Partnerships bring best of times, worst of times

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As the 10 Days of Atonement are here, a time of reflection and stock-taking, a seasonal turning point that encourages revisiting ideas and habits alike, I want to share my sense of the value of business partnerships.

My late accountant Sam Huff used to tell me the problem with partnerships is that when they succeed, it’s because of me; when they fail, it’s because of you. Whichever way, responsibility is easily shifted around.

Yet, there are those who thrive in partnerships because the whole is stronger than its parts. Partners complement each other, and can trust that the benefits of each partner’s contribution outweigh any disadvantages associated with a difference in personality traits.

Though partnerships are fundamentally social-contract associations, they need not be democratic (one person-one vote principle, majority rule). They can be hierarchical, where senior partners have more rights than junior ones who accept less responsibility with fewer rights. In some cases, senior partners may have veto-rights even when they don’t have a majority. There are partnerships that require unanimous consent for every decision, and as such may require certain finesse in how issues are presented to a vote.

So, if partnerships differ from other business arrangements where there are tensions, for example, between managers and workers, do partners really “feel” equal? In some partnerships, within a few years, it becomes apparent that some contribute more to the whole than others, tensions may rise, and they may fall apart.

What is the meaning of equality in partnerships? Regardless of unequal contributions to the partnership, are all partners equal in their voting rights, assuming majority rule? Should more senior partners have more rights or differentiated weight of their votes? Should there be a difference between partners, associate partners, and senior partners? Most Operating Agreements can take care of these questions, but in fact none of them spell out in enough detail how to ensure camaraderie.

Most professional partnerships (lawyers, accountants, doctors) account for different contributions (hours worked) by distributing funds at the end of the year proportionate to contributions (the more you work, the more you earn). Most distributions take into account shared overhead costs (equally or proportionately). Questions of fairness are always raised, since there is no “one-size fits all.” Founding partners may expect junior partners to buy their way into the partnership, while in other cases, they may be asked to pay senior partners an annuity when they choose to retire.

One problem with partnerships is the free rider syndrome, where some take advantage of the fruits of the partnership without contributing their fair share to the whole. Free rider issues are usually confronted through peer-pressure, penalties, or eventual dismissal from the group; they are tricky to “prove” and nasty to resolve.

Since partnerships are voluntary associations, everyone is free to leave, even when tenure is assumed to protect partners from being summarily eased out. Operating Agreements at times spell out the conditions under which any partner may leave (or be asked to leave) and what compensation is appropriate. Partnerships, like marriages, are complex relationships that require continued attention and fine-tuning.

As I look back at my own experiences, some have been exhilarating, some painful; some enlightening, some infuriating. The worst one was when a partner in one of my restaurants made demands that we stop serving gays because we were being known as a “gay bar.” Is a place a gay bar because it’s frequented by gays? How would you know, anyway? If Jews come in, is it a “Jewish bar,” if African-Americans, is it a “black bar”? I borrowed money from my mother and bought him out in three weeks.

But then I had partners who are smarter than I, who coached me and guided my decisions, who gave me realistic feedback, even when it was difficult to hear, who reminded me why I formed a partnership to begin with. Never be resentful towards your investors, a New York investment banker told me, they are indeed your partners; without them you would have nothing! So, remain grateful and repay with interest when they want out, or continue to pay dividends even when you are the only working partner.

I have met some fascinating people because of partnerships, people I wouldn’t have had the opportunity to meet otherwise. So, as I look backwards and forward, despite the heartaches that at time accompany partnerships, when the reasons are right, embrace and celebrate them; they add a dimension to your well-being you would otherwise be missing, including being accountable to someone other than yourself! Accountability is a good practice we are reminded to uphold at the dawn of yet another Jewish New Year.

Raphael Sassower is professor of philosophy at UCCS and is still involved in eight partnerships. He can be reached at rsassower@gmail.com Previous articles can be found at sassower.blogspot.com