FCB #006: Partnership Dilemma: Who Should Be the Leader of Our Company?

Many partnerships are formed without a lot of thought or discussion on how the organization should best be structured for maximum effectiveness and success.

If a formal organizational structure has not been set up and agreed upon, oftentimes all of the partners – whether that’s two, three, four, or more – attempt to fill all of the key roles of the organization, and, sometimes, all at the same time!  That can be a recipe for disaster.

Also, many times the designated leader of the organization is the oldest, most experienced professional in the firm, even though that individual may not actually be the best leader for the organization.

So, in today’s newsletter, we’re going to discuss:

1. Typical organization structure,
2. Key principles for effective organizational structure,
3. Key duties and responsibilities for key roles in the company,
4. Some other considerations to help partners gain more clarity and wisdom in structuring or restructuring their organization, and
5. The most common mistakes I see partners make.

Typical Organizational Structure

Most organization charts for larger corporations are set up with the Owners or Shareholders located in a box at the very top or the org chart.

Below the Ownership Group there is typically a box for the Board of Directors, which is typically absent for small, closely-held partnerships or family businesses.

Below the Board of Directors box is the President or Chief Executive Officer (CEO), who is the main leader and visionary for the company.

Below the CEO is the Chief Operating Officer (COO), who is responsible for running and managing the day-to-day operations for the company and turning the CEO’s vision into reality.

Below the COO, in smaller companies, are department heads or managers, sometimes referred to as directors in professional service firms.

In any company, regardless of size, there should be, at minimum, three main departments, as follows:

• Marketing & Sales - This department is primarily responsible for the company’s growth, and oftentimes includes the recruiting or talent management function.
• Operations & Fulfillment - This department is primarily responsible for producing and delivering the company’s goods or services. In a typical professional service firm, this department is often referred to as Appraisal Services, Architectural Services, Legal Services, etc.
• Finance & Administration - This department is responsible for accounting and back-office systems including administration, facilities management, human resources, information technology, and risk management.

So, at minimum, a small business org chart should look something like this at the top:

CEO

=> COO

===> Director of Marketing & Sales

===> Director of Operations & Fulfillment

===> Director of Finance & Administration

In very small companies, there may not be a COO, only a President or CEO at the top.

Key Principles for Effective Organizational Structure

• Rule #1 - The Ownership Group (Shareholders and/or Partners) in the box at the very top need to come together in a Shareholders Meeting and decide on the organizational structure they think would be best for their company and who would be best qualified to fill each leadership and management role.
• Rule #2 - The owners can (but don’t necessarily have to) fill these leadership and management roles  themselves. They can hire non-owners to fill one or more of these positions.
• Rule #3 - These top-5, key leadership/management roles can only have one person in that seat. The organization can only have one CEO, one COO, one Director of Marketing & Sales, one Director of Operations & Fulfillment, and one Director of Finance & Administration. One person can fill more than one of these roles or seats, but each role or seat can only have one person dedicated to it, wearing its hat. 
• Rule #4 - Each of these top-5, key positions have direct reports and each position has the authority to hire and fire and the responsibility to train and develop their direct reports. The reporting relationships are as follows:

1. The CEO reports to the Board of Directors or, if none, the Ownership/Shareholders Group. The CEO manages and supervises the COO.
2. The COO reports to the CEO. The COO manages and supervises the three Directors below them.
3. The three Directors report to the COO. They manage the rest of the company’s team members or vendors below them in their respective departments they are responsible for.

• Rule #5 - Below these top-5, key positions, some positions or seats can have multiple people. For example, in a law firm the role of Attorney may have 5 or more professionals wearing that hat or title.

Key Duties and Responsibilities

• Chief Executive Officer (CEO) - The CEO is the highest-ranking executive in an organization. Their primary responsibility is managing the overall operations and resources of an organization and making major corporate decisions. The CEO’s primary duties include creating, communicating and executing the vision, mission, and overall direction of a company as well as formulating and implementing a strategic plan that guides the company’s growth. They’re responsible for soliciting guidance from the Board of Directors or Shareholders Group, when appropriate, and seeking opportunities to enhance business growth and shareholder value.
• Chief Operating Officer (COO) - The COO is an executive who is responsible for an organization’s daily operation. They are usually the second in command under the CEO. Their primary duties include designing and implementing business strategies and procedures and setting performance and growth goals. They’re expected to lead employees in a way that encourages maximum performance, participate in growth activities, and manage relationships with any partner and vendors.
• Director of Marketing & Sales - This manager is responsible for planning, implementing and monitoring an organization’s marketing and sales strategies, and possibly its talent strategy as well. Some of the primary duties include monitoring market trends and directing the company’s market research efforts, developing market, sales, and recruiting plans, and overseeing the day-to-day implementation and planning, and organizing marketing, sales, and recruiting functions and operations.
• Director of Operations & Fulfillment - This manager is responsible for the production and delivery of the company’s goods and services. In a professional service firm they are typically professionally-designated and/or licensed, or both. They also may be heavily involved in mentoring and quality control functions, plus client relationships.
• Director of Finance & Administration - This manager is responsible for all financial operations and managing the administrative duties of the company. In smaller companies, it is not uncommon for the Office Manager to assume these responsibilities. Many smaller companies outsource one or more of the following functions and, in those cases, the Director of Finance and Administration manages these outsourced services and related vendors:

1. Accounting
2. Bookkeeping
3. Facilities
4. Human Resources (HR)
5. Information Technology (IT)
6. Risk Management (Compliance, Insurance, Legal)

Other Considerations

In very small companies, there may not be a sufficient number of leaders to fill all five of these roles. 

In this case, each leader may have to assume the duties and responsibilities for more than one role or seat.  However, each of these five key seats will never have more than one person dedicated to and owning its duties and responsibilities.

The goal of the organization should be to grow large enough to be able to afford and recruit the right people for the right seats.

As this happens, the leaders can be elevated to a single role that best leverages their strengths and abilities.

Most Common Mistakes

The most common mistakes I see small professional service firms make include:

1. No formal organizational structure is ever created.
2. Everyone is essentially “winging it.”
3. Partners are trying to wear the hat for the same role, at the same time.
4. Both perform the duties of that role very differently from one another.
5. Reporting relationships are fuzzy or non-existent.
6. Supervision and management of team members is compromised.
7. Accountability is difficult at best, or worse, missing entirely.
8. Disagreements on how things should be run never get resolved.
9. Animosity, resentment, and distrust are allowed to exist and grow.
10. The organization continues to struggle and can’t seem to figure out why.

Conclusion

If this all sounds vaguely familiar and possibly reflects the state of your partnership organization, don’t beat yourself up.

You are not alone. Most small co-founder, partnership companies reflect weak or non-existent organizational structures.

Setting up your organizational structure properly is not hard, and help is available. But it does take some time, effort, focus, and oftentimes help from an unbiased, third-party consultant.

If you feel you need some help and assistance in this regard, feel free to reach out to me for a free, 60-minute, 1:1 consulting session via Zoom. I care.