Elite Hush

January 25th, 2008 admin Leave a comment Go to comments

Elite Hush

Is It Worth Becoming a Partner?

It's a fact of life in the Big
Four :you are there to become a partner. This
expectation may not be explicit in Big Four
culture, but the undercurrent is undeniable. If your every
decision is not focused on becoming a "member of the firm", your
career is in perpetual jeopardy. The whole reason for your being
is to attain that status.

The mystique of the partnership is evaporating, and it could
change the character and composition of the Big Four
fundamentally. Yes, Mr. Dylan, the times, they are a-changin'.
Anecdotally, more and more senior managers talk quietly - never
publicly - about what their next moves would be. Those illicit
conversations occurred in hushed tones away from the office -
often emerging from frank advice offered to more junior staff
members.

But, where do you go?

Many senior managers are considering VP and C-level positions
instead of shooting for the partnership. Citing lifestyle
desires (i.e. getting off the road), earning potential, and less
politically charged environments, even top-performing senior
managers are exploring careers
outside the Big Four.

Aside from these internal pressures, up-and-comers clearly have
concerns about the resilience - and costs - of the partnership
structure. Once upon a time, the partnership buy-in was
considered a pristine investment opportunity. The past few
years, though, have called this perception into question.

It all started with Enron.

Many of the consultants and accountants in our community are
still in pain from the collapse of Andersen - especially the
ex-Andersen folks who have sought refuge at the remaining Big
Four. Professionals who worked at Andersen, especially
former partners, are acutely aware of the risks inherent in
buying into the partnership. New partners, with fewer than five
years as members of Andersen, were brutalized financially. Their
buy-in loans were collateralized with their partnership units.
The collapse of Andersen led to a negative equity situation for
them; partners owed hundreds of thousands of dollars and could
not divest their units to repay the loans.

A similar fear rippled through KPMG, recently. Under
investigation for selling abusive tax shelters, KPMG settled
with the Justice Department. The settlement included a fine of
$456 million. While KPMG avoided the fate of Andersen, the
resulting fine equates to around $300 thousand for each of
KPMG's 1,600 partners.

The declining interest in firm membership is supported by
potential changes in firm organization. Accenture and
BearingPoint have forsaken the partnership model, and both now
trade on public markets. Doubts as to the protections of the
limited liability partnership model are causing the Big
Four to consider incorporation - instead of partnership.

Once recognized as an elite club in the accounting and
consulting industries, the major partnerships are losing their
mystique. The firms themselves continue to provide the best
services available on the market, but the firms themselves are
undergoing a fundamental shift. Every associate used to hope to
grow up to become a partner. Senior managers could taste it -
and would think of nothing else.

The Big Four's preferred structure is under attack from the
outside. Once considered an almost risk-free investment, we have
learned from Andersen and KPMG the contrary. This investment
risk is magnified by the erosion of protections offered by the
LLP structure. Greener pastures lure talent from the partnership
while the legal system lays siege to this venerable institution.

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