Who Owns The Client

In many advisory firms, economic ownership of the business rests in the hands of a few key client-facing people. Legal ownership rests with shareholders, partners or some other ownership construct. I regularly observe acquisitions, whether it is an entire advisory business, the acquisition of a new advisory team or portfolio of clients, where the overriding investment of management time and focus pre-deal, during the deal and post- the deal is on the legal ownership. Rather like the yacht dropping anchor and docking in the marina, the crew’s energy and effort goes into securing the yacht (the business) with a firm hold on the anchor and the guy ropes. That is effective so long as the yacht doesn’t break free of its’ moorings, it can withstand changes in the weather, the wind and the tide and the crew are constantly vigilant about other yacht movements near the yacht.

In certain jurisdictions (California, Middle East, China and so on), non-compete and legal remedies are largely ineffective when trying to restrain a key producer or group of individuals moving to a competitor. In Europe and in certain countries with more employer-friendly attitudes to economic ownership and upholding legal rights over intellectual property, these remedies are more effective albeit for a limited duration (0-12 months).

When these fissures in the relationship between the acquired and the acquirer happen in more liberal jurisdictions on a frequent basis and with the same companies, you have to ask the question are management asleep at the wheel or are they simply failing to apply good judgement? This week’s announcement that global insurance broker AON are suing Alliant for a second such sizeable breach in California in two years, and an increasing uptick of lawsuits in North America, Western Europe and Asia as international advisory firms within the insurance market gear up for growth and expansion reminds us that far too many firms are dependent on legal remedies.

Faced with limited legal remedies, what can and should top management do when considering acquisitions:

1. People leave bosses, not businesses. Does the direct report of the key individuals you are acquiring possess the skills and volition to successfully integrate those people into the firm? Do they have the right set of tools (technology) and support available to help the newly acquired people hit the ground running? Are their own rewards and recognition aligned with the pre-deal business goals or the new business goals for the combined team (is it clearly a “win-win” or a “win-lose” relationship)? Are managers in the acquiring business held accountable for the right behaviours, not just the results (individual performance)?

2. People leave the “acquiring” firm because the firm failed to meet or exceed their expectations. Promises are made pre-deal, which in many competitive situations are geared to a point where they are highly improbable and unrealistic. Both parties in the “deal frenzy” are so focused on the rewards (personal or corporate), they don’t spend enough time reaching conceptual agreement on the best way to produce results (“we’ll work it out when you are on board”). Most relationships fall apart not because the logic didn’t make sense rather the emotional objectives of the acquired party are left unfulfilled. If you don’t invest sufficient time building a trusting relationship and eliciting pre-deal what the personal objectives of the newly acquired individual, team or business owner is and how you can best meet them during and post-deal, don’t be surprised that an insurmountable fracture arises in your relationship a short way down the track.

3. The management team of the acquiring business must understand their own limitations. They cannot motivate the newly acquired resources, any more than they can motivate their own colleagues. It is their direct responsibility to create an environment in which those individuals, their customers and their people can foster.  What they can and must do is show respect for everyone’s past accomplishments. They must judge their own self-worth and contribution on their ability to apply their own past experience into a more impressive future for the newly acquired people and business (increased productivity, unprecedented growth, happier customers, increased career opportunities, greater profit, lower attrition etc.).

The next time a prospective producer, a sales team or a business owner walks into your office, invite them to sit on a comfortable sofa, offer them a drink and remind yourself that they represent a wonderful opportunity, not a threat. Place yourself in their shoes, how can they leave the room more comfortable and excited about not just the rewards but the “journey” of realising their own personal aspirations within your firm than when they walked in an hour earlier, no matter what you ultimately decide to do together. Succeeding with that simple step, may dramatically increase your success in holding onto your most prized assets more than you ever imagined.

© James Berkeley 2014. All Rights Reserved.

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