The Anatomy of a Consulting Firm 07 - Ownership and Governance

By David Maister

Among the many things that are affected by the market positioning (i.e., mix of services) of the firm are ownership and governance. The traditional model in consulting has been a privately held partnership, with all significant decisions being made after extensive consultation with the senior group. This model matches well with a Brain Surgery or Psychotherapy practice, which requires significant power and autonomy to be left in the hands of the senior practitioners. A related, but different, part of the partnership tradition is that senior people are rewarded by the income they derive during their time at the firm, and not from the increase in the value of the firm itself. (Many firms transfer their ownership between generations through an “in and out at book-value” system.) Ownership is restricted to those currently practicing within the firm.

However, recent years have seen the emergence of publicly held consulting firms. Theoretically, there is nothing in the corporate form or in public ownership that would prevent the preservation of a “partnership ethos,” with decision making through extensive consultation and the retention of significant autonomy for senior practitioners. However, when a firm has gone public, the value of the shares (and hence the company) takes on a greater significance, and this inevitably affects the process of decision making. A greater emphasis is given to building the systems of the firm to embed value in the firm, not just in the individuals who belong to it, and this often leads to greater codification. It is easier to “own” a chain of pharmacies than a rambunctious group of brain surgeons and psychotherapists.