Leadership selection and succession Leadership Selection and Succession “More transparency, less politics, clear reward…” Prepared by: Chris Chappell and Ben Kent, Lighthouse. Date: 21 July 2006

Leadership selection and succession 2 Introduction The issues As professional firms become larger, more complex organisations, strong leadership is critical. Lawyers and accountants do not enter the profession to become senior managers, so the challenge for firms is how to identify, elect and reward suitable candidates. The research This research, designed and conducted by The Managing Partners Forum and analysed by Lighthouse, looks at current practice among the UK’s top 100 law firms and top 50 accountancy firms. We analysed responses from 41 respondents. The objective The aim of the research was to analyse each stage of the selection process for Managing Partners, Senior Partners and Heads of Business Units and to shed light on the leadership roles: Do firms have a selection process and what does it involve? How common are contested elections? Do firms offer compensation premiums for management positions?

Leadership selection and succession 3 The Selection Process

Leadership selection and succession 4 9/10 have a clear selection process for Managing Partners Question 1: Does your firm have a clearly articulated and understood selection process for the appointment of Managing Partners, Senior Partners and Heads of Business Units? Base: All (41) Selection Process The overwhelming majority of firms have a clearly articulated selection process in place for all three leadership positions.

Leadership selection and succession 5 Most selections are by election Base: All (41) Response: Always The selection process for Managing and Senior Partners is detailed, always allowing for a number of formal elements including nomination and election by secret ballot. The position of Head of Business Unit has a much more informal selection process.

Leadership selection and succession 6 Less than half say that the processes are very effective Question 19: How effective do you consider your Firm’s selection process? Base: 40 Effectiveness of selection process Given the importance of leadership selection, it is surprising that only 41% consider the process for Managing Partner selection “very effective”. There is definitely room for improvement.

Leadership selection and succession 7 Elections not used very often Question 14: How frequently are contested elections held for senior management positions? Base: All 40 Frequency of contested elections 88% of firms have selection processes always allowing for election by the partners for the position of Managing Partner. However, only 10% always hold contested elections for the same position.

Leadership selection and succession 8 Largely due to the importance of reaching a consensus over management positions We consider that the senior management roles within our partnership should be filled by those having the overwhelming support of the partners. We have only had one contested election which we consider to have been rather divisive. Leaders often emerge by consensus but there should be a clear procedure for a contested election if needed. We have never had a Managing Partner without the overwhelming support of the partners. Our selection is usually done by consensus although there is provision for a formal process if needed.

Leadership selection and succession 9 As leaders are identified earlier and earlier, elections may become even less common In the medium-term the firm's leaders are likely to be identified as possible leaders at a younger age and developed for that role and not to be outstanding lawyers alone. The identification of leadership and management talent may mean in due course it is less likely that elections across the partnership will be the preferred method of selection. It will not be cost effective for professional firms to provide leadership training across all their partners and associates. Potential leaders must be identified earlier and earlier. This is a possible reason why contested elections, already a rarity through the need to generate a morale-maintaining consensus, might become increasingly more infrequent. Management and leadership training is now given to partners with potential to fill the key management roles.

Leadership selection and succession 10 The Leadership Role

Leadership selection and succession 11 Job specifications for leadership roles are common Question 4: Does your firm have job specifications for the role of Managing Partner, Senior Partner or Head of Business Unit? Base: All (41) Job Specifications for management positions The leadership roles are clearly defined for all three management positions.

Leadership selection and succession 12 Most Managing Partners serve 3-4 year terms Question 5: What is the standard term of office of your Managing Partner, Senior Partner, and Heads of Business Units? Base: All (41) Length of term A common length of term for Managing Partners appears to be relatively short (3 years), compared to that for Business Unit Heads (often more than 5 years).

Leadership selection and succession 13 There is often no limit to the number of terms that can be served Question 6: How many successive terms can an individual serve in the same management position? Base: All (41) Number of terms Despite short terms for managing partners, it appears that in the vast majority of cases they can serve an unlimited number provided the partners are happy with their leadership.

Leadership selection and succession 14 Compensation premiums for management positions are rare Question 7: Is there a formal compensation premium for holding management positions? Base: All (41) Compensation premium