From the September 2011 issue of Investment Advisor • Subscribe!

The Power of Collaboration

Seeking regular counsel from your peers helps you to grow thoughtfully while managing risk

We often read or hear news stories that spark the question: “What would I do in that situation?” Yet as much as we crave black-and-white answers, many decisions we make are colored by shades of gray in the ambiguity and complexity of daily life.

Take, for example, the paralysis in Washington over every issue, large and small. Because politicians on both the left and right confuse party platforms with principles, the very notion of negotiating an optimal solution with the other side is often considered a betrayal by party loyalists. Somehow it seems that collaboration with other Americans has become unpatriotic, and intransigence has emerged as a badge of courage. Now, instead of pondering “What would I do?” many voters long to cry “Here’s what I would do!” Especially voters who have the experience of managing a company.

Imagine if a business leader did not consider all the facts, instead relying on limited personal experience and private pledges. Imagine if a CEO ignored the views of customers, employees, vendors and bankers in crafting an initiative. Please note, this discussion pertains to business leaders whom you admire. It seems obvious that accepting constructive input from multiple perspectives enables leaders to collaborate effectively with partners and to strengthen the firm’s end results.

Bear in mind that the goal is not to maximize a result, but to optimize a result. All things considered, what’s the best outcome the firm can strive for? Many small business owners find the politics of larger organizations distasteful, preferring to make decisions independently. In reality, however, politics exist whenever two or more people are involved. Politics is really the art of getting along (so it makes the circus in Washington doubly painful to observe).

As financial advisory firms grow larger and mergers become more commonplace, the art of getting along assumes further importance. Changes to a firm’s structure mean the introduction of new ideas and new personalities. As a result, many firms strain under the weight of egos, “me-too-ism” and the visceral hunger for the spotlight. Like vaudeville performers elbowing aside others on the stage, both the stars and the wannabees strive to be seen as the spokesperson, the arbiter of good judgment and the final say in all things.

Advisors who are new to partnerships and thus fear challenges to their position may see collaboration as a sign of weakness. The reality is that collaboration is an indication of strength. Learning how and why to collaborate creates an opportunity to leverage the power of others, obtain a window to one’s blind spots and shore up the firm’s weaknesses for the future.

You’re Not the Boss of Me
A recent conversation with relatively new partners in a growing advisory firm brought the issue of collaboration to light. One partner possessed strong administrative skills and had managed the larger firm that ultimately became the dominant culture in the merger; the other partner previously was a solo practitioner with a big personality who drew clients from around the country and who was perceived by many as an industry leader. The former loved the latter’s ability to make rain, and the rainmaker loved the larger firm’s ability to support his practice. On paper, at least, the synergy looked great.

Yet about two years into this merger, the leaders’ divergent approaches have already put the partnership at risk. They seem to talk past each other, not to each other. As their mutual hostility grows, their desire to listen to the other’s point of view diminishes. While an observer might have predicted this natural discord, merger parties commonly overlook personality conflicts when the potential of combining the two businesses is so compelling.

What tipped these partners into their latest confrontation and a conversation with us was the strong individual personality’s decision to move into new markets and to issue press releases on his activities without first consulting with his new partner. He had always acted independently before and was quite successful; in his mind, there was no reason to consult with anyone else. He felt that his decision was within his realm and was not inclined “to be controlled by people who can’t sell.”

Obviously, the quieter and more process-oriented managing partner felt this was a material breach. He repeatedly stated that they had agreed to consult with each other before making management decisions or taking actions that would reflect on the brand or consume the resources of the combined business. He and his partners were reluctant to confront the misbehavior of the rainmaker, however, because of that individual’s ability to create new business. Finally the distrust and anger became unbearable.

While these partners have worked out their arguments for now, their discussions reveal how larger firms struggle when their leadership contains conflicting personalities. I was introduced to the concept of collaboration when my partners and I merged our smaller consulting firm into a very large accounting firm. It took a few strong whacks to the head to get us to understand that everything we did had implications for the larger organization.

It is easy to view collaboration with others as bureaucracy. The epiphany for me came once I began to accept the protocol and realized that collaboration gives you great power. Collaboration allows an experienced partner to double-check your work, challenge you on your assumptions, enhance your presentation and manage your risks. Even with our combined strengths, we discovered that we didn’t know all the answers.

Successful firms create guidelines for consultation among the partners. For example, discussions should occur before providing client recommendations on complex matters involving taxes, estate issues or other technical questions. Some firms have processes around client acceptance, requiring buy-in from all or a majority of the partners who must deem the prospect appropriate for the firm. Others have processes around termination of clients for a variety of reasons.

The circumstances are many, but the gist of effective collaboration is to apply a framework to situations that could put individual advisors or the firm at risk in managing client relationships, as well as to the use of firm resources. The review does not have to be by committee, just by another qualified individual in the firm who cannot be easily cowed and who has a solid grasp of the issues involved. When collaboration becomes part of a company’s routine, it also becomes an effective risk management tool while reinforcing the behavior you seek. It would be a mistake to assume regular and systematic consultation steals the soul from an entrepreneurial business. Rather, it’s like the roll bar for a NASCAR racer or the helmet on a football player. It’s not infallible, but it does help protect against fatal injury.

Make collaboration a required process for certain circumstances within your firm. In addition, consider adding a component related to the management of risk to the bonus plan for partners and staff. For example, neglecting to consult with others could be a demerit in a partner’s bonus. The idea is to reward acceptable behavior; bringing in new business is one dimension of effective firm leadership, but so too are the development of staff, commitment to improving your skills and the management of risk.

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