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With less involvement of senior management in day-to-day decisions, the economic success of a professional firm is dependent on “multiple leadership,” that is, key decisions being made at many points in the firm. Figure 1.1 illustrates the relationships among the financial and working elements of a partnership: interdependence in carrying out their work, and support that individuals offer and rely on from one another. Both are built on a foundation of economic interests shared among the partners.21

Figure 1.1 Tenets of Professional Partnership

Source: Epoch Investment Partners

Interdependence

In serving the complexities of a given assignment, client-serving teams at professional partnerships often are likely to draw on the expertise in several areas of the firm. Attorneys, consultants, and investment analysts should be eager to share their knowledge, both within and among teams, in the interest of providing the best service to clients and moving the firm forward. Implicit in those goals, of course, is that the hard work and judgment has to be reciprocated among all members of the group when called for.

An illustration: in an investment management setting, it’s typical for analysts and portfolio managers in a firm’s equity group to share insights on the prospects for individual companies or industries with those running fixed-income portfolios. Each approaches the analysis a bit differently, providing complementary (and sometimes opposing) views.

Narrow views and overspecialization often get in the way of idea sharing, typically to organizations’ detriment. Gillian Tett, the U.S. managing editor of the Financial Times, has written on corporate culture and idea sharing from the perspective of an anthropologist, noting: “We need specialist, expert teams to function in a complex world. But we also need to have a joined-up flexible vision of life.”22 She cites companies hobbled by the “silos” within their structures, for example, Sony Corporation beginning in the 1980s, and the turnaround potential of removing them, such as at IBM Corporation in the mid-1990s.

Ms. Tett lauds Facebook, Inc. for its resistance to building silos, instead promoting an open organization where employees rotate through various teams, and come to know people in all parts of the company. It’s not the most efficient structure, she concedes, but citing a senior executive, “[It’s] a small price to pay to meet the goal of keeping the organization fluid and connected; it was crucial to have a bit of slack, or inefficiency, to breed creativity and give people time to stay connected.”23

Rotating people through the firm’s various departments isn’t feasible for us at Epoch (or for many asset managers). The knowledge needed to work on the investment teams, for instance, is quite specialized, and assigning people without in-depth training to our portfolio teams would fall short of our fiduciary obligations to clients.

In the case of Epoch Investment Partners, we manage several complementary strategies – all in equities, but investing in various markets and company sizes, and we encourage analysts and portfolio managers to share whatever they know about their companies with anyone else who might be able to use it. We don’t obligate people to rely on others’ decisions, but what counts is that the information – in the forms of both data and opinions – is freely available for everyone’s use. (Epoch maintains a research database that is open to all analysts and portfolio managers.) It is not uncommon in some firms to find people who feel protective of their hard work and want to keep it for their sole benefit, but in our case not sharing insights with another analyst or portfolio manager will lead to a collective loss – or at least a forgone opportunity to enhance the returns of another strategy. And since we reward employees on the firm’s overall results, the effect on returns from not sharing affects everyone’s rewards.

Fostering that sort of sharing is not easy, however. Some people that are drawn to the specialized, expert nature of investment management are introverts, and would be more comfortable in their offices than handing away their insights (or fitting the insights of others into their own work). We try to create a natural environment for sharing and collegiality with a set of regular meetings, on companies’ earnings reports, portfolio performance reviews, and the like, to give people a chance to hear what others are saying, and to offer their own ideas. By so doing we hope to avoid the NIH (“Not Invented Here”) syndrome – “If I did not invent it, the idea has little or no value.”

Epoch’s ultimate success in winning for our clients depends in large part on our ability to transfer knowledge from one person to another. Firm meetings are a platform for people to then form their own groups, where they discuss in greater depth the good and bad points of different ideas or decisions. In turn, we hope the individuals in those groups will reach out to other portfolio managers, or the senior management team, and share their thoughts, even if their points include disagreement or opposition. What counts is that all the ideas are given air time: for the interdependence principle to work, people at all levels in a professional partnership need to know that their opposing views, and their reasoning behind them, are welcome.

“Everything we do should be about transferring knowledge with one another.”

– Bill Priest

At Google, Eric Schmidt and Jonathan Rosenberg caution against the encroachment of HiPPOs, (or Highly Paid Persons’ Opinions): “When it comes to the quality of decision making, pay level is intrinsically irrelevant and experience is valuable only if it is used to frame a winning argument. Unfortunately, in most companies experience is the winning argument.”24 The best decisions are reached from considering the best ideas, rather than one person’s opinion, and the ability to participate in decision making will encourage all team members to make a contribution.

Schmidt and Rosenberg also believe that team members have an obligation to speak up when inferior ideas make their way to the table, and that they later share the responsibility for decisions that don’t work out: “If they don’t [raise their concerns], and the subpar idea wins the day, then they are culpable… [D]issent must be an obligation, not an option.”25

“An organization is like a tree full of monkeys, all on different limbs at different levels. The monkeys on top look down and see a tree full of smiling faces. The monkeys at the bottom look up and see an entirely different perspective.”

– Anonymous

Support

A companion to interdependence is support among team members, although it operates more at a personal level. Support includes encouraging people to advance their ideas, as well as formal and informal coaching and mentoring.

An equally important aspect of such support is offering candid feedback on the decisions of team members – simply stated, discussing their mistakes as well as their successes. Hospitals hold regular reviews of mortality and morbidity, which look into the how and why of patients’ outcomes, with an eye toward safety and quality improvement. Professional firms can conduct similar postmortem reviews and make them a regular part of the management process, in a forum that is not critical or threatening, but intended instead to gain understanding of how mistakes have come about, and how to minimize and avoid repeating them.

Support also calls for raising concerns, both at an individual level and for the benefit of the organization as a whole, when an individual believes a mistake or incorrect judgment is “in process.” For this facet of support to have value, however, individuals and managers have to be receptive to such ideas and seek them out, even when they face challenges or criticisms.

Ray Dalio, the founder of Bridgewater Associates, a highly successful investment organization, has codified over 100 pages of cultural and management principles published on the firm’s web site.26 On the topic of support (of both sorts – coaching and candid feedback), he states that he expects people in his organization to:

■ Stress-test their opinions by having the smartest people they can find to challenge them;

■ [Be] wary about overconfidence, and [be] good at not knowing; and

■ Wrestle with reality, experiencing the results of their decisions, and reflecting on what they did to produce them so that they can improve.

It’s a part of human nature to avoid these sorts of conflicts, but in an open and thoughtful professional partnership, people need to feel free to take the other side – even if it means questioning a decision by the boss – and point out something that might have been missed. By the same token, it’s up to senior people in the firm to both advocate – and accept – that sort of candor.

“If you don’t know what you don’t know, you can get the organization into a lot of trouble, but if you do know what you don’t know, you can seek help from others, and everyone just gets better.”

– Bill Priest

Shared Interest

Because so many people in professional organizations have direct input and influence to the success and quality of client engagements, everyone in the firm owns the responsibility to move the firm forward. In turn, for individuals to be motivated to engage and commit deeply with clients and colleagues, they need to have a significant financial interest in the firm’s performance. This calls not just for an expectation of bonuses every year to reward good work, but a participation in both the potential upside and downside, and a long-term tie to the firm that comes from equity ownership (or often in the case of an investment management firm, a stake in the strategies it offers to clients).

A shared financial interest requires a great commitment from a firm’s partners. Aside from the long and hard working hours and commitment of personal life, there can be significant financial commitments – contributing to the firm in times of financial difficulty, of course, but often during good times as well, when a firm is growing and requires reinvestment of profits that might otherwise be paid out to the owners. Accordingly, balancing short-term rewards with the best interests of the firm through compensation policies is a crucial role for senior management.

Partnerships’ policies vary on what they emphasize in professional compensation – events of individual merit, or collaboration that contributes to firm continuity. A “lockstep” model is formulaic, with compensation based on seniority and contributions to the firm over time, while a discretionary “eat what you kill” model, paying out bonuses tied to specific revenue events, recognizes particular successes in a given year.27 Most firms, including Epoch, opt for the flexibility of combining the two in some fashion, to allow both fairness and justice in compensation.

“Tell me how a person is paid, and I’ll tell you how he’ll behave.”

– Bill Priest