The One-Firm Firm: What Makes It Successful

What do investment bankers Goldman Sachs, management consultants McKinsey, accountants Arthur Andersen, compensation and benefits consultants Hewitt Associates, and lawyers Latham & Watkins have in common? Besides being among the most profitable firms (if not the most profitable) in their respective professions? Besides being considered by their peers among the best managed firms in their respective professions? The answer? They all share, to a greater or lesser extent, a common approach to management that I term the “one-firm firm” system.

In contrast to many of their competitors, one-firm firms have a remarkable degree of institutional loyalty and group effort that is clearly a critical ingredient in their success. The commonality of this organizational orientation and management approach among each of these firms suggests that there is indeed a “model” whose basic elements are transferable to other professions. The purpose of this article is to identify the elements of this model of professional firm success, and to explore how these elements interact to form a successful management system.

Methodology

The information on specific firms contained in this article has been gleaned from a variety of “public domain” sources, as well as selected interviews (on and off the record) at a number of professional service firms, including but not restricted to those named herein. However, none of the information presented here represents “official” statements by the firms involved. As with most professional service organizations, the firms discussed here are private partnerships with no requirement, and with little incentive, to expose their inner workings. Consequently, public information on the management practices (and economic results) of such firms is difficult to obtain.

This situation is regrettable because the professional service firm represents the confluence of two major trends in the U.S. (and worldwide) economy: the growing importance of the service sector, and the increasing numbers of “knowledge workers.” As a result, any lessons that can be learned about successful management of such enterprises could potentially be of importance not only to the professions but also to other service entities and organizations grappling with the problems of managing large numbers of highly educated employees.

In an attempt to discover the principles of “good management” of professional service firms, I have worked very closely with a broad array of service firms in a variety of capacities. My research has been driven by two propositions: first, that professional service firms are sufficiently different from industrial corporations to warrant special study; and second, that the management issues faced by professional service firms are remarkably similar, regardless of the specific profession under consideration. I have chosen in this article to concentrate on the second proposition.

What Is Meant by “Well Managed”?

The firms chosen for discussion were identified in the following way. In the course of my research and consulting work, I have made it my practice to ask repeatedly the question, “Which do you consider the best managed firm in your profession?” The question is, of course, ambiguous. In any business context, “well managed” can be taken to refer, alternatively, to profitability, member satisfaction, size, growth, innovativeness, quality of products or services, or any of a number of other criteria. The difficulty in identifying “successful” firms is particularly acute in the professions because many of the conventional indicators of business success do not necessarily apply. For example, since there are few economies of scale in the professions,1 neither size nor rate of growth can be taken as unequivocal measures of success: many firms have chosen to limit both. Even if “per-partner” profit figures were available (which they are not), they would also be unreliable measures, since many professional firms are prepared to sacrifice a degree of profit maximization in the name of other goals such as professional satisfaction and/or quality of worklife. Finally, since “quality” of either service or work product is notoriously difficult to assess in professional work,2 few reliable indicators of this aspect of success are obtainable.

In spite of these difficulties, it has been remarkable how frequently the same names appear on the list of “well-managed” firms in the professions, as judged by their peers and competitors. The firms discussed here were on virtually everyone’s list of admired firms, often together with the comment, “I wish we could do what they do.” It should be noted that other firms, not discussed here, were also mentioned frequently. However, as expressed earlier, what makes Arthur Andersen, Goldman Sachs, Hewitt Associates, and Latham & Watkins worthy of some special attention is not only that they are successful and well respected, but that, in spite of being in different professions, they appear to share a common approach to management (the one-firm firm system) that is readily distinguishable from many of their competitors. This approach is clearly not the only way to run a professional service firm, but it is certainly a way that is worthy of special study.

The “One-Firm Firm” System

Loyalty

The characteristics of the one-firm firm system are institutional loyalty and group effort. In contrast to many of their (often successful) competitors who emphasize individual entrepreneurialism, autonomous profit centers, internal competition and/or highly decentralized, independent activities, one-firm firms place great emphasis on firmwide coordination of decision making, group identity, cooperative teamwork, and institutional commitment.

Hewitt Associates (described along with Goldman Sachs in a recent popular book as one of “The 100 Best Companies in America to Work For”)3 says that, in its recruiting, it looks for “SWANs”: people who are Smart, Work hard, are Ambitious, and Nice. While emphasis on the first three attributes is common in all professional service firms, it is the emphasis on the last one that differentiates the one-firm firm from all the others. “If an individual has ego needs that are too high,” notes Peter Friedes, Hewitt’s managing partner, “they can be a very disruptive influence. Our work depends on internal cooperation and teamwork.”

The same theme is sounded by Geoffrey Boisi, the partner in charge of mergers and acquisitions at Goldman Sachs: “You learn from day one around here that we gang-tackle problems. If your ego won’t permit that, you won’t be effective here.”4 By general repute, Goldman has achieved its eminence with a minimum of the infighting that afflicts most Wall Street firms. In contrast to many (if not most) of its competitors on the street, Goldman frowns upon anything resembling a star system.

Downplaying Stardom

The same studied avoidance of the star mentality is evidenced at Latham & Watkins. As Clinton Stevenson, the firm’s managing partner, points out: “We want to encourage clients to retain the firm of Latham and Wat-kins, not Clint Stevenson.”5 Partner Jack Walker reinforces this point: “I don’t mean to sound sentimental, but there’s a bonding here. People care about the work of the firm.”6 The team philosophy at McKinsey, one senior partner explained to me, is illustrated by its approach to project work: “As a young individual consultant, you learn that your job is to hold your own: you can rest assured that the team will win. All you’ve got to do is do your part.”

Above all else, the leaders and, more important, all the other members of these firms view themselves as belonging to an institution that has an identity and existence of its own, above and beyond the individuals who happen currently to belong to it. The one-firm firm, relative to its competitors, places great emphasis on its institutional history, broadly held values, and a reputation that all actively work to preserve. Loyalty to, and pride in, the firm and its accomplishments approaches religious fervor at such firms.

Teamwork and Conformity

The emphasis on teamwork and “fitting in” creates an identity not only for the firm but also for the individual members of the firm. This identity, for better or for worse, is readily identifiable to the outside world. References by others in the profession to members of one-firm firms are not always flattering. Members of other Big-8 firms, particularly those where individualism and individual contributions are highly valued, often make reference to “Arthur Androids.” The term “A McKinsey-type” has substantive meaning in the consulting profession — sometimes even down to the style of dress. In the 1950s, I am told by a McKinsey-ite, a set of hats in the closet of a corporation’s reception room was an unmistakable sign that the McKinsey consultants were in. The hats have disappeared, but the mentality has not. Goldman Sachs professionals are referred to by other investment bankers as the “IBM clones of Wall Street.”

Long Hours and Hard Work

For all the emphasis on teamwork and interpersonal skills, one-firm firm members are no slouches. All of the firms discussed here have reputations for long hours and hard work, even above the norms for the all-absorbing professions in which they compete. Indeed, the way an individual illustrates his or her high involvement and commitment to the firm is through hard work and long hours. Latham & Watkins lawyers are reputed to bill an average of 2,200 hours apiece, with some heroic performers reaching the heights of 2,700 hours in some years: this contrasts with a professionwide average of approximately 1,750. At Goldman Sachs, sixteen-hour days are common. It has been said: “If you like the money game, here’s [Goldman’s] a good team to play on. If you like other games, you may not have time for them.”7 James Scott, a Columbia Business School professor, has commented: “At Goldman, the spirit is pervasive. They all work hard, have the same willingness to work all night to get the job done well, and yet remain in pretty good humor about it.”8 Similarly, McKinsey, Hewitt, and Arthur Andersen are all hard-working environments, above the norms for their respective professions.

Sense of Mission

In large part, the institutional commitment at one-firm firms is generated not only through a loyalty to the firm but also by the development of a sense of “mission,” which is most frequently seen as client service. All professional service firms list in their mission statement what I call the “3 Ss”: the goals of (client) Service, (financial) Success, and (professional) Satisfaction. What is recognizable about one-firm firms is that, in their internal communications, there is a clear priority among these.

Within McKinsey, a new consultant learns within a very short period of time that the firm believes that the client comes first, the firm second, and the individual last. Goldman Sachs has a reputation for being “ready to sacrifice anything — including its relations with other Wall Street firms — to further the client’s interests.”9 At Hewitt Associates, firm ideology is that the 3 Ss must be carefully kept in balance at all times; however, client service is clearly number one. None of this is meant to suggest that one-firm firms necessarily render superior service to their clients compared with their competitors; nor that they always resolve inevitable day-to-day conflicts among the 3 Ss in the same way. The point is that there is a firm ideology which everyone understands and which no one is allowed to take lightly.

Client Service.

The emphasis at one-firm firms is clearly one of significant attention to managing client relations. In these firms, client service is defined more broadly than technical excellence: it is taken to mean a more far-ranging attentiveness to client needs and the quality of interaction between the firm and its clients. Goldman Sachs pioneered the concept on Wall Street of forming a marketing and new business development group whose primary responsibility is to manage the interface between the client and the various other parts of the firm that provide the technical and professional services. In most other Wall Street firms, client relations are the responsibility of the individual professionals who do the work, resulting in numerous (and potentially conflicting) contacts between a single client and the various other parts of the firm. Hewitt Associates, alone in its profession, has also pioneered such an “account management” group.10 At McKinsey, in the words of one partner, “Here everyone realizes that the (client) relationship is paramount, not the specific project we happen to be working on at the moment.”

The high-commitment, hard-working, mission-oriented, team-intensive characteristics of one-firm firms are reminiscent of another type of organization: the Marine Corps. Indeed, one-firm firms have an elite, Marine Corps attitude about themselves. An atmosphere of a special, private club prevails, where members feel that “we do things differently around here, and most of us couldn’t consider working anywhere else.” While all professional firms will assert that they have the best professionals in town, one-firm firms claim they have the best firm in town, a subtle but important difference.11

Sustaining the One-Firm Firm Culture

Up to this point, we discussed a type of firm culture, a topic much discussed in recent management literature.12 Our task now is to try and identify the management practices that have created and sustained this culture. Not surprisingly, since human assets constitute the vast majority of the productive resources of the professional service firm, most of these management practices involve human resource management.

A good overview of the mechanisms by which an “elite group” culture, with emphasis on the group, can be created is provided by Dr. Chip Bell,13 a training consultant, who suggests that the elements of any high performance unit include the following:

• Entrance requirements into the group are extremely difficult.
• Acceptance into the group is followed by intensive job-related training, followed by team training.
• Challenging and high-risk team assignments are given early in the individual’s career.
• Individuals are constantly tested to ensure that they measure up to the elite standards of the unit.
• Individuals and groups are given the autonomy to take risks normally not permissible at other firms.
• Training is viewed as continuous and related to assignments.
• Individual rewards are tied directly to collective results.
• Managers are seen as experts, pacesetters, and mentors (rather than as administrators).

As we shall see, all of these practices can be seen at work in the one-firm firms.

Recruiting

In contrast to many competing firms, one-firm firms invest a significant amount of senior professional time in their recruitment process, and they tend to be much more selective than their competition. At one-firm firms, recruiting is either heavily centralized or well coordinated centrally. At Hewitt Associates, over 1,000 students at sixty-five schools were interviewed in 1980. Of the seventy-two offers that were made, fifty accepted. Each of the 198 invited to the firm’s offices spent a half-day with a psychologist (at a cost to the firm of $600 per person) for career counseling to find out if the person was suited for Hewitt’s work and would fit within the firm’s culture. At Goldman Sachs, 1,000 MB As are interviewed each year; approximately thirty are chosen. Interviewing likely candidates is a major responsibility of the firm’s seventy-three partners (the firm has over 1,600 professionals). Goldman partner James Gorter notes, “Recruiting responsibilities almost come before your business reponsibilities.”14 At Latham & Wat-kins, all candidates get twenty-five to thirty interviews, compared to a norm in the legal profession of approximately five to ten interviews. As a McKinsey partner noted:

In our business, the game is won or lost at the recruiting stage: we take it very seriously. And it’s not a quantity game, it’s a quality game. You’ve got to find the best people you can, and the trick is to understand what best means. It’s not just brains, not just presentability: you have to try and detect the potentially fully developed professional in the person, and not just look at what they are now. Some firms hire in a superficial way, relying on the up-or-out system to screen out the losers. We do have an up-or-out system, but we don’t use it as a substitute for good recruiting practices. To us, the costs of recruiting-mistake turnover are too high, in dollars, in morale, and in client service, to ignore.

Training

One-firm firms are notable for their investment in firm wide training, which serves both as a way to add to the substantive skills af juniors and as an important group socialization function.15 The best examples of this practice are Arthur Andersen and McKinsey. rhe former is renowned among accounting students for its training center in St. Charles, Illinois (a fully equipped college campus that the firm acquired and converted to its own uses), to which young professionals are sent from around the world. In the words of one Andersen partner: “To this day, I have useful friendships, forged at St. Charles, with people across the firm in different offices and disciplines. If I need to get something done outside my own expertise, I have people I can call on who will do me a favor, even if it comes out of their hide. They know I’ll return it.”

Similarly, McKinsey’s two-week training program for new professionals is renowned among business school students. The program is run by one or more of the firm’s senior professionals, who spend a significant amount of time inculcating the firm’s values by telling Marvin Bower stories — Bower, who ran the firm for many years, is largely credited with making McKinsey what it is today. The training program is not always held in the U.S. but rotates between the countries where McKinsey has offices. This not only reinforces the one-firm image (as opposed to a headquarters with branch offices) but also has a dramatic effect on the young professionals’ view of the firm. As one of my ex-students told me: “Being sent to Europe for a two-week training program during your first few months with the firm impresses the hell out of you. It makes you think: ‘This is a class outfit.’ It also both frightens you and gives you confidence. You say, ‘Boy, they must think I’m good if they’re prepared to spend all this money on me.’ But then you worry about whether you can live up to it: it’s very motivating.” All young professionals are given a copy of Marvin Bower’s history of the firm, Perspectives on McKinsey, which, unlike many professional firm histories, is as full of philosophy and advice as it is dry on historical facts.

“Growing Their Own” Professionals

Unlike many of their competitors, all of the one-firm firms tend to “grow their own” professionals, rather than to make significant use of lateral hiring of senior professionals. In other words, in the acquisition of human capital, they tend to “make” rather than “buy.” This is not to say that no lateral hires are made — just that they are done infrequently, and with extreme caution. “I had to meet with the associates (i.e., not only the partners) before the firm [Latham & Watkins] took me on,” Carla Hills [former Secretary of Housing and Urban Development] recalls. “Lateral entry is a big trauma for this place. But that’s how it should be.”16

Avoiding Mergers.

A related practice of one-firm firms is the deliberate avoidance of growth by merger. Arthur Andersen, unlike most of the Big-8 firms, did not join in the merger and acquisition boom of the 1950s and early 1960s, in an attempt to become part of a nationwide accounting profession network. Instead, it grew its own regional (and international) offices. Similarly, the decade-long merger mania in investment banking has left Goldman Sachs, which opted out of this trend, as one of the few independent partnerships on the street. In contrast to many other consulting firms, McKinsey’s overseas offices were all launched on a grow-your-own basis, initially staffed with U.S. personnel, rather than on an acquisition basis. With one recent exception, all of Latham & Watkins’s branch offices were all grown internally.

It is clear that this avoidance of growth through laterals or mergers plays a critical role in both creating and preserving the sense of institutional identity, which is the cornerstone of the one-firm system.

Controlled Growth.

As a high proportion of the professional staff shares an extensive, common work history with the one-firm firm, group loyalty is easier to foster. Of course, this staffing strategy has implications for the rate of growth pursued by the one-firm firm. At such firms (in contrast to many competitors), high growth is not a declared goal. Rather, such firms aim for controlled growth. The approach is one of, “We’ll grow as fast as we can train our people.” As Ron Daniel of McKinsey phrases it: “We neither shun growth nor idolize it. We view it as a by-product of achieving our other goals.” All of the one-firm firms assert that the major constraint on their growth is not client demand, but the supply of qualified people they can find and train to their way of practicing.

Selective Business Pursuits.

Related to this issue is the fact that one-firm firms tend to be more selective than their competitors in the type of business they pursue. It has been reported that an essential element of the Goldman culture is its calculated choosiness about the clients it takes on. The firm has let it be known, both internally and externally, that it “adheres to certain standards — and that it won’t compromise them for the sake of a quick buck.”17 At McKinsey, the firm’s long-standing strategy is that it will only work for “the top guy” (i.e., the chief executive officer) and, as illustrated internally with countless Marvin Bower stories, will only do those projects where the potential value delivered is demonstrably far in excess of the firm’s charges. Junior staff at McKinsey quickly hears stories of projects the firm has turned down because the partner did not believe the firm could add sufficient value to cover its fees. Similarly, while Andersen has been an aggressive marketer (a property common to all the one-firm firms), Andersen appears to have taken a more studied, less “opportunistic” approach to business development than have their competitors.

Consequently, one-firm firms tend to have a less varied practice-mix and a more homogeneous client base than do their more explicitly individualistic competitors. Unlike, say, Booz, Allen, McKinsey’s practice is relatively focused on three main areas: organization work, strategy consulting, and operations studies. In the late 1970s, the heyday of “strategy boutiques,” many outsiders commented on the firm’s reluctance to chase after fast-growing new specialties.18 But McKinsey, like all of the other one-firm firms, enters new areas “big, or not at all.” Andersen’s strategy in its consulting work (the fastest growing area for all of the Big-8) has been more clearly focused on computer-based systems design and installation than has the variegated practices of most of its competitors. Goldman has been notably selective in which segments of the investment market it has entered, and has become a dominant player in virtually every sector it has entered.

Outplacement

One of the fortunate consequences of the controlled growth strategy at one-firm firms and the avoidance of laterals and mergers is that these firms, in contrast to many competitors, rarely lose valued people to competitors. At each of the firms named above, I have heard the claim that, “Many of our people have been approached by competitors offering more money to help them launch or bolster a part of the practice. But our people prefer to stay.” On Wall Street, raiding of competing firms’ top professionals has reached epidemic proportions; yet, this does not include Goldman Sachs. It is said that one of the rarest beasts on Wall Street is an ex-Goldman professional: very few leave the firm.

Turnover at one-firm firms is clearly more carefully managed than it is among competitors. Those one-firm firms that do enforce an up-or-out system (McKinsey and Andersen) work actively to place their alumni/ae in good positions preferably with favored clients. McKinsey’s regular alumni/ae reunions, a vivid demonstration of its success in breeding loyalty to the firm, are held two or three times a year. In part, due to the “caring” approach taken to junior staff, one-firm firms are able to achieve a very profitable high-leverage strategy (i.e., high ratio of junior to senior staff) without excessive pressures for growth to provide promotion opportunities.19

Compensation

Internal management procedures at one-firm firms constantly reinforce the team concept. Most important, compensation systems (particularly for partners) are designed to encourage intra-firm cooperation. Whereas many other firms make heavy use of departmental or local-office profitability in setting compensation (i.e., take a measurement-oriented, profit-center approach), one-firm firms tend to set compensation (both for partners and juniors) through a judgmental process, assessing total contribution to the firm. Unique among the Big-8, Andersen has a single worldwide partnership cost-sharing pool (as opposed to separate country profit centers): individual partners share in the joint economics of the whole firm, not just their country (or local office). “The virtue of the ‘one-pool’ system, as opposed to heavy profit-centering, is that a superior individual in an otherwise poor-profit office can be rewarded apropriately,” one Andersen partner pointed out. “Similarly, a weaker individual in a successful office does not get a windfall gain. Further, if you tie individual partner compensation too tightly to departmental or office profitability, it’s hard to take into account the particular circumstances of that office. A guy that shows medium profitability in a tough market probably deserves more than one with higher profitability in an easy market where we already have a high market share.”

Hewitt Associates sets its partner compensation levels only after all partners have been invited to comment on the contributions (qualitative and quantitative) made by other partners on “their” projects and other Firmwide affairs. Vigorous efforts are made to assess contributions to the firm that do not show up in the measurable factors. Peter Friedes notes:

We think that having no profit centers is a great advantage to us. Other organizations don’t realize how much time they waste fighting over allocations of overhead, transfer charges, and other mechanisms caused by a profit-center mentality. Whenever there are profit centers, cooperation between groups suffers badly. Of course, we pay a price for not having them: specific accountability is hard to pin down. We often don’t know precisely whose time we are writing off, or who precisely brought in that new account. But at least we don’t fight over it: we get on with our work. Our people know that, over time, good performance will be recognized and rewarded.

Goldman Sachs also runs a judgment-based (rather than measurement-based) compensation system, including “a month-long evaluation process in which performance is reviewed not only by a person’s superiors but by other partners as well, and finally by the management committee. During that review, ‘how well you do when other parts of the firm ask for your help on some project’ plays a big part.”20 At Latham & Watkins, “15 percent of the firm’s income is set aside as a separate fund from which the executive commitee, at its sole discretion, awards partners additional compensation based on their general contribution to the firm in terms of such factors as client relations, hours billed, and even the business office’s ‘scoring’ of how promptly the partner has logged his or her own time, sent out and collected bills, and otherwise helped the place run well.”21

Investments in Research and Development

In most professional service firms, particularly in those with a heavy emphasis on short-term results or year-by-year performance evaluations, any activity that takes an individual away from direct revenue-producing work is considered a detour off the professional success track within the firm and is therefore avoided. This is not the case with one-firm firms.

As the one-firm culture is based on a “team-player” judgment-system approach to evaluations and compensation (at both the partner and junior level), it is relatively easier (although it is never easy) for one-firm firms to get their best professionals to engage in nonbillable, stafflike activities such as research and development (R&D), market research, and other investments in the firm’s future. For example, McKinsey is noted in the consulting profession for its internally funded R&D projects, of which the most famous example is the work that resulted in the best seller In Search of Excellence. This book, however, was only one of a large number of staff projects continually under way in the firm. An ex-student of mine noted that “at McKinsey, to be selected to do something for the firm is an honor: it’s a quick way to get famous in the firm if you succeed. And, of course, you’re expected to succeed. Firm projects are treated as seriouslv as client work, and your performance is closely examined. However, my friends at other firms tell me that firm projects are a high-risk thing to do: they worry about whether their low chargeable hours will be held aginst them later on.”

Andersen likewise invests heavily in firmwide activities. For instance, it conducts extensive cross-office and cross-functional industry programs, which attempt to coordinate all of the firm’s activities with respect to specific industries. In fact, it is rumored, although no one has the statistics, that Andersen invests a higher proportion of its gross revenues in firmwide investment activities than does any other firm.

Goldman’s commitment to investing in its own future is illustrated by the firm’s policy of forcing partners to keep their capital in the firm rather than to take extraordinarily high incomes. Hewitt’s commitment to R&D is built into its organizational structure. Rather than scatter its professional experts throughout its multiple office system (staffed predominantly with account managers), it chose to concentrate its professional groups in three locations in order to promote the rapid cross-fertilization of professional ideas. Significant investments of professional time are made in nonbillable research work under the guidance of professional group managers who establish budgets for such work in negotiation with the managing partner.

Communication

Communication at a one-firm firm is remarkably open and is clearly used as a bonding technique to hold the firm together. All the firms described above make heavy use of memorandums to keep everyone informed of what is happening in other parts of the firm, above and beyond the token efforts frequently made at other firms. Frequent firmwide meetings are held, with an emphasis on cross-boundary (i.e., interoffice and interdepartmental) gatherings. Such meetings are valued (and clearly designed) as much as for the social interaction as for whatever the agenda happens to be: people go to the meetings. (At numerous other firms I have observed, meetings are seen as distractions from the firm’s, or the individual’s, business, and people bow out whenever they can.)

At most one-firm firms, open communication extends to financial matters as well. At Hewitt, they believe that “anyone has a right to know anything about the firm except the personal affairs of another individual.” At an annual meeting with all junior personnel (including secretaries and other support staff), the managing partner discloses the firm’s economic results and answers any and all questions from the audience. At Latham & Watkins, junior associates are significantly involved in all major firm committees, including recruiting, choosing new partners, awarding associate bonuses, and so on. All significant matters about the firm are well known to the associates.

Absence of Status Symbols.

Working hard to involve nonpartners in firm affairs and winning their commitment to the firm’s success is a hallmark of the one-firm firm and is reinforced by a widely common practice of sharing firm profits more deeply within the organization than is common at other firms. (The ratio between the highest paid and lowest paid partner tends to be markedly less at one-firm firms than it is among their competitors.) There is also a suppression of status differentials between senior and junior members of the firm: an important activity if the firm is attempting to make everyone, junior and senior alike, feel a part of the team. At Hewitt Associates, deem-phasizing status extends to the physical surroundings: everyone, from the newest hire to the oldest partner, has the same size office. The absence of status conflicts in one-firm firms is also noticeable across departments. In today’s world of professional megafirms composed of departments specializing in vastly different areas, one of the most significant dangers is that professionals in one area may come to view their area as somehow more elite, more exciting, more profitable, or more important to the firm than another area. Their loyalty is to their department, or their local office, and not to the firm. Yet the success of the firm clearly depends upon doing well in all areas. On Wall Street, different psychological profiles of, and an antipathy between, say, traders and investment bankers is notorious: many attribute the recent turmoil at Lehman Brothers (now Shearson Lehman) to this syndrome. In some law firms, corporate lawyers and litigators are often considered distinct breeds of people who view the world in different ways. In some accounting firms, mutual suspicion among audit, tax, and consulting partners is rampant. In consulting firms, frequently there are status conflicts between the “front-room” client handlers and the “backroom” technical experts.

What strikes any visitor to a one-firm firm is the deeply held mutual respect across departmental, geographic, and functional boundaries. Members of one-firm firms clearly like (and respect) their counterparts in other areas, which makes for the successful cross-boundary coordination that is increasingly essential in today’s marketplace. Jonathan Cohen of Goldman Sachs notes that out-of-office socialization among Goldman professionals appears to take place more frequently than it does at other Wall Street firms. Retired Marvin Bower of McKinsey asserts that one of the elements in creating the one-firm culture is mutual trust, both horizontally and vertically. This atmosphere is created primarily by the behavior of the firm’s leadership, who must set the style for the firm. Unlike many other firms, leaders of one-firm firms work hard not to be identified with or labeled as being closer to one group than another. Cross-boundary respect is also achieved at most one-firm firms by the common practice of rotating senior professionals among the various offices and departments of the firm.

Governance: Consensus-building Style

How are one-firm firms governed? Are they democracies or autocracies? Without exception, one-firm firms are led (not managed) in a consensus-building style.22 All have (or have had) strong leaders who engage in extensive consultation before major decisions are taken. It is important to note that all of these firms do indeed have leaders: they are not anarchic democracies, nor are they dictatorships. Whether one is reading about Goldman’s two Johns (Weinberg and Whitehead), McKinsey’s (retired) Marvin Bower and Ron Daniels, Latham & Watkins’s Clinton Stevenson, or Hewitt’s Peter Friedes, it is clear that one is learning about expert communicators who see their role as preserver of the “true religion.” Above all else, they are cheerleaders who suppress their own egos in the name of the institution they head. Such firms also have continuity in leadership: while many of them have electoral systems of governance, leaders tend to stay in place for long periods of time. What is more, the firm’s culture outlasts the tenure of any given individual.

Of course, the success of the consensus-building approach to firm governance and the continuity of leadership at one-firm firms is not fortuitous. Since their whole philosophy (and, as I have tried to show, their substantive managerial practices) is built upon cooperative teamwork, consensus is more readily achieved here than it is at other firms. The willingness to allow leaders the freedom to make decisions on behalf of the firm (the absence of which has stymied many other “democratic” firms) was “prewired” into the system long ago, since everyone shares the same values. The one-firm system is a system.

Conclusion: Potential Weaknesses

Clearly, the one-firm firm system is powerful. What are its weaknesses? The dangers of this approach are reasonably obvious. Above all else, there is the danger of self-congratulatory complacency: a firm that has an integrated system that works may, if it is not careful, become insensitive to shifts in its environment that demand changes in the system. The very commitment to “our firm’s way of doing things,” which is the one-firm firm’s strengths, can also be its greatest weakness. This is particularly true because of the chance of “inbreeding” that comes from “growing-your-own” professionals. To deal with this, there is a final ingredient required in the formula: self-criticism. At McKinsey, Andersen, Goldman, and Hewitt, partners have asserted to me that “we have no harsher critics than ourselves: we’re constantly looking for ways to improve what we do.” However, it must be acknowledged that, without the diversity common at other professional service firms, one-firm firms with strong cultures run the danger of making even self-criticism a proforma exercise.

Another potential weakness of the one-firm firm culture is that it runs the danger of being insufficiently entrepreneurial, at least in the short run. Other more individualistic firms, which promote and reward opportunistic behavior by individuals and separate profit centers, may be better at reorganizing and capitalizing on emerging trends early in their development. Although contrary examples can be cited, one-firm firms are rarely “pioneers”: they try to be (and usually are) good at entering emerging markets as a late second or third. But because of the firmwide concentrated attack they are able to effect, They are frequently successful at this. (The similarity to IBM in this regard, as is much of what has been discussed above, is readily noticeable.)

The one-firm approach is not the only way to run a professional service firm. However, it clearly is a very successful way to run a firm. The “team spirit” of the firms described here is broadly admired by their competitors and is not easily copied. As I have attempted to show, the one-firm firm system is inter-ally consistent: all of its practices, from recruiting through compensation, performance appraisal, approaches to market, governance, control systems, and above all, culture and human resource strategy, make for a consistent whole.