All sizes of firm can benefit from strong governance, but a tailored approach is needed
My previous columns have looked at how surveying and property consulting firms have been able to take advantage of more favourable economic conditions to achieve stronger growth and improve their profitability. Well-managed firms have taken the opportunity to reassess their strategy and reshape their businesses to meet their clients’ needs in 2015 and beyond. Many firms are also reviewing their international structures or establishing new international alliances.
There is no doubt that professional firms are operating in a fast-changing commercial environment where the need to continue to challenge existing ways of doing business, and to be relatively nimble and flexible in adapting to change is critical to future success. Internationalisation, new competition, technological change and changing regulatory and political environments all add new tensions that leading professional firms need to keep on top of and actively manage.
As a response to these changes, many firms are reviewing their risk management approach, often broadening the scope to cover new issues such as technology and cyber threats as well as areas such as regulatory, reputational and international risks.
What is good governance?
While there are multiple issues for management to consider and deal with at the current time, having effective governance arrangements in place should also be a high priority.
Firms providing property advisory services vary considerably in size and structure, from global listed businesses to privately-owned partnerships and companies. Good governance will often depend on size and structure and consequently will vary between firms. However, at its core, good governance is the ability of the practice to meet its stated objectives or those of its owners.
To ensure effective governance, two common factors are paramount: transparency and accountability.
Transparency is important as property advisory firms are essentially people businesses. A typical firm consists of highly skilled professionals that are self-motivated, passionate about their work and ambitious for themselves and their firm. Whether firms are structured as limited companies, partnerships or large global businesses, they will want to have a transparent or open culture. This will entail good communication around key issues and clarity about the direction of the firm on both a strategic and operational level.
To achieve and maintain an open culture in a firm requires strong leadership and the right tone at the top. It means that not only are key decisions communicated to the partner/director group, but also the reasons behind why these have been made. On key decisions it is important that there is consultation with the partner group before a strategy is agreed and decisions taken.
Financial transparency is also important, although this does not mean that partners need visibility of detailed numbers on a real-time basis. Being open with individuals on reasons for compensation decisions is also important as well as having a rigorous and fair system for evaluating partner/director performance.
Clear accountability is the other key element needed to nurture good governance. This means that the roles of both partners/directors in the business and those in executive positions are properly defined. Individuals can then be held accountable for their performance and evaluated against their objectives.
Bringing external perspectives
There is a trend in professional services firms for having greater input at more senior levels from career business managers. This might include having HR, marketing, IT or finance professionals on the board. Employing high-calibre professionals that can bring external expertise to the firm will help to drive change and add value to the board: assisting with decision making, providing challenge to the chief executive when needed, and driving greater operational efficiency.
To bring outside expertise to the board and assist with decision making and enhancing governance cultures, many firms have non-executive directors (NEDs). For listed businesses, this has been the norm for many years. However, for many mid-sized and larger professional service firms this is now becoming much more common. Many firms that have had NEDs have found them to give a valuable external perspective on decision-making, particularly when navigating a firm through the difficult trading conditions experienced in the last recession. Property sector and financial knowledge are often highly valued from NEDs.
At the same time, it is important to recognise that each firm is different and has varying priorities, culture and strategic objectives. You cannot and should not adopt a one-size-fits-all approach to good governance as what works in one firm may not easily translate to another firm. However, there is no doubt that governance is not just for large firms or those that are publicly listed. It needs to be considered by all firms and then applied appropriately.
It should not be considered as applying a set of procedures that will constrain a firm. It is more about allowing the firm to drive change to achieve its goals while still having the appropriate frameworks in place to allow the partners and owners of the business to be engaged in decision making and ensure that there is appropriate accountability. There should also be enough flexibility in the structure so that it can continue to adapt and evolve as the firm changes.
Fit for the future
Good governance, while still evolving in many firms, is becoming a higher priority and more critical to get right. The current challenges that firms are considering – growing revenues and profitability in a fiercely competitive market, perhaps with more revenues coming from new or emerging markets overseas; achieving greater efficiencies; retaining the best talent, investing in IT and planning for succession – will not go away in the near future. Good governance, with a transparent and open culture and true accountability, is a critical factor in ensuring a property advisory firm is ready to deal with all these current challenges as well as ensuring that the firm is fit for the future.
Nick Carter-Pegg is a partner and head of professional services at BDO LLP
