Governance and growth of professional service firms

Abstract

We argue that partnerships are the optimal governance structure for professional service firms (PSFs) based on our analysis of their need for collegial controls, the use of tacit knowledge, and an investigation of agency costs. However, these factors and the resulting choice of partnership as a governance structure constrain the ability of PSFs to successfully pursue growth strategies. In addition, their growth potential is further circumscribed by diversification limitations, as well as reputational and resource constraints.

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