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The Partnership charter

The Partnership Charter by David Gage Millions of people co-own closely held companies, family businesses, and business partnerships, but establishing them and keeping them together is never easy. Here, finally, is the guide they have been waiting for.... Read More
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Business Mediation Helps A/E Firms Make Leadership Changes

by David Gage and John Gromala
Engineering Times
October 2002

The impending retirement of a founding partner can be a profound challenge. The engineers at SHN, a Eureka, California, professional design firm with more than 60 employees, knew for a few years that they would have to face that issue, but it suddenly became real in 1999 when they agreed on a specific date. On January 1, 2001, Professional Engineer Jack Selvage would step down as CEO of the firm he founded in 1979.

“It’s common for most small and mid-size firms to have a large part of the firm’s identity invested in one or two individuals,” says Professional Engineer Jeff Nelson, who took over the helm of SHN. “The challenge is to make the transition and come out with a stronger team of owners and leaders at the top.”

There is no more auspicious time in the life of an engineering firm than when partnerships are forming or are in transition. These periods of flux are far more important than most people realize. Details are negotiated. Expectations get set. New relationships are established, and existing relationships are tested. Hierarchies shift. The firm’s very foundation is built, rebuilt, and tested during these times.

If botched, the transition can set in motion a slow and painful dance that may result in partner dissatisfaction and underperformance for years–or even lawsuits. If handled well, the transition can be the catalyst for true growth and set a firm on a solid course of continuing success.

What makes the difference? Once you have the players in place, it boils down to how you handle the change.

Years of mediating conflicts among principals at all types of family and non-family companies have taught us that you will typically find some variable mix of incompatible personalities, power struggles, turf battles, ambiguity, and unmet expectations. How you work with the people and underlying dynamics to forge a new team of principals is critical.

At transition points, partners have a window of opportunity to take a fresh look at their arrangement, make adjustments, and end up stronger. To aid partners like those at SHN, we developed a tool called a Partners’ Charter.

The Partners’ Charter is both a process and a product. As part of the process, partners take a close look at three areas: their relationships, their business deal, and the future. They end up with a product–a comprehensive document that captures their observations and points of agreement and disagreement in the three areas.

Other than family, relationships with partners are among the most important we have. The quality of these work relationships affects how people feel about going to work in the morning, how motivated and productive they are during the day, and often, how well they sleep at night.

The quality of partner relationships has a direct effect on employees and their relationships throughout the firm. It affects the bottom line of the business. Even though it’s business, the relationships are personal.

To help principals examine their relationships, the charter process uses simple tests and exercises to help focus in on principals’ personal values, styles, and the issue of fairness–all with an eye toward creating more effective and satisfying working relationships. As Nelson recalls, this aspect of the process was “a very personal one that you couldn’t hide from. It cut through the veneer that most of us put up there to protect ourselves.”

The second area covered by the charter process–the business arrangement–is one that partners have usually covered fairly thoroughly. But even in this area, which includes ownership interests, roles and responsibilities, and governance, there often are several points that have been glossed over in ways that leave matters ambiguous and give some people the feeling that there was a less-than-candid discussion of the issues.

Even though the issues sound like straightforward business issues, many people have strong opinions and feelings about them. This is easy to understand when dealing with compensation and perks, but it is also true for more overarching business decisions, such as the strategic direction of the company.

The third and final area that principals need to deal with is the future. Planning ahead–not just for the business but for the partnership itself–can have huge payoffs over time. There are four critical topics pertaining to the future: defining expectations, creating guidelines to deal with the unexpected, agreeing on how to deal with differences and conflicts, and planning for the next transition.

SHN’s principals worked on the charter during a two-and-half-day retreat, and then the two business mediators drafted the charter document. (The charter is often used as the basis for subsequent legal documents.) Creating a Partners’ Charter was advantageous in many ways, Nelson says. The experience of talking, exploring sensitive issues, negotiating openly and honestly, and creating a shared record of agreements, he says, helped to establish a new constellation of principals and build a strong bond among the partners.

Specifically, Nelson explains, the principals wanted to use the transition “as an opportunity to move forward and do bigger and better things.” The charter process, he says, “helped us to lessen the apprehension surrounding Selvage’s leaving and build confidence in ourselves and in where we were going.”

David Gage is a psychologist and founder of BMC Associates in Arlington, Virginia. John Gromala is a lawyer and West Coast Director of BMC.
 
Reprinted with permission from Engineering Times, a publication of the National Society of Professional Engineers. Copyright: BMC Associates, 1999.