuals who have contributed to our success over the years.

We have been in quiet talks for several months with a very senior environmentalist to leave his firm and join us. His expertise is in an area of service we currently do not offer and having him come to work for us and establish this new line of work at our firm would not only complement our current services, but also open up a lot of new project opportunities. However, this individual has stated he is not willing to come to our firm unless we sell him stock, on day one, as part of his initial employment package. His current employer has been promising him stock for years, but has never followed through which is one of the major reasons why he is now talking to us. What do you suggest we do? Are there alternatives you could recommend?
TS CA


Dear TS
This is a very difficult situation that is not all that uncommon. Since I am not familiar with all the specific details I can only answer you in broad generalities.

As a rule, no one should come through the door as an owner. It is not good for your company, and it is not good for the person coming in. Any senior-level person worth his or her salt knows that to be a truly effective leader in a new organization they must first earn the respect and confidence of others. It cannot be purchased, it cannot be given, and it takes some time to be achieved. In a culture like yours, where hard work and contribution have always preceded the opportunity for ownership, selling stock to an outsider breaks all the understood rules of order, creates uncertainty and could illicit some serious negative feeling. Newcomers must be seen to pay their dues for a year or so (at least) building up their credibility capital in the organization before joining the ranks of owners. This time gives the organization and the newcomer each the opportunity to mutually adjust and make sure the eventual "marriage" will be a good for both parties.

I do appreciate the feelings of the individual you’re trying to lure away. After all, this person is ready to leave where he is as a result of unfulfilled promises, why should he rely on promises alone from your firm? He shouldn’t. Working with this person, create a mutually agreed list of key objectives to be achieved during the first twelve months after he joins the firm. If the objectives are met, and the relationship is positive, make the stock purchase effective as of his one year anniversary, but agree to freeze the price of the stock at the value on the day he joined the firm. Also, create a bonus incentive package tied to the first year objectives to replace in the form of compensation that which he would have received had he been an owner from the first day. This way, there is a specific promise to sell stock, and any financial loss as a result of waiting has been made up. The new potential partner and the firm will both benefit from this go-slow approach.

 

 
 
Wahby and Associates