A Lasting Ownership Structure
To continue to grow, a firm needs to be able to add new partners and retire older ones. A large group of owners will always have someone close to retirement and will thus need to deal with succession. When there is a large number of partners (20 or more) the continuity of ownership has to be a process—it can’t just be a bunch of individual deals with different partners, since some will do better and foster internal conflicts, harming the firm’s performance eventually.

There should be a clear understanding of the criteria for firm owners, and they should know what is expected of them. There should also be a fair and equitable partner compensation method. The culture should put the firm’s interest above those of any individual partner. Everybody should understand the firm’s economics, and value the idea of continuity.

The toughest part is when the founders retire—they often have concentrated stock positions that are expensive for the others to acquire. Less well known is the difficulty transitioning from the second generation to the third. G2 often treats the firm the way my son treats my car—he is waiting for his turn to drive it and is not sharing it with anyone or driving his sister around. That eventually leaves the firm with the same problem all over again—a concentrated position of ownership, rather than a democratic governance and ownership model.

Separating Ownership And Management
It’s impossible to have an effective, competitive organization with 30 people managing it. Such a firm would be paralyzed by discussion and politics—the slow process of seeking consensus and involving every owner in every management discussion, even in things like the selection of a new CRM, which not every owner wants to deal with.

Large firms already understand the difference between leaders: Owners can lead by example and motivate people. But it’s the managers who make business decisions that affect the firm in the long term. Thus the corporate governance structure should not be a club of owners who simply get together but a group of corporate officers in structures where they can make the right decisions.

Yet today, the vast majority of the super-ensemble firms are still led by the founders who started them 20 or 30 years ago. Thus, the governance structure of the firms is commonly dominated by the founders. The firm is following Bob because Bob is the founder and the leader, not the CEO or the office of the CEO.

To get to the next stage, a firm has to successfully transition authority from a person to an office. An army follows a general—not a person—which means you can change generals without changing combat success. The same is ideally true of a business—changes in leadership may result in changes in approach and style but not changes in authority.