The Professional Partnership: Relic or Exemplary Form of Governance?

Abstract

The creation of the public corporation in the 19th century drove out the partnership as the predominant form of organizational governance. Yet, within the professional services sector, partnerships have survived and prospered. Moreover, professional services firms that chose to abandon the partnership form tended to become private rather than public corporations. Drawing upon several theories, we compare the efficiency of the partnership relative to corporate forms of governance in the context of the professional services sector. We argue that the professional partnership minimizes agency costs associated with both the private and public corporation. We also argue from tournament theory and property rights theory that partnerships have superior incentive systems for professionals in particular and knowledge workers more generally. However, drawing upon structural-contingency theory, we identify limiting conditions, which affect the relative efficiency of the partnership. We argue that the corporation, especially the private corporation, will be the preferred form of governance where the limiting conditions are prevalent. Nevertheless, we also argue that under specific conditions the partnership form of governance will persist and prosper because it remains unusually suited to the management of knowledge workers.

Delivering ‘effortless experience’ across borders: Managing internal consistency in professional service firms

“…More general studies have focused on PSF management (Maister, 1993;Lorsch & Mathias, 2001;Greenwood & Empson, 2003) and the broader internationalization and globalization of PSFs in general (Nachum, 1998(Nachum, & 1999Lowendahl, 2000;Lowendahl et al, 2001;Reihlen & Apel, 2007).…”

“…Since the deregulation of US and UK financial markets in the 1980s (Flood, 1995), many PSFs have followed an evolutionary route from hierarchical professional partnerships towards multinational service businesses (Greenwood & Hinings, 1993;Greenwood & Empson, 2003;Pinnington & Morris, 2003). While such firms (including large law firms) had been international for decades, the shift from international to global is more recent.…”

Innovative capabilities in international professional service firms: enabling trade-offs between past, present, and future service provision

“…The changing nature of PSFs is driven by institutional forces such as industry regulations, technological developments, and increased globalization (Brock and Powell 2005;Brock 2006;Brock 2012;Greenwood and Empson 2003;Kipping and Kirkpatrick 2013) which offer new opportunities for search and learning processes in IPSFs. For instance, by pursuing a transnational strategy, IPSFs get opportunities for global knowledge sourcing, and technological innovations through providing globally integrated services (Breunig et al 2014;Muzio and Faulconbridge 2013;Segal-Horn and Dean 2011).…”

Knowing your boundaries: Integration opportunities in international professional service firms

“…Professional services are generally considered to be difficult to standardize (Løwendahl, 1997;Maister, 1993) since knowledgeable individual local experts are central to what these firms offer. Nevertheless, an increasing number of professional service firms (PSFs) are internationalizing and, thereby, gaining scale advantages (Boussebaa, 2009;Brock, 2006;Brock & Powell, 2005;Faulconbridge, Beaverstock, Muzio, & Taylor, 2008;Greenwood & Empson, 2003;Hitt, Bierman, Uhlenbruck, & Shimizu, 2006;Segal-Horn & Dean, 2009, 2007. Our empirical investigations involve different business models in two mature IPSFs that serve both local and global markets.…”