Another reason firms turn to outside leaders is that the “theory” of management is more a collection of case studies than a controlled and repeatable scientific observation. Businesses in these studies benefit from assets managed directly from the top by the business leaders: In manufacturing it is process and production equipment, in retail it is location and inventory, and in technology it is a formula or a code.
Professional services, by their nature, are much more fragmented: Doctors, lawyers, CPAs, dentists and advisors produce an outcome and create value for their clients in a much more decentralized fashion.
That makes it more difficult to scale, and decentralized leadership makes it difficult for owners. Perhaps in this case it’s the broad involvement of the partners producing a result that is good for clients and therefore good for business. Perhaps this balance should not be disrupted, and perhaps the way to manage the outcome is not through centralization of decisions but rather the centralization of cultures. This is the way the largest and most successful accounting firms and consulting firms manage themselves. This is the history of many investment firms as well, with Goldman Sachs providing a good, if perhaps controversial, example.
Where Do Leaders Come From?
As advisory firms grow, many are looking for answers to the difficult questions, “How do we manage this complex business?” and “Who will be our future leaders?” The questions are difficult, and simplistic answers do not work well. Borrowing from the methods of large public corporations and hiring professional leaders is to forgo the top competitive advantage of independent firms.
The biggest competitive strength of an independent firm does not come from its investment methods or superior financial planning—it comes from the sincere and deep involvement of its decision-makers (owners, managers, leaders) in the business of the firm. If you remove that deep involvement, you have nothing more than a small wirehouse, where the advisors work for a group of MBAs that rose to the top through a career in management. Remove the emotional involvement from parenting, and all you have is a day care center.
Instead of looking for ways to abdicate management and leadership roles and leave them to professionals, I hope that each independent firm finds the right people who want to be involved in growing, improving and directing their businesses. If that connection is there, the strength of the firms will be preserved as they transition from one group of owners to another.