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We've always wanted to attract good people to work with us and I’d long wanted to align my interests with my team. Other professions worked as partnerships for the common good, why couldn’t we?
But each time I tried to find a workable partnership model, I eventually gave in. The key problems centred on risk and long term commitment. Hairdressers generally didn’t like either and our industry can be quite transient. The traditional style of partnership meant each partner shared the risk of the whole partnership. If one partner didn’t pay their tax, all partners were liable. If one partner did something stupid they could all lose their assets.
Enron Corporation was the energy-trading firm that went spectacularly bust for $60 billion and brought down one of the world’s top five accountancy firms, their auditors, Arthur Andersen.
Arthur Andersen had built his business on integrity. In his early days in America one of the struggling railroad companies asked him to sign off their dubious accounts. He famously said “There’s not enough money in Chicago to make me do that”, and his reputation was born. Arthur Anderson ended up with 85,000 staff around the world and hundreds of partners.
During the Enron implosion, a secretary at Arthur Andersen sent a memo saying, ‘shred all the Enron documents’. That memo became public and the auditing business that had been built on integrity was doomed. Big companies stopped using them. Arthur Andersen collapsed. All the partners lost their expected end-of-year profit shares and their personal assets were on the line for damages from the hundreds of lawsuits that were coming.
“We just received a message from Saddam Hussein. The good news is that he’s willing to have his nuclear, biological and chemical weapons counted. The bad news is he wants Arthur Andersen to do it.”
- George W. Bush 2002
So partnership businesses around the world looked at Andersen’s demise and decided they couldn’t continue if the actions of just one of their people in any country in the world could destroy their livelihoods. The Limited Company structure didn’t satisfy the professional model, so the Limited Liability Partnership (LLP) model was further developed.
The LLP model originated following the collapse of real estate and energy prices in Texas in the 1980s. This collapse led to a large wave of bank failures and because the amounts recoverable from the banks were small, efforts were made to recover assets from the lawyers and accountants that had advised the banks in the early 1980s.
The partners in these law and accounting firms were subject to the possibility of huge claims, which would bankrupt them personally, so the first LLP laws were passed to shield innocent members of these partnerships from liability. In an LLP one partner is not responsible for another partner’s misconduct or negligence, quite different from the ‘joint and several’ liability of the traditional unlimited partnership. LLPs stayed small until Enron blew the similar problem onto the world stage.
Interestingly, in the years leading up to its demise. Arthur Andersen had split its faster growing consultancy business from its accountancy arm. The two sides were locked in battle as to who kept the Andersen name and the consultants eventually lost, going on to adopt the name Accenture in 2001. That proved to be a very lucky escape.
I saw LLP as a new opportunity and spent the next two years with lawyers and accountants creating a model for a salon that would work for me, my employees and be accepted by HMRC. It was no easy feat, as few professional firms (including my own accountants and solicitors) had yet made the switch to LLP.
Our LLP model helps align the individual’s interests with the team’s interest so everyone has a greater sense of ownership and engagement in building a bigger better business.
We’ve now traded as an LLP for 15 years, and I’m pleased to say that 65% of our team are Members of Michael Van Clarke LLP and share in the profits of the business. We run a successful Apprenticeship to Partnership programme where our young team can earn the benefits of professional partnership at an early stage, one in their teenage years. It’s given us a more stable, and rewarding environment of shared interest and greater teamwork. It’s also helped us invest in our future and stay competitive in the challenging economic environment.
Next year we celebrate our 35th anniversary at Beaumont Street.
