Misplaced talent

The Peter Principle is a conundrum that has long vexed me. For those of you unfamiliar with the concept, it basically says that every man (or woman for that matter) will rise to their own level of incompetence.

Or to put it another way, you will keep getting promoted (based on your performance in your current role rather than your suitability for the intended role) until you are no longer good at your job, at which point you will 'top out'. Whether that level is as an associate, a manager or a partner, everyone ends up doing a job that they are not good at. Even within a partnership, it is important that partners are allocated roles in which they excel.

Unsuitably qualified

Having spent most of my career working for professional services firms, I have often wondered about who should actually run a professional practice. To use the traditional model, it is the people who are best at the client work who will continue to get promoted, eventually ending up in a job that requires a skill set completely different from the one that initially made them so successful.

In fact in the case of someone becoming a managing partner, the whole of that person's training up until that point has not required them to be good at duties expected of a managing partner. What's more is that there is no training manual to read.

I personally have never harboured any desire to be a managing partner. The stresses and human resources aspects hold very little attraction. Unfortunately my view is shared by a lot of partners and therefore when a managing partner vacancy arises, there usually is not a large number of applicants. Additionally it is often the case that those that do apply are not always suitable for the job.

Good quality managing partners are a rare breed. They are people who are strong on strategy. They can see the bigger picture and can identify opportunities going forward. They need to be trustworthy and command the respect of their fellow partners. They also need to have been sufficiently good technically to have become a partner in the first place.

The job brings with it a series of new challenges. Hiring and supervision of personnel, cash flow management, accounting, legal issues, management
and motivation of partners and associates, and so on. For someone in an accountancy firm with a financial background, it is difficult enough, however for someone with a legal background and no enjoyment of figures, this is even more challenging.

Wasted skills

In any case, why potentially sacrifice one of your best work getters to sit behind a desk formulating spreadsheets and writing strategy papers. A firm's top performers need to be allowed the time and flexibility to do what they do best. So rather than burden them down with administration, do the opposite.

Relieve them of that admin and let them go out in to the market and promote the firm and bring in new work. Ultimately the success of a firm will be dependent on how much work it brings in and how well it deals with that work.

Accountancy firms often split the role, having a managing partner and a senior partner. The managing partner would deal with internal matters and the senior partner dealing with external matters. This helps matters, however would it not be better to have a CEO in place, who runs the firm and allocates resources?

My solution to this is quite simple. Each firm has two tiers on management. Those who do the client work and those who run the business of the firm. You can call one set partners and the other set directors. It may even be that the client facers earn more money than those running the firm, however they should not be the same people.

So why not turn the Peter Principle upside down. Make sure people are working in jobs in which they excel. Don't promote people into jobs in which they do not have a suitable skill set, and try bringing in an external CEO. Maybe then your firm can begin to reach its true full potential. 

Geraint Jones is a tax partner at BKL Tax

He writes the regular in-practice article on doing business for Private Client Adviser