In 1997, three newly minted graduates of a prominent New England business schoolHildebrand, Gorman, and Alexander (HGA)formed a local consulting firm to conduct studies of corporate organizational problems and counsel clients on their solution. The firm was organized as a partnership. Hildebrand, the most studious of the three, took primary responsibility for analyzing clients' problems and developing organizational proposals for solving them. She had little interaction with clients and the outside world generally. Gorman, an orderly and systematic person, had strong managerial skills. He liked organizing and planning the activities of the firm. He concerned himself with methods for controlling the quality of work and costs. Alexander was an entrepreneurial type, outgoing, and active in various community organizations. She spent much of her time with clients, helping to identify their organizational problems and convincing them that though the organizational solutions proposed by her firm might seem controversial, they could be effectively implemented and would solve their problems. As a result, Alexander was viewed by the outside world and many clients as the firm's leader.

Originally, the three partners agreed to share profits equally. Profits, rather than salaries, were the primary form of compensation for partners. The agreement to share equally was based on the partners' belief that the labor contribution each brought to the firm had the same opportunity value, and that each took the same risks and made the same investment in getting the firm started.

The firm was an instant success. Demand for its services caused the partners over the first two years to hire nine young professionals (on salary) to help perform the work. After two years of intense effort on the part of all three partners, each had invested heavily in his or her specialization, resulting in substantial increases in productivity and profits.

Immediately after the 1999 profit distribution, Alexander informed Hildebrand and Gorman that she was dissatisfied with the equal shares in the profit-sharing arrangement. She felt the equal sharing was unfair; that her contribution to the firm was much more valuable than theirs; and that unless they agreed to a revised sharing arrangement that would give her one-half the profits, she would leave the firm. She intended in that event to form a firm of her own, taking with her several of the major clients and four of the professional staff who serviced these clients. Hildebrand and Gorman realized that this was not an empty threat, because Alexander had the loyalty of the four staff.

In what ways could Hildebrand and Gorman have designed HGA differently so as to prevent Alexander's eventual hold-up? What would have been the pros and cons of doing so?