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Management Burden

Dear Dave
I am one of seven equal owners of our firm. The seven of us bought in within a year or so of each other as part of an ownership transition plan by two senior engineers who owned and managed the firm before us. The two former owners are now retired and occasionally still work on client projects on a contract basis, but are no longer part of the day-to-day activities at the office.

While the financial and legal aspects of the transfer of ownership are working very well, some of us are concerned about the time and amount of effort the seven of us are spending on dealing with business management issues. All seven make decisions together, and we won’t make a decision on practically anything until the seven are in complete agreement about what to do. We’re very busy and it takes a huge effort just to get us all together in the same room, let alone the collective time we spend hashing out each and every decision. Can you offer some suggestions?

Dear CK
I’m guessing the former two owners probably made decisions and ran the company together in partnership-like fashion. The seven of you having observed and learned this particular methodology, are now modeling it for your own system. Problem is, as you are finding out, it is much easier to efficiently group-manage when denominating by two then it is when trying to reach the consensus of seven.

Key Point: You need to slim-down the management process by starting to delegate responsibility for routine daily-weekly-monthly level management decision making to a sub-set of the seven of you. Begin by first working out a specific list by topic, or dollar amount, of which decisions are so important that they must be reserved for the whole group to be involved with. Items for the entire ownership body would typically include matters of firm strategy and direction, major financial commitments and fundamental policy making.

Next step, decide what the managing sub-set looks like. There are a number of approaches. Some firms elect or appoint a managing principal to make those decisions on behalf of the group. Other firms will form a management committee comprised of a reduced number of owners operating under the principle of majority rules when it comes to decision making. When using a management committee approach it is usually a good idea to stick to an odd number of members to prevent deadlocks. In your circumstances, seven owners, a management committee of three sounds about right. The managing principal or committee appointments are generally made for a specific term, usually a year or two at a time and then are subject to re-appointment. Policies, procedures, budgets and other such tools are used to define and govern the powers to be delegated. Any specific limitations are clearly laid out.

While I don’t recommend this next option, if a sub-set approach of either a managing principal or management committee does not sit well with your fellow owners, you might begin in the same fashion by creating the list of items to be reserved for decision by the entire group and then spread the decision making for all other topics and activities between all seven owners. However, by splitting up the responsibility between the seven of you, the chances of something falling between the cracks, or one or more of the owners failing to conduct their responsibilities in a timely or an appropriate manner increases greatly. The end result of which is a failed management process.

In the interest of efficiency and effectiveness, the seven of you need to talk this out and come to agreement on some system that has enough definition and controls in place to allow you to have the trust and confidence necessary to begin delegating responsibilities in order to arrive at a less burdensome process by which to manage your firm.

Wahby and Associates