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Who Should Own?

Dear Dave
Our consulting engineering firm is preparing for the retirement of two of six key shareholders over the next three years. In discussing our plans for the future, a debate has broken out over whether or not our office business manager (an accountant by training) should be considered for ownership when we redistribute the stock held by our retiring shareholders. Some believe only “professionals” should be involved in firm ownership, while the rest of the group feels we should not, as a matter of policy, exclude anyone simply because they are not licensed and registered. Our business manager has been with the firm for over ten years and we can all agree that she has made major contributions to our efficiency and profitability. What do you see happening at other firms?

Dear DC
Barring limitations imposed by state business licensing laws to the contrary, inviting key “non-professionals” to become part of firm ownership is definitely on the increase.

As a result of competition, and clients’ ever-increasing demands for timely and efficient delivery of customized services, more and more firms are beginning to accept the subtle yet dramatic difference of thinking of themselves as being in the business of providing engineering services, versus engineers in business. As much as some engineers would care to believe otherwise, it is simply not good enough to be good engineers, you need to be excellent business people as well.

I tell my clients (and for that matter, anyone else who will listen!) to think of their firms as looking like a three-legged stool. The seat of the stool consists of the actual services you provide your clients. Supporting the stool are three legs: financial and administrative processes, marketing activities, and human relations management. For sustained success, it is important that all four components of your organization receive equal attention and develop a level of expertise and depth proportionate to one and other. If a leg or legs is missing, or too small or spindly relative to the rest of the organization, the entire firm will be inherently unstable and vulnerable as a business. It is all about building a properly balanced organization.

As firms grow, mature and become more complex, this line of thinking leads to a higher value being placed on the contribution being made by the folks who manage the “legs”. To be sure, some engineers develop the inclination and the expertise to manage these components of their firm for themselves through additional formal training or years of on-the-job experience. Other engineers prefer instead to recruit talented financial or administrative professionals to become respected, key members of their firms’ management teams.

If one buys into the three-legged stool school of thought, the next generation of firm owners would ideally come from all areas of the firm and not be limited by policy to engineers only. More important is to develop well-defined criteria for ownership based on expected level of contribution and individual performance regardless of where one works within the firm.

Wahby and Associates