What is the role of independent non-executive directors (NEDs) in professional practices?
The Association of Partnership Practitioners webinar on 12 May 2021 explored the role of NEDs in professional practices. The following is a summary of some key themes and ideas.
- Professional practices are a very different model from PLCs. Shared ownership is the foundation on which the model is built, and direct partner access to the board and NEDs is a crucial component. It also helps NEDs to understand the firm’s culture. But partners sometimes have strong views on matters that in a corporate setting would be the domain of the C-suite and this influences how the board (including NEDs) may operate.
- Managers of professional practices usually welcome NEDs from different backgrounds, and the way they challenge the management team and status quo. This is not always true of the CEO of a PLC. There is also scope for greater flexibility in how NEDs support the firm’s strategic and business objectives. The partnership agreement and governance structure should support the Board and firm. NEDs are one element of this and offer the benefit of their opinions, which provides objectivity and challenge. But NEDs’ views are rarely binding.
- How long should a NED serve? It depends on the organisation but it will depend on the role the NED will serve and striking the right balance between continuity and fresh impact. 2 or 3 year terms, with a maximum of 6 or 9 years might strike that balance.
- The relationship with regulators is very different in professional practices – there is scope for dialogue, challenge (both ways) and direct engagement. NEDs can offer objective insight on issues raised by regulators – for example if a regulator was concerned about tone from the top.
- Professional firms, especially law firms, have made huge strides in understanding what clients want and how to interact with clients. NEDs rarely have direct contact with clients (i.e. as an ambassador) but they offer an external perspective and provide a different dimension, including on conflict-type situations. NEDs can also help scrutinise the way the firm addresses cross-selling (especially globally). How joined-up are firms really? Do clients get the same level of service, delivered in the same way, in all locations? Useful for partners (especially in US) to devote more non-billable time to developing and supporting the practices of their partners in other locations.
- What about employee ownership? It creates a different kind of culture. These structures are not widespread. Many global law firms will be restricted by regulatory restrictions on ownership and control of law firms by non-lawyers. It would not be fair for non-lawyer employees to be excluded.
- The capital constraints of a 100% distribution model may become more obvious post-COVID. But while it has some restrictions, it has shown that it works as a model for private individuals to run a business.
- Many firms (including ‘mid-market’ firms) are pursuing new routes to secure external capital. This may allow them to pursue innovative or ambitious growth strategies.
- Diversity is a major challenge for professional firms. Gender diversity is slowly improving but there is still much work to be done. The partnership model itself is not to blame for the slow progress, but lessons can be learnt from the corporate world. COVID and prolonged periods of remote working may accelerate progress in some areas. Other pressing issues, such as the Black Lives Matter movement, are forcing firms to examine their models to try to identify barriers. Mapping the entire workforce by gender, race and salary band is likely to be an eye-opener, which may serve as a catalyst for change.
- NEDs may a have role in encouraging, supporting and prioritising sustainability initiatives, alongside the firm’s entire partner body. It should be part of the firm’s whole culture. This may in turn make the firm more attractive to clients and new recruits, so should drive success and profitability.
This summary was prepared following the Association of Partnership Practitioners’ webinar on 12 May 2021. There was a fantastic panel sharing their huge wealth of knowledge and experience. Thanks to Suzanne Baxter (NED at Pinsent Masons), Russell King (NED at BDO LLP) and David Harris (NED at Eversheds Sutherland) and the discussion was brilliantly chaired by Karen McNicholls (Partner, Deloitte).
This summary was prepared by Corinne Staves, Maurice Turnor Gardner LLP.
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