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The prevalence of partnerships in the professions is not down to chance. The structure is suited to occupations that rely on reputation, mentoring and long-term relationships.
But that is changing. More firms are experimenting with alternative structures and ownership models.
Private equity deals are the most visible sign. In February, US accounting firm Baker Tilly agreed to sell a majority stake to Hellman & Friedman and Valea.
There are European examples too. Waterland, a Dutch private equity firm, invested in London-based Moore Kingston Smith last year. London-based HG has used advisory group Azets to roll up more than 90 firms since 2016.
There are some powerful drivers. Private equity has amassed a record supply of dry powder, amounting to $2.59tn last December. Most accountancy firms are attractive because of reliable earnings.
Private equity investment does not always mean abandoning the partnership structure. Both Baker Tilly US and Moore Kingston Smith illustrate the point. But it is frequently a trigger for abandoning what critics say is often an unwieldy decision-making structure.
The long-term nature of partnership rewards may also not be well suited to attracting recruits who now expect more varied careers. Tax is another factor. It was cited by BDO USA’s switch from a partnership to a corporation, funded by Apollo Global Management’s provision of $1.3bn of debt finance.
But the need to invest large sums in new technology is a growing consideration. Most accountancy firms are small and need to scale up to benefit. That creates a reason for acquisitions, which can be hard for a partnership to pull off.
There are, of course, alternative ways to fund technology spending. Last year PwC partners sacrificed some pay to invest an additional £100mn.
And private equity does not suit everyone. Firms need to grow fast to satisfy the expectations of investors and staff. Retention is always a concern in these businesses. There could be regulatory friction. In 2022, the SEC warned accounting firms to exercise great caution around investments from private equity firms.
History provides examples of sectors where partnership structures have, by stages, been swept away. Investment banks are a case in point. The trigger has often been new technology that reduced the importance of human capital.
This puts the enthusiasm of professional services firms for generative AI in their operations in different context: Bain estimated that 40 per cent of labour time could be automated in the sector.
For now, at least, people remain pre-eminent in professional services firms. Private equity’s interest is not the only change challenging the partnership ethos.