Realistically, I think that if some “supermajority” of the partners believe that another partner should be fired, that should be enough reason to take action. In this case, it is perhaps best that every person has one vote—the decision should not be purely based on ownership percentages.
Consider also that many times the person you want to fire is a founder. Founders sometimes have trouble adapting to larger organizations. They also sometimes have the mentality that they are allowed to do whatever they want or that not all standards apply to them. Only a tiny minority of situations get that bad. But if such a founder-partner needs to be fired, it may be difficult to do so by just voting shares (especially if the founder is a large shareholder) or by asking for a unanimous decision.
Again, if founders and partners know what is expected of them in the first place, and if they know there is a mechanism for correcting problems, those problems can be diffused. It would then come as no surprise to the founder or partner in trouble that a change is coming, and it would possibly ward off an explosion of anger or even litigation.
The Penalty
When a partner has to leave, there are several important issues to deal with:
1. The value of the partner’s ownership stake. Sometimes partners have to leave, but that doesn’t mean they don’t still co-own their firms. Their stakes have to be valued before they depart, and in some firms, there are different valuations used for the different circumstances of a person’s departure. For example, a partner who is retiring after many years of service, and as part of an orderly transition, may receive a higher valuation than someone who suddenly plans to depart next Tuesday. In certain agreements, a partner who is fired may lose not only a job—but also quite a bit of his or her investment in the firm.
This is particularly true in cases where a partner is fired for cause. This is a good question to consider: Should the other partners pay full value for the stake of a partner who just got the firm in the news because he was drunk and caused a serious car crash (this hypothetical is based on a real case). It’s a legal question that should be discussed with your attorneys, of course, but it’s also a very important culture question. What is the cost to the firm when one partner fails its values?
2. The value of clients. Ideally, all clients belong to a firm, but when a partner is fired he or she may have a very difficult time making a living without having anybody to work with. Depending on the circumstances, a firm may allow its partners to take some clients with them so they can begin a practice of their own. Usually that happens when the partner is leaving over productivity or relationship issues—and does not happen when there’s a firing for cause.
3. The partner’s job. Sometimes a partner loses a job but not ownership. Or vice versa. If the partner can keep the job, that might answer some difficult questions. The partner’s productivity might have declined but he or she has otherwise remained a professional and constructive “citizen” of the firm, perhaps one who can keep a job advising there. Perhaps the partner can accept lower compensation. Such a demotion is difficult to recover from, but not impossible.
Alternatively, if someone needs time away from the business in order to deal with personal or family issues, perhaps that partner can resign but still remain a shareholder for a time. Despite its complications, this arrangement may be a better solution than asking the person to leave entirely.