Does HMRC's notion of significant influence match the reality within law firms?

Most readers will have caught up with HMRC’s recent publication of its proposals relating to the treatment of salaried members within UK limited liability partnerships.  One of three tests likely to come our way to determine the status of such members is that of whether they have “significant influence over the affairs of the LLP”.

Now, I’m not a tax lawyer, nor do I wish to cross swords with Her Majesty’s representatives, but this test did prompt some more general thoughts on the nature of influence (and its racier cousin, power) within professional services firms. Three ways of thinking about this question have particularly interested me over the years.

Types of power

The first was the categorisation of types of power within organisations, summarised by Charles Handy in his respected work Understanding Organisations. Handy summarised five main types of power:

1. position power;
2. expert power;
3. resource power;
4. personal power; and
5. physical power (less used within professional services firms, one hopes).

He also pointed out the existence of ‘negative power’, or the ability to disrupt, noting that it is available to everyone (or at least everyone with the right to attend partners’ meetings, in our world).

Using this broader view of power, one can easily see that ‘significant influence’ is not something wholly distributed according to the organisational chart and formal titles within firms. There can of course be charming, client-facing partners who prefer a life away from management meetings but who are able to exercise very significant influence over the occasional issues that really concern them.

Some streetwise solicitors no doubt realise these things intuitively before ever setting foot in a law firm (or other business) but, for others, that realisation comes only at the cost of early-stage displays of ineptitude in the great pursuit of ‘getting things done’.

Four frames

A useful second way of thinking about power and influence in organisations and one which can correct those blind spots is the ‘four frame’ idea proposed by Bolman and Deal in Reframing Organisations. In what I have found to be a most practical model, they encourage leaders and managers to think of their organisations as having the characteristics of factories, families, theatres and jungles.

It’s all too easy to approach a problem within a business as being just one of poor process design or internal controls but, unless you look at the personalities, power structure and symbolism around the problem, you still run the risk of well-intentioned, carefully planned failure.

Leadership skills

Rather like Charles Dickens’ apparitions in A Christmas Carol (which I always read again at this time of year), the third way of thinking about power and influence within law firms is one which is largely yet to come and of which we have only had an interesting foretaste during 2013.

Professor Laura Empson of Cass Business School recently began speaking about her research project in relation to the leadership of professional services firms, including an empirical study mapping the way in which decisions are reached within law firms. It seems all of the complexities of earlier academic theories will be seen as the full results of her research are published in due course, but enriched with the idiosyncrasies, personalities and sometimes baffling traditions that can exist within even the greatest organisations within our fascinating industry.

So, good luck to our tax inspector colleagues and to everyone else who may set off during 2014 in search of significant influence within law firms. It won’t always be located wholly in the room with the management label on the door.