Up or out

"Partnership system" redirects here. It is not to be confused with partnership.

In a hierarchical organization, "up or out", also known as a tenure or partnership system, is the requirement that each member of the organization must achieve a certain rank within a certain period of time. If they fail to do so, they must leave the organization.[1]

Industries

Accounting, consulting, law, and engineering are some industries in which this culture exists, tacitly or openly. Many military systems and academia also exhibit characteristics of the system.

Private sector

"Up or out" is practiced throughout the accounting industry in North America,[2] most notably at the Big Four accounting firms,[3][4] which also practice this policy in other countries.[5]

Up or out is "commonly regarded as a sign of the consulting industry’s hard-nosed approach to doing business" with Bain & Co and McKinsey & Company being the two consultancies most closely associated with the approach. However, it is "not a label that the consultancies are keen to own up to".[6][7] According to Leslie Perlow, up or out is also employed at Boston Consulting Group.[8]

Among many other law firms, Cravath, Swaine & Moore's so-called "Cravath System" says that associate lawyers who fail to achieve partner status within ten years of being hired are required to leave. U.S. entrepreneur Vivek Wadhwa has explained that engineering in Silicon Valley is also "an 'up or out' profession: you either move up the ladder or face unemployment".[9]

Military

In the U.S. military, the 1980 Defense Officer Personnel Management Act mandates that officers passed over twice for promotion are required to be discharged from the military.[10][11] It has been criticized as "arbitrary and bad management" that forces out "many fit, experienced officers...because there were only so many slots into which they could be promoted". Paul V. Kane, a Marine veteran of Iraq War and a former fellow at Harvard’s Kennedy School of Government, has argued that the "archaic 'up or out' military promotion system should be scrapped".[12]

Manning control within the British Army plays a similar role.

Academia

Tenure-track professors in the United States are usually subject to an up-or-out system. Newly hired professors, most often with the rank of assistant professor, must impress their department with their accomplishments to be awarded tenure, usually but not always combined with promotion to associate professor. Those not awarded tenure within a fixed time may be terminated. This first promotion may be required for tenure and further promotions are neither guaranteed nor necessary.

Discussion

Despite widespread use in certain industries, a 1988 textbook by Michael Jensen noted that the system's effects on productivity have not been studied in depth.[1]

Contracts at S.A.C. Capital Advisors, the now-defunct hedge fund, contained a “down and out” clause, a variation where portfolio managers, who independently manage a fund, can be handsomely compensated if their investments are consistently profitable, but be fired if their investments lost money.[13]

See also

References

  1. 1 2 Michael C. Jensen (1998). Foundations of Organizational Strategy. Harvard University Press. p. 215. ISBN 978-0-674-64342-0.
  2. ↑ The Cultural Shaping of Accounting. Greenwood Publishing Group. 1995. p. 76. ISBN 978-0-89930-953-8.
  3. ↑ "Talent management: Accounting for good people". The Economist. July 19, 2007.
  4. ↑ http://www.big4.com/deloitte/big-4-culture-the-more-things-change-the-more-they-stay-the-same/
  5. ↑ Paul Gillis (2014). The Big Four and the Development of the Accounting Profession in China. Emerald Group Publishing. p. 45. ISBN 978-1-78350-486-2.
  6. ↑ Charles Batchelor (April 20, 2011). "'Up or out' is part of industry culture". Financial Times.
  7. ↑ Raghavan, Anita (January 12, 2014). "In Scandal's Wake, McKinsey Seeks Culture Shift". New York Times.
  8. ↑ Leslie Perlow (2012). Sleeping with Your Smartphone (Hardcover). ISBN 978-1-4221-4404-6.
  9. ↑ Vivek Wadhwa (August 28, 2010). "Silicon Valley's Dark Secret: It's All About Age". TechCrunch.
  10. ↑ Bernard Rostker; et al. (1992). "The Defense Officer Personnel Management Act of 1980 - A Retrospective Assessment". ISBN 0-8330-1287-8.
  11. ↑ John T. Reed; John T. Reed. "The 'U.S. military's marathon, 30-year, single-elimination, suck-up tournament' OR 'How America selects its generals'".
  12. ↑ Kane, Paul (April 20, 2009). "Up, Up and Out". New York Times.
  13. ↑ Patrick, Radden Keefe (October 13, 2014). "The Empire of Edge". The New Yorker.
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