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Even Managing Owners Need Feedback

“Know what skills are most important for your Managing Owner to have and put them in the context of your particular circumstances.”

—August Aquila

Firms with true managing owners, those who spend at least 50 percent of their time dedicated to leading and managing the firm, need to be evaluated differently from production and line owners. We also believe that owners who serve on an executive or a management committee should be evaluated as outlined in chapter 11 but also under some of the same criteria we will discuss in this chapter.

In chapter 5, “Your Role as the Leader,” we discussed what successful leaders do. In this chapter, we offer our thoughts and the thoughts of some our best friends and colleagues on how to evaluate the performance of the firm’s leader(s). We also provide two exhibits, including a list of questions, that you can incorporate into your managing owner evaluation. We will conclude the chapter with some advice on why you need to formally evaluate the managing owner, especially in larger firms.

The View From the Top

In speaking to more than 150 managing owners during the last two years, we have come to the conclusion that it’s lonely at the top. There may be another owner or two with whom the managing owner has a close relationship, but for the most part, the managing owner has climbed a mountain with which others are unfamiliar nor for which they had training.

Just ask any managing owner about his or her job. They never had formal training for the position. Many were some of the best client service owners who were selected for the leadership role. Many would like, yet find it difficult, to get honest feedback about how they’re doing. After all, many junior owners are hesitant to tell the managing owner what he or she really thinks about how the firm is being run. In fact, most owners are reluctant to offer constructive criticism to a managing owner. Most are nice people and don’t want to offend or hurt their feelings. We want to show you how to get the productive feedback you need so you make needed changes and don’t find yourself out of a job. In the last few years, more and more managing owners have been asked to step down. Most were surprised.

In today’s world, everyone in the firm, including the managing owner, needs feedback to improve their performance because in most professional service firms, just as in the business world, owners expect performance from everyone, including those at the top. Let’s face it, to be the leader of the firm, you need to be responsible for its performance. If the firm is not performing, can the managing owner blame all the other owners? Several years ago, one managing owner decided he had a superior year and gave himself a $50,000 bonus. Unfortunately, the firm did not have a good year. In fact, it lost money, and all the other owners took a decrease in compensation. How is it possible for a managing owner to have a superior year when all concrete measures of performance are down? It isn’t. We believe the buck stops with the person (or group, such as the executive or management committee) at the top. If the managing owner cannot get his or her owners to follow, set a clear direction, and execute the plan, than perhaps someone else should be given the chance to lead the firm.

Would you want this job? Here is a hypothetical ad for a managing owner position:

“WANTED: A managing owner who is willing to give up most, if not all, of his or her clients, without any protection if he or she is let go. You will work at the pleasure of your owners. You must bill approximately 300–600 hours per year while you manage the practice. Don’t ask for a job description because there isn’t one. The position has a 4–6 year term, with a chance of being rehired for a second term. You will likely be the only candidate, and we are not sure how we will evaluate you.

We encourage you to go back and re-read chapter 5. Leadership has tremendous responsibility that goes with it. Our close friend and colleague, Patrick McKenna, provides a useful starting point in his article “Evaluating Your Performance as a Managing Owner.”¹

McKenna offers 29 criteria that should serve as a starting point for developing your own Managing Owner Evaluation Form. The purpose of his questions is to get everyone thinking and acting on formalizing the process of professionally managing your firm. Most managing owners operate too much in a vacuum and don’t receive sufficient feedback from their fellow owners. McKenna’s questions are not meant to be the only questions. Each firm will have different expectations of its managing owners. In fact, the same firm at different times in its evolution will also have different expectations for its managing owner. Whatever your firm’s expectations, you need to clarify them and then agree upon them.

In politics, we often hear a new presidential candidate ask the voters, “Are you better off now than you were four years ago?” According to McKenna, a similar type of question needs to be asked each year to the managing owner: “Is the firm in better shape as a result of my efforts as the firm leader?” To answer this question, McKenna offers 29 questions in exhibit 13-1, included at the end of the chapter for owners to consider when evaluating the firm’s managing owner.

Another longtime friend and colleague, Marc Rosenberg, shared with us his Managing Owner Evaluation form² that we present in its entirety in exhibit 13-2 at the end of the chapter. Rosenberg also provides a sample process to follow. The important thing in any upward evaluation is that it should be done by a third party so that owners can feel free to give realistic feedback and not be afraid of any future consequences. Many firms we work with use an online survey tool that keeps the responses anonymous.

Both of these sample owner evaluation forms are quite extensive. Our advice is to take the questions that currently pertain to your firm, or develop questions yourself. As you will see, there is no one set of questions to use.

Other Criteria

CPA firms are not the only professional services firms evaluating their managing owners, as we saw with Patrick McKenna’s questions that are mainly used for law firm managing owners. Another well-known law firm consultant, Joel Rose,³ provides examples of some additional criteria upon which a managing owner’s performance may be assessed when setting his or her compensation:

• “Developing and achieving the immediate and longer term goals of the firm, its practice areas and other offices

• Whether the firm achieves and exceeds its revenue and profitability budgets;

• Profitable firm growth through mergers, lateral hires, geographic expansion;

• Effectiveness of the firm’s business development and marketing functions;

• Effectiveness of the performance of other lawyer managers;

• Effectiveness of developing and implementing plans for firm diversity;

• Enhancing the collegial and respectful relationships between and among owners, associates and the administrative support staffs.”

As you can see, multiple ways to evaluate the managing owner and the firm’s executive committee exist. The important thing is for firms to select at the beginning of the year those areas on which they want to evaluate the managing owner. In the same fashion that line owners have a win-win agreement, we encourage firms to develop a win-win agreement for the managing owner and executive committee members. We provide you with a case study and examples of how to do this in chapter 14 “How to Compile and Assimilate a Performance Bonus Plan.”

Although reviewing the managing owner’s performance should be an annual event, one year does not guarantee long-term success. We have found that looking at trends, such as a three-year look-back at the managing owner’s performance, provides a more accurate gauge of how he or she is doing. Looking at a longer time period also gives the managing owner time to implement his or her plan.

Final Thoughts

We believe everyone in the firm needs to be evaluated on their performance, and that includes the managing owner. It’s impossible to have a performance-oriented firm if one person, especially the managing owner, is above the rules.

How you evaluate the managing owner depends a lot on the size of the firm. Smaller firms (3–5 owners) where many of the owners are of the same age and have worked many years together may have an informal process. Large firms (20 or more owners) and firms with multiple offices should generally have a more formal evaluation process. In smaller firms, you usually want all owners to provide feedback. As firms grow and expand to multiple offices, the feedback may come from office heads, executive committee members, and other owners who have sufficient interface with the managing owner throughout the year.

To see where gaps exist in the managing owner’s self-perception and other owners’ perceptions of the managing owner, it’s important for the managing owner to complete the same survey other owners use to assess his or her performance. This provides the group evaluating the managing owner’s performance an opportunity to see potential gaps between perception. This also creates the opportunity for meaningful discussion between the managing owner and the evaluation group to identify goals for the coming year.

As we will discuss in chapter 14, the managing owner, like every other owner, also completes the goal-setting form at the beginning of the year and has a win-win agreement that shows his or her performance bonus based on year-end results.