Is It Worth Becoming a Partner?

It’s a fact of life in the Big Four :you are there to become a partner. This expectation may not be explicit in Big Four culture, but the undercurrent is undeniable. If your every decision is not focused on becoming a “member of the firm”, your career is in perpetual jeopardy. The whole reason for your being is to attain that status.

The mystique of the partnership is evaporating, and it could change the character and composition of the Big Four fundamentally. Yes, Mr. Dylan, the times, they are a-changin’. Anecdotally, more and more senior managers talk quietly – never publicly – about what their next moves would be. Those illicit conversations occurred in hushed tones away from the office – often emerging from frank advice offered to more junior staff members.

But, where do you go?

Many senior managers are considering VP and C-level positions instead of shooting for the partnership. Citing lifestyle desires (i.e. getting off the road), earning potential, and less politically charged environments, even top-performing senior managers are exploring careers outside the Big Four.

Aside from these internal pressures, up-and-comers clearly have concerns about the resilience – and costs – of the partnership structure. Once upon a time, the partnership buy-in was considered a pristine investment opportunity. The past few years, though, have called this perception into question.

It all started with Enron.

Many of the consultants and accountants in our community are still in pain from the collapse of Andersen – especially the ex-Andersen folks who have sought refuge at the remaining Big Four. Professionals who worked at Andersen, especially former partners, are acutely aware of the risks inherent in buying into the partnership. New partners, with fewer than five years as members of Andersen, were brutalized financially. Their buy-in loans were collateralized with their partnership units. The collapse of Andersen led to a negative equity situation for them; partners owed hundreds of thousands of dollars and could not divest their units to repay the loans.

A similar fear rippled through KPMG, recently. Under investigation for selling abusive tax shelters, KPMG settled with the Justice Department. The settlement included a fine of $456 million. While KPMG avoided the fate of Andersen, the resulting fine equates to around $300 thousand for each of KPMG’s 1,600 partners.

The declining interest in firm membership is supported by potential changes in firm organization. Accenture and BearingPoint have forsaken the partnership model, and both now trade on public markets. Doubts as to the protections of the limited liability partnership model are causing the Big Four to consider incorporation – instead of partnership.

Once recognized as an elite club in the accounting and consulting industries, the major partnerships are losing their mystique. The firms themselves continue to provide the best services available on the market, but the firms themselves are undergoing a fundamental shift. Every associate used to hope to grow up to become a partner. Senior managers could taste it – and would think of nothing else.

The Big Four’s preferred structure is under attack from the outside. Once considered an almost risk-free investment, we have learned from Andersen and KPMG the contrary. This investment risk is magnified by the erosion of protections offered by the LLP structure. Greener pastures lure talent from the partnership while the legal system lays siege to this venerable institution.