CHICAGO – Madison Dearborn CEO John A. Canning, Jr., Code Hennessy & Simmons partner Brian P. Simmons and Thoma Cressey Bravo managing partner Carl D. Thoma convened on March 15 at the Metropolitan Club for a panel discussion on transitioning fund management.

The panel, which was moderated by Kirkland & Ellis partner Bruce Ettelson, showcased three different approaches to managing succession. All panelists were founding members of their respective firms.

Canning, who is among the eight founding partners at Madison Dearborn, has presided over a “benevolent dictatorship” where he is ultimately in charge. Five years ago, he “started thinking about transition” and ultimately turned over the investment process to current co-presidents Paul Finnegan and Sam Mencoff.

Simmons, who along with his founding partners has not reached 50, says his firm has created an organizational template. He added: “Just because the people change, the process doesn’t have to.” His firm has eight partners out of approximately 40 executives with the most senior title being partner.

Thoma, who established Golder Thoma & Co. in 1980, operates a “loose federation” where investment professionals act on separate deal teams. In 2000, he brought in COO Lee Mitchell to help manage operations.

Regarding the sensitive issue of accommodating senior or founding partners while allowing younger executives to grow within the firm, Canning said: “You want to allow a founding partner to benefit from staying but you don’t want him around only to avoid the economic pain from no income.” He added that Madison Dearborn Partners, who retire after 20 years, receive half of their carried interest thereafter.

Thoma, who “generally does not like part-time partners,” says retiring partners “get to earn from the fund raised (while they were with the firm) as long as they spend time on boards” and manage the firm’s investment interests.

Simmons and his partners believe that “people’s economics should be directly related to their role within the firm” when assigning compensation. In closing, all panelists noted that the issue is largely predicated on firms self-policing themselves.

“This is probably the last financial service that is unregulated,” Canning said. “Partnerships by their very nature are self-governing.” Thoma added: “Our industry is under siege. Leadership will have to make sure you have control over you own empire.”

Ultimately, while limited partners are increasingly interested in how private equity firms operate, their interest is predicated on return on investment.

“There is a dramatic increase in all of these topics by the sophisticated limited partner base,” Simmons said. “Despite all this attention, it is not clear that limited partners base their decisions on this but rather with good returns.”