The Limits of Professional Behavior

Over the past 20 years, professional service firms (PSFs) have come to look a lot like their clients. Many, now corporations themselves, operate in multiple countries and have hundreds—even thousands—of employees. A small cadre of principals sets direction, while professional administrators impose budgets and other financial controls. Functions that were once deemed integral, such as research, are outsourced or delegated to paraprofessionals. The firms’ proprietors, meanwhile, have overcome their qualms about advertising their services, not to mention themselves. Less remarked upon is the reverse. Six years ago, a book by Tom Peters exhorted managers to “Transform Your ‘Department’ into a Professional Service Firm Whose Trademarks Are Passion and Innovation!” But traditional businesses have long been adapting PSFs’ approaches to customers, talent, and knowledge. Makers of things, such as General Electric and IBM, have been methodically turning themselves into providers of services—and in the service category, PSFs add the most value and thus command the highest margins. They also possess few depreciating hard assets, while being enviably rich in knowledge workers who are continually upgrading their mental equipment. In fact, the primacy of knowledge work may be the salient common feature of most progressive corporations. These companies wage wars for talented employees, from whom they increasingly expect mature managerial judgment. To encourage these knowledge workers to think like owners, progressive companies award options and grant stock; traditional professional service firms, of course, are owned and run by their partners. And these companies, like PSFs, are adept at knowledge codification and sharing: Law firms’ file drawers, and now databases, are crammed with model pleadings that young associates regularly consult. What’s more, forward-looking companies are committed to becoming customer-centric, an unmistakable echo of PSFs’ sworn subservience to their clients’ interests. With so much talent at hand, professional service firms have always felt a responsibility to develop their own leaders. That’s why they’ve been such prolific sources of executives, having launched the careers of Delta Air Lines’ former CEO Leo Mullin, Morgan Stanley CEO Philip Purcell, and Citigroup CEO Charles O. Prince, among many others. The best-governed corporations do the same. Procter & Gamble has become so good at executive development, for other companies as well as itself, that it has established an alumni network along the lines of those maintained by up-and-out consulting and law firms. Inevitably, a bit of the service firm clings to these transplants, who prefer to hire people with MBAs—a degree that, like the JD and the MD, is supposed to bespeak mastery of a complex body of knowledge and adherence to strict ethical standards. Trained to be corporate managers, the top business-school graduates understandably gravitate instead to investment banks and consulting firms, the two most lucrative varieties of professional service firms. Convergence in some areas is unimaginable, however. For example, service firms are supposed to offer a single standard of care to all their clients, regardless of their ability to pay, while corporations use dynamic pricing and customer relationship management to vary service quality according to spending power. But in general, the traits companies share with PSFs attest to those companies’ health. Still, organizations must take care when consulting a model that is itself changing—and not for the better. In fact, there is evidence that companies have learned about as much as they can from today’s professional service firms. True partnerships remain “effective mechanisms for managing and motivating highly intelligent, highly autonomous knowledge workers,” according to Laura Empson at the Clifford Chance Center for the Management of Professional Service Firms at Oxford University’s Saïd Business School. But the larger PSFs that hire laterally instead of investing in home-grown talent; that favor ever-higher ratios of associates to proprietors; and that show greater concern for shareholders than for clients may no longer be worthy of emulation. The leaders of today’s large professional service firms, unlike their contemporaries running corporations, “are more concerned about their book of business than how the group does,” asserts David Maister, a Boston-based consultant. Such firms resist accountability, refuse to stick to their stated strategies, and lack vision, drive, and commitment, he says. In short, if companies have anything more to learn from professional service firms, it will be from those that operated in the era before PSFs attached Inc. or LLP to their names and developed the fear of clients’ lawsuits that those letters betray. That means the era before PSFs became, in essence, profit-seeking companies themselves.

The Limits of Professional Behavior

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