Getting Equity Partners Aligned

Whether the equity partners are family or non-family members, the CEOs of these firms are running the business on behalf of a group. Over time, equity partners’ goals change and their relationships grow more complex. While you hope that a sense of ownership brings out the best in partners, sometimes it brings out feelings of entitlement.

However, if each partner’s objectives can be aligned around common goals, the business can grow stronger and faster, and with far less friction.

What We Can Do

CEO to CEO helps equity partners in midsized companies become and stay aligned with each other and business goals. At times, we get involved early, helping partners agree on strategy and tactics for the business, operational responsibilities, and peer performance review processes. When we get involved later, we frequently act as mediators, helping to reduce friction.

For large partnerships, we often help with communication, engagement, and leadership. We typically work with three types of partnerships: professional services firms (e.g., law, engineering, accounting), family businesses, and ownership groups (business partners).

We start by examining why the business exists, confirming that it matches owners’ current perception. These discussions often surface conflicts about growth – e.g., that not all businesses should try to grow fast. Some partners want to run their companies to suit their lifestyles. In every case, a business must be run in a manner that can keep it competitive – sustainable for both the business (in its market) and its owners.

How We Do It

Our services here depend on the type of firm:

For Professional Services Firms:
Many of these firms reward partners who generate and lead client work, but not management of the firm itself. The result: no clear career path for partners who want to grow (beyond growing technically). Without a leadership track, the firm may find itself pulling from a small pool of reluctant candidates to fill a CEO slot or similar role. Additionally, a new CEO may struggle to rally a close circle of leaders-in-training.

We help such firms create structure around business leadership, including growth plans, job descriptions, compensation for leadership roles, communication, and committees that connect business/administrative work with partners. We recognize that these firms prefer to change slowly, and we work hard to ensure partner support.

For Family Businesses:
In these businesses, family members often confuse the roles of owner, board member, executive, and family member. First, we help management create clarity of purpose: For example, is this business more about maximizing profits or employing the family? Second, we clarify each role, from owner to family member, including rights, responsibilities, and expectations. This helps prevent the business from damaging family relationships.

Our consultants often are asked to help guide a transition in management from one generation to the next, or when the next generation chooses not to run the business. We consider the objectives and needs of family members alongside the business objectives. We frequently help set up a board of directors before ownership transitions, to steady the course as new leaders settle into their roles.

For Ownership Groups:
When multiple owners form a business, they agree on a common vision and purpose. But over time, equity partners’ goals may change, for several reasons. Personal lives may change; the business may deliver different rewards than planned; and the business may require more attention than expected.

We help these partners communicate and re-establish consensus on business goals, who is willing to do what, and how to reap maximum results.

Sometimes, a partner needs to exit at this juncture. At other times, an additional partner can reinvigorate the business with external energy. We help partners decide on such next steps.

For long-running partners, progress and communication can hit a wall. We act as a neutral sounding board to help examine business issues and solve relationship challenges.

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Case Studies

The case studies below will illustrate how we work with equity partners to help them and their business get better results.

Guiding KBFA's Transition to the Next Generation

Client Kevin Barry Fine Art

In 2007, Kevin Barry Fine Art Associates was at a crossroads. The family-owned company’s growth had stalled as the economy was beginning to nosedive. Purchases of artwork to adorn the halls of company offices – KBFAA’s core business – had begun to slow, judged expense items that could easily be cut. The founder’s plan, to retire and sell the business to his children and another manager in about five years, was at risk.

But today, with the help of CEO to CEO, KBFAA has weathered the economic storm. KBFAA, now a $7.2 million and growing firm, clearly knows where it is going, who is going to lead it when the CEO retires in 2014, and how it must be led for future growth.

The 15-person company, based in Los Angeles, procures artwork for corporate, hospitality, healthcare, and residential placement. The firm’s galleries in Los Angeles, Las Vegas and San Francisco carry a full-line of work including original art, limited editions, sculptures, tapestries, and fine art reproductions.

The company is owned and led by Kevin Barry, who has been in the art business for more than 30 years and has operated a Los Angeles gallery for the past quarter century. KBFAA comprises a team of experienced art consultants and other professionals in the art industry. The team is rounded out by Kevin’s daughter Allison, who runs the company’s San Francisco showroom; his son John, who runs KBFAA’s Las Vegas operation; and Jason Fiore, a childhood friend of his children who serves as KBFAA’s marketing director and general manager.

Everyone in the company handles sales and design consulting. KFBAA almost always supplies the art that it specifies in its designs, often outsourcing the production work to picture framing factories and other contractors, and then reselling it.

Six years ago, however, Kevin felt that he and his team had reached the limits of their ability to adequately plan for the firm’s future. Since they were a small company, the team found much of their time was being swallowed up by the minutiae of daily operations. “We were growing, but in some ways we were so busy with the day-to-day stuff that we couldn’t see the forest for the trees,” Kevin says. At the same time, Kevin, who is 66, was beginning to think about retirement. “It became important to develop an exit strategy and figure out how my successors were going to carry the baton.”

Around this time both Kevin and Jason Fiore became aware of Robert Sher’s firm CEO to CEO and thought Robert might be of use to KBFAA. “Jason thought it would be a good idea to have an outside consultant come in to work with us, and maybe help us see the big picture in terms of what the future might look like and how we could grow the business,” Kevin says.

Kevin had actually met Robert 10 years earlier, when the latter was CEO of Bentley Publishing Group and KBFAA was a small customer of Bentley’s. Recalls Kevin:

“Rob came to the gallery in Los Angeles and we did business. We didn’t work very closely, but I remember being impressed with Rob. I liked the way he handled and presented himself. And I thought it was good that, as the CEO of his own company, Rob was out making the rounds and staying close to the streets, so to speak. A lot of CEOs who run small businesses get trapped into managing the business and lose that face-to-face contact. But Rob wasn’t like that at all.”

Kevin also enjoyed the fact that Rob already knew the art business. “We knew what was kind of in his wheelhouse,” he says, “so we had a couple conversations with Rob, and he came down and we talked some more.”

Kevin signed a month-to-month consulting contract with Rob with the initial goal of developing a one-page business plan. Immediately, Rob began to reach out to all five on the leadership team in the organization and met each one individually, either by phone, email or in person. According to Kevin, the results came quickly.

“It is advantageous for us that Rob had a good working knowledge of what the industry was about. But he is also a visionary guy with great organizational skills. He was able to see things more objectively because he wasn’t an employee. We had a lot of thoughts and ideas about where to take the business, but we were so busy chasing the day-to-day stuff to execute – we were a little like rats in a maze. Rob kind of put our feet to the fire in terms of what his own expectations were, and made sure everybody got on board with the same goals. Then he was able to galvanize a lot of our thoughts and ideas into a plan of action.”

Because Rob came from a family business himself, it seemed to Kevin that he had experienced many of the same bumps, hills and valleys that KBFAA had. “I think he had a little bit of an advantage because he came from the art business, but to his credit, this is not an easy industry to understand – there are a lot of nuances to the business,” he said. “In some ways, we are all square pegs in round holes, because we are all creative types, and yet it is still a business.”

It was fortuitous that Rob began working with KBFAA right before the most challenging time in the company’s history. After three decades in the business, Kevin says that 2008 and 2009 were the toughest years he’d ever seen.

Rob’s first goal was to help KBFAA draft a definitive plan for where the business would be in five years and how it was going to get there. The focus was on results. Said Kevin: “Rob taught us two things: how to be more productive, and how to look closer at the bottom line and your margins.” The plan was concise, and articulated not only a crisp vision and mission, but specific metrics to be watched every month, specific high-value projects, and a set of key strategies that would deliver growth. The team would know each and every month if they were focusing on the most important things, and whether that focus was delivering the results mandated in the plan.

To help steer the company through rough waters, Rob worked with Jason. According to Kevin, Jason has been with the company for more than 10 years and already had significant managerial expertise of his own. “In 2008 and 2009, we had to tighten those purse strings company-wide,” Kevin says. “Rob worked closely with Jason to develop better financial reporting that helped us all determine what should be cut, and what should not be cut.”

In the depths of the downturn, KBFAA was reaching a juncture where growth had all but stopped. However, Rob pushed Kevin and his team to think about nearby adjacent markets. “Traditionally we did a lot of business with hospitality and high-end residential designers. But now we have broadened our target markets to include senior living facilities and healthcare organizations. ” Kevin says. “Personally, I always wanted it that way – I didn’t want all my eggs in one basket. But Rob helped us actually make the move.”

Financially, things began to turn around as well. “Our business was flat during 2008 and 2009, but in 2010, things began to pick up and we had a 10 percent increase in revenues,” Kevin says. “In 2011, we’re on track for another 10 to 12 percent growth.” KBFAA also opened a second gallery in Las Vegas run by Kevin’s son, and a third gallery in San Francisco, run by his daughter. “We’re certainly not out of the woods economically,” adds Kevin. “But since working with Rob, we’ve expanded our business, our revenues are growing, we added three new employees, and we’ve increased our market share.” Rob’s role includes teaching the next generation what it means to be owners. “We’ve got a good, strong team of young people – our executive team is all in their mid-30s,” says Kevin. “Since working with Rob there has been a definitive maturation process among them.”

2012 marked a change in business ownership and scale. With Rob’s direction and coaching, a team was assembled to begin the transfer of ownership to John, Allison and Jason. The board was formalized, with regular quarterly board meetings and Rob was asked to be the outside board member. The focus of the firm was clear, sales rose by 42%, and net profit grew dramatically, more than enough to fund the gradual transfer of shares to the next generation. In 2013, the governance process continues with Rob on the board. What has for long been governed by the founder is slowly transitioning board-based governance. Plans have been laid for growth toward a target of $15 million revenues over the next few years.

Asked what makes Rob so effective, Kevin suggests it’s a number of factors – among them intelligence, accessibility, communication and experience both as a CEO and working with many other CEOs.

“Rob has great people skills – he knows people very well. That’s one of his most salient features,” Kevin says. “He’s also triple smart, and part of the reason for that is that he doesn’t sit still. Rob chairs roundtables with other CEOs and works with lot of different companies and with different executives. Everybody in business is scrambling to get to that next level, and the exposure Rob gets from working with so many innovative leaders helps him, and helps us.”

“Rob went over and beyond most of our expectations,” he added. “We’ve had some bumps along the way, and that’s part of business, but Rob was always there for us. Having a seasoned CEO who is participating in the company’s growth, serving as a mentor, and providing guidance is great. It’s given us a little additional edge to see the future. You certainly want to focus on tomorrow, but five years is always right around the corner.”

Helping Hanson Bridgett’s Chief Hone the Law Firm's Growth Strategy

Client Hanson Bridgett

As with most law firms, San Francisco-based Hanson Bridgett LLP’s partners have long focused on delivering advice to clients rather than on non-billable activities to increase the firm’s market visibility. But in a severely contracting legal market, focusing on the work at hand and while neglecting the brand can be a recipe for disaster. CEO to CEO has helped Hanson Bridgett’s top management strike the right balance in recent few years and maintain its revenue – all at a time in which a number of competitors have closed shop or merged with other law firms.

Since the recession of 2008, the San Francisco legal services market has been a brutal one. That year, one prominent law firm (Heller Ehrman LLP, which had revenue of $500 million in 2006 and had been around since 1890) went bankrupt and was liquidated. Another (Thelen Reid Brown Raysman & Steiner) dissolved shortly afterwards. Several other San Francisco law firms merged with larger law firms.

Yet Hanson Bridgett, a $70 million firm with 350 employees in five Northern California offices, held its ground, maintaining its size despite a shrunken market.

“In the last few years, there has been significant consolidation in the legal industry,” says Andrew Giacomini, Hanson Bridgett’s managing partner. “The San Francisco Bay Area is one of the most competitive legal markets in the U.S. – both on the client side and on the talent side. That makes for very challenging economic conditions, which means people outside our firm need to know who we are. And that requires a very strong focus on building of brand in our market. For every law firm, it’s change or die.”

For Hanson Bridgett, that has meant elevating the game of its equity partners in developing new business, as well as becoming more programmatic about how the firm raises the visibility of its brand and grows the business. That’s why Andrew brought CEO to CEO in, starting in June 2009.

Rob Sher’s first assignment was working with Hanson Bridgett partners to improve the way they develop new business. “My goal was to have people in leadership positions in the firm take on more responsibility for our leadership initiatives,” says Andrew, who has led the firm since 2001. “That frees me up to focus on the things I needed to focus on, as well as help develop leaders in our organization.”

Rob worked with a number of Hanson Bridgett partners to create business development plans. After assessing their writing, public speaking and relationship-building skills, he helped them define a year-long plan with activities that would get them in front of new potential clients. The partners set their own deadlines, and Rob provided coaching to help them stay on track.

By November 2010, Andrew felt his firm needed additional help to increase brand presence in its Northern California legal markets. “I’ve been here my whole career, so I have blind spots,” he says. “Even if I’m innovative, I don’t have fresh eyes. In addition, I didn’t have the bandwidth to run this project and the other things I needed to do. I felt Rob had the right skill set.”

The first order of business was creating a growth strategy for the firm. In the first quarter of 2011, Rob worked with Andrew to develop the strategy and get the firm’s six other management committee members behind it. The next step was to define clear responsibilities for management committee in executing the strategy. (Hanson Bridgett’s partners vest the seven-person management committee with the authority to make most major decisions.) Previously, the management committee’s role was to come to meetings and make decisions on behalf of equity partners. “Occasionally and on an ad hoc basis, members of the management committee would take on projects,” Andrew says. The arrangement was too informal, the responsibilities too ill-defined.

Rob helped Andrew and the six other management committee members define the scope of their responsibilities. Rob then showed them how to operationalize those responsibilities: pairing up with someone from the next level down in the organization. Each “leadership pair” took on responsibilities for issues that previously had been on Andrew and his executive director’s plate. (The firm’s executive director is effectively the chief operating officer to Andrew’s chief executive role.)

For example, one leadership pair (a member of the management committee and the chief financial officer) focuses on financial issues: developing the budget, determining fees, approving write-offs and discussing collection issues. Another leadership pair is devoted to business development. This pair is the marketing director and the committee member in charge of business development initiatives that span the firm’s practice areas. In 2011, they launched a client feedback program and revamped the firm’s website, something Andrew used to be in charge of while also running the firm.

All this has helped Andrew get the top management team more fully integrated into the firm’s key initiatives. “The more leadership that can be developed in the firm, the more I can free myself to focus on external matters such as building a brand in the marketplace,” he says. “In five years, I want us to have a robust leadership team that allows the managing partner and the executive director to do other things.”

A critical task is differentiating Hanson Bridgett as a regional law firm. “We do not want to be part of a consolidation,” Andrew says. “Most law firms want to consolidate into big firms. We’re bucking that trend and trying to create a sweet spot right below that by focusing on the region here.”

Andrew views the impact of CEO to CEO as critical to the firm’s regional growth strategy. “We’re in a much better place than we had been during the recession,” he says. “Rob has been a catalyst who has made invaluable contributions to our company. He has been an architect for this big shift that needed to happen and someone who is helping us implement it.”

It hasn’t mattered to Andrew that Rob and CEO to CEO aren’t experts in law firm management. Andrew sees the firm’s expertise as in teaching CEOs of any professional firm how to be better leaders of their business. “Dealing with lawyers is a pain in the ass,” says Andrew. “Rob is very patient but persistent. Some people here took to Rob’s coaching and others resisted. He didn’t take it personally. He understood it might happen, and we all persevered through it.

“We’re in a much, much better place because of it,” Andrew explains. “Now we’re taking what we learned from Rob and building on it ourselves.” Andrew says it is just one of several “dangerous missions” he sees assigning to Rob and CEO to CEO.

More recently, Andrew asked Rob to tackle the thorny issue of a major change in the job duties of section leaders (business unit leaders). A majority of their compensation come from their own personal business development results and from their own billable hours. The firm’s culture (as is true in many law firms) gave high respect to high individual producers. The firm needed more leadership hours, yet compensation and expectations for those hours was unclear. The result was a lesser emphasis on leadership, and that was impacting the firm’s growth. With Rob’s coaching, two Hanson Bridgett practice leaders in early 2012 crafted a document with a vision of the role, duties and compensation of section leaders that was met with excitement and interest. Implementation plans are being detailed, and discussions with the partner compensation committee have begun. One of the section leaders is executing on the vision as a pilot in 2012.

“I feel like I’ve got this right-hand person I can call on to come in and take on these dangerous missions,” Andrew says about Rob. “That’s really a great asset.”

The Founder’s Untimely Exit

The founder of a midsized company had no intention of exiting— not even after the diagnosis of a terminal illness in his early 60’s. His #2 brought CEO to CEO in to assist with the delicate time period (ultimately 8 months) between diagnosis and death. He had set things up quite well financially and the company was fiscally sound.

We helped the successors step up, helped the board change to a more formal, powerful board, and helped deepen the succession planning process at all levels, since a significant percentage of the leadership team was looking to retire in five years.

Changing Out a Partner

Two partners had worked well together for a long time – until their personal situations had diverged. One needed to keep working and was energized to do so. The other had developed significant net worth and was burning out.

CEO to CEO helped the partners understand that it was “ok” to have one equity partner exit, and helped arrange the buyout. They also took their best employee and promoted him to partner, allowing a small buy-in— which might eventually lead to the full buyout of the senior partner when he desires retirement.

New Managing Partner Can’t Charge Ahead Alone: Needs Proactive Partners

After ten years, a successful partner in a professional services firm was promoted to the CEO’s seat when his long-running predecessor moved toward retirement. The new leader turned to CEO to CEO to help a set of younger equity partners learn to become more proactive.

The predecessor had been a directive leader, setting the direction for the organization, including making all decisions. Because of this, the new leader found that many of the senior partners were not acting as proactive leaders when it came to business challenges (finance, recruiting, productivity, etc.). And many of the functional leaders were brand new. In preparation for a kickoff offsite, we heard his observations of the weakness in the leadership team. Some pressing challenges (and our advice) shifted the focus of the offsite to helping the leadership team be more proactive by clarifying what had to be done and who would drive those activities.

The offsite was empowering for the entire leadership team. Each came away with a draft one-page plan, the core of what forms a Business Leadership Operating System (BLOS). We built and kicked off the BLOS, working with the team of 12 to hone those plans, coordinating approval of those plans from the CEO and training the team in this methodology. We supplied a cloud-based portal where the plans resided, and where each plan owner would maintain monthly scorecards and progress reports. We facilitated monthly plan review meetings for six months to coach and ensure the operating system was running well. We coached the CEO (meeting twice monthly).

Within a month after the plan set was completed, the CEO observed that leaders were “making things happen” without relying on or waiting for a “nudge” from the CEO. He was delighted. The call to action for more business development, peppered throughout the plans, moved the firm from needing more work to having an abundance of work. In the past, the CEO had to request data from the CFO to give to his team, which was time consuming for him. With the BLOS in place, the operating system connected all the leaders directly to the CFO for some of their dashboard data, a big relief.

Most leaders have stepped up their performance and are clearer on the results they must deliver. However, some are not capable (or don’t have the time) to attend to all the priorities, and the firm is hiring to fill in crucial gaps.

Two Brothers Bring in A Professional Leader—A Difficult Change

After 30 years, two brothers decided it was time to bring in a professional leader so they could retire. The first two hires didn’t work out. The brothers liked to do things their own way, but the new, strong leaders they were hiring had ideas of their own.

After deciding on a new leader, CEO to CEO was brought in to facilitate better communication between ownership and the third leader. Neither the new leader nor the brothers were completely right or wrong. We helped formalize communication and detailed out roles and responsibilities. We shaped how they communicated, and participated in resolving differences.

Luckily, both the brothers and the new leader realized that together they could be more successful than apart. We helped formalize the board of directors, renegotiate compensation packages, as well as helping the new leader explain some of his business decisions.

Opposites Attract, But It Can Wear Over Time

After more than a dozen years in business, two partners knew they could use some outside help.

They had joined forces because their differences as people had been their strength. One was outgoing and loved sales, the other was detail oriented and would rather be in the office working than out with customers. But in the past few years, business had been hard, and now the differences seemed bothersome. Neither partner was clear on whether the other was doing his/her share. One was going through a divorce and was distracted.

Fortunately, both still clearly appreciated the value the other brought. CEO to CEO helped clarify in writing what the goals of the business were for the coming year. Specific roles for each were reviewed and written down. With our strong business background, we identified where each partner’s efforts had to improve, and both partners respected this process and adjusted their behavior.

In addition to monthly plan review calls, we had some 1:1 calls with individual partners when an impartial perspective and some coaching would help the two of them navigate specific challenges.

Business performance has improved, as have their working relationship.

Midsized businesses that share equity among partners can run into big disagreements: about compensation, roles, investments, leadership changes, exit strategies and much more.