The Problem of Partners…

Fred Wilson and I leaned into our brushes, sweeping hard in front of the stone as it slowly slid into the 16-foot circle, crept past the 8-foot before finally coming to rest inside the 4-foot ring. A winning shot.

We pumped our arms to our team-mate down the ice, broker Bob Davies, who was the skip of our team, and who had just delivered the final rock. He came push-sliding down the ice and joined us, plus broker Harry — our vice-skip for this curling match. The occasion was the city’s annual insurance bonspiel and our four-man team comprised the two brokers together with we two company types: Fred Wilson, my boss and manager of our downtown branch office, plus me, Dave Brown, the company’s senior marketing representative.

“Good sweeping, guys!” Bob Davies said as we congratulated each other and shook hands with the members of the other team. “Hey, you proved that company people are good for something after all,” Harry said with a grin as we made our way off the ice. “Of course they are,” Bob Davies agreed. “They’re even going to buy the drinks for the team we just beat.” An hour later, once the opposing team members had finished their drinks and had left the arena, the four of us moved to a smaller table beside the clubhouse fireplace.

“Isn’t it amazing what teamwork can do?” Harry said. “We almost looked like we knew what we were doing out there on the ice.” Fred responded, “well, we’re pretty good together, nothing is as effective as a partnership that works well”. That remark brought a grunt from Bob Davies. “Speaking of partnerships, last week I had to throw a large bucket of cold water on my son’s idea for partnership. I don’t think he was too happy with me.”

Fred and I knew Bob’s oldest son, Tom. He had spent a couple of years learning the ropes in our company’s branch office before launching his own brokerage in another part of the city. While his operation had done quite well so far, we also knew that Bob’s son was ambitious and was impatient to expand his business. “Tom wanted to partner up with another bright young broker, eh?” Harry asked. “What did you see as the problem?”

Bob Davies set down his coffee mug and looked at us. “The pair of them were too much alike!” he said forcefully. “Tom is a born marketer. He loves selling and, if I do say so myself, he’s good at it.” Fred and I knew this to be true. During his trainee period at our company, Tom’s ability as a bright and persuasive salesman had quickly been apparent. “Trouble is,” Bob continued, “Tom was proposing to form a partnership with another young broker — a friend of his — who’s very much like him: aggressive, ambitious, and a born salesman…”.

“But a mediocre administrator?” Fred chipped in, and got a quick affirmative nod. “Exactly!” Bob replied. “I had to tell Tom that when you’re looking to create a partnership, you should be looking at a good blend of skills, not a surplus of one skill.”

“That’s true in your own office, Bob,” I said quietly. “Your partner prefers to run the inside show, doesn’t he, while you handle sales and marketing?” Bob Davies nodded. “It’s why we’re a good fit. He doesn’t like sales and dealing with marketing issues. And I was never fond of administrative work. We have totally different skill-sets but together, they fit really well.”

Across the table, I could see Harry smiling. “Same is true for me and my partners,” he said. “Only in reverse. I was always a bit of a ‘techie’ with my head into a machine, or figuring out how a system works. But you know my two partners, Max and Ken, they hate all that stuff. Give them a bunch of cold calls or a new coverage to sell and they’re happy. They see that as a challenge!”

“We’re all individuals,” I agreed, “intellectually and emotionally. All the more reason to pick a prospective partner with some care.”

Beside me, Fred was looking thoughtful. “And age is a pretty big factor in any partnership too, isn’t it?” he mused. “Prospective partners should be reasonably close together in age, shouldn’t they?”

There was a decisive nod of agreement from both Bob and Harry. “Oh yes, age is certainly a factor,” Harry replied. “A sixty year-old shouldn’t be looking for partnership with another sixty year-old. Chances are, they’ll both want to retire at the same time. Pretty short partnership.”

“True enough,” Bob answered. “Most people consider partnership fairly early in their careers, so the age factor really doesn’t often come into play that often. When you’re considering a partnership, the key should be to find someone who brings something tangible and valuable to the table. Hopefully, it should be someone who brings a new dimension to your office, someone who offers a talent that complements your own — not simply mirrors it.”

As I poured fresh coffee all round, Bob continued. “I recall reading a little formula for assessing prospective partners. It stuck in my mind. It has a golf acronym — P.A.R. ‘P’ is for personality. Does your prospective partner have the sort of personality you, and your clients, can be comfortable with on a long-term basis? ‘A’ stands for ability. Does he/she have the professional skills and intelligence we all need in this business? And ‘R’ stands for resources. Does the prospective partner have the necessary financial resources that are required to share in, and support, the business? Personality, ability, resources — not a bad measuring stick.”

Harry leaned forward in his chair. “For my money, power sharing is the key to a successful partnership.” He shook his head. “And I think it’s precisely why many of those father-son partnerships just don’t work.” That brought an approving grunt from Bob Davies. “You’re right, Harry. I’ve seen it many times. Fathers who bring their sons into the business as full partners, but still expect to run the show, to tell the son what and what not to do…”

“And I’ve known a few sons who were much more capable than their fathers,” Harry interjected. “But they quickly found that their Dads couldn’t let go of businesses they’d been handling all their lives. They still wanted to run the entire show, and to make all the major decisions, so those sons were treated like juniors, rather than full partners.”

A moment’s silence fell, and I jumped in. “The same can be true of brothers, or sisters, who come into the family business as partners. I visited one brokerage, I won’t mention the name, where this happened. This family never could get on together at home — and the pressures of a business environment have just succeeded in making it tougher. When I make my sales call, each of them complains about the other to me.”

At this point a large bowl of potato chips and a fresh pot of coffee arrived at our table. We helped ourselves, and it was Fred who put the next thought forward. “You two have built successful brokerages, with the partners you chose. But there must be times when you don’t agree. How do you resolve those differences of opinion?”

Bob Davies answered first. “It doesn’t happen often, mostly because my partner has his responsibilities, I have mine, and they’re totally different. But, we have had the odd difference of opinion. We have two rules. One: we talk it out away from the office, so we’re not distracted. And two: we sleep on the decision, and if we’re still troubled the next morning, we can talk about it some more.” He smiled calmly. “I’m happy to tell you we’ve never invoked that second rule.”

We looked at Harry, who had two full partners. “Well,” he began, “like Bob, we’ve split our office responsibilities up. I handle our staff plus all the usual administration stuff, Max looks after all the P/L coverages and signs all cheques, Ken takes care of our C/L business and deals with registered broker issues.” He took a sip of his coffee. “When we have a disagreement we go into our little boardroom and just thrash it out. We come to a decision, and then, Harry held up one finger, “we have one inflexible rule. We never discuss that issue again under any circumstances.”

Fred was about to make a comment, but Harry put his arm on my boss’s shoulder. “I should add that we have a couple of other cast iron rules around our office,” he said evenly. “First, we don’t socialize with our wives within the partnership…” He saw my look of surprise and nodded in my direction. “I know, Dave it probably sounds a little weird to you. Don’t get me wrong. It’s not that we don’t get along well together: we all do. We just think there are enough pressures on us from day to day without running the risk of adding to them.”

Harry let that sink in, then carried on. “Our other cast iron rule is simply this: no family members in our operation — ever!” Fred queried, “did you incorporate this condition in your partnership agreement?” Harry shook his head. “Nope. It’s not written down anywhere, but we’re all in total agreement. Family-member squabbles have ruined more partnerships than dumb decision-making. We just made up our minds we weren’t going to let that happen to us.”

I leaned forward in my chair. “Now that you’ve brought up the topic of the partnership agreement, I’m curious, did each of you have your own lawyer help you draft yours?”

Absolutely!” It was Bob Davies talking. “After all, the partnership is part of your perpetuation plan, so you want to incorporate all the critical elements. My partner and I had our own lawyer help in our drafts, then we had a corporate lawyer — a business agreement specialist — look over the final draft before we each signed it.”

“What sort of things do you include in a partnership agreement?” I asked. It was Harry who answered me first. “Well, they’re usually referred to as pre-partnership agreements, Dave, since you sign on the dotted line before you get together. It covers the critical elements. It should include the partnership’s name, the nature of the business, when it is to begin — even to end, if you want. It should state how much capital each is investing, how the shares are divided, how profits or losses are to be allocated, and of course, how these conditions can be changed, if the partners wish.” He took another sip of coffee. “It should describe the responsibilities of each, banking procedures, even holidays and time off, if you want. The agreement should certainly cover what happens if one partner is incapacitated through ill-health, temporarily or permanently. For instance, in our case, we have one million dollars worth of life insurance on each of us.”

“We have the same,” Harry said. “And we included the usual section on what happens if one partner wants to withdraw, the requirement that the withdrawing partner must offer his shares to the remaining partner, or partners, plus how the other partner or partners may finance buying the shares of the partner leaving.” He gave a short laugh. “We even included a section about how we are to resolve disputes, since there are three of us. But, as I said a minute ago — we’ve never put that into play. We’ve managed to thrash out any problems without any need for a mediator, or arbitrator, or any other third party.”

Fred, who had been listening intently, zeroed in with his question. “Tell me, did your pre-partnership stipulate a non-competition rule for someone who opts to leave the partnership?” Harry responded, “good question, Fred, and the answer for us is yes indeed!” He looked questioningly at Bob Davies. His broker friend nodded his head quickly. “Oh, yes. I’ve never had it happen to me, but I’ve known partnerships that broker up without such a provision, and the lack of it caused a lot of hard feeling.”

“What would that non-competition clause call for?” I asked. “Well, Dave,” Harry replied, “usually it stipulates that a partner who leaves cannot set up in competition with his old firm within a radius of, say, twenty or thirty miles for a period of anywhere from three to five years…something along these lines.”

“And let’s not forget the good old shotgun clause,” Bob said with a smile. “Here’s how it works. Let’s say you are my partner and you come to me and say: ‘Bob, I’d like to buy you out. I estimate that your share is worth one hundred thousand dollars, so that’s my offer to you. The shotgun clause says that, at this point, I’m entitled to say to you, ‘fair enough — but I want to buy you out for the same price’. In other words, the deal cuts both ways.”

I whistled gently through my teeth. “Yes, I can see why they called it the shotgun clause!” “Speaking of shotguns,” Fred Wilson said, looking at his watch, “I do believe my own good wife may be loading her’s soon if I don’t show up on our doorstep within the next half-hour.” He stood up from our table and reached for his jacket. “It’s part of our pre-nuptial agreement. I’m supposed to show up for supper.”