"I suppose it is a bit of a cult," muses John McConnell, Pentagram's oldest partner, at the company's stylish offices in Notting Hill. "I suppose that's how we're seen from the outside, and I suppose that's how we behave in some ways."

The word keeps coming up in conversations about Pentagram with people on the outside. Other designers seem to view this agency, whose work ranges from the classic Faber & Faber book jackets to the makeover of John Lewis, with a mixture of suspicion and curiosity. "They're a great mystery: they sort of magically come along and pluck you out to be a partner if they like you," says Malcolm Garrett, designer and professor at the Royal College of Art. "I'd love to be a fly on the wall of some of their meetings," says another British designer.

And they are certainly viewed with admiration, if not awe. "Brilliant, absolutely brilliant - Pentagram is a colossus in the world of design," says David Stuart, co-founder of The Partners, another design company. Clients frequently place Pentagram on bid lists without much regard to its suitability, it seems, but purely because of the name.

Often, too, there is bewilderment about the company's many eccentricities. Shaking their heads, observers ask: how does Pentagram manage it? Management in its accepted sense is an odd concept within these walls, done out in light varnished wood and lined with beautiful examples of Pentagram's work, like the Reuters logo and the famous V&A insignia. Not much that goes on here would be found on an MBA course.

The company's structure is certainly unusual.

A group of 19 partners, each with his or her (mostly his - only two partners are women) own expertise ranging from architecture to magazine design, each responsible for his own business (roughly equating to what in another company would be called a profit centre) in both the creative and the business sense. Each partner looks after negotiating his own deals, choosing his own projects and the staff of assistant designers he needs. A few administrative staff look after the offices. The company is owned solely by the partners, with new partners joining by invitation only from the existing group.

For reasons to do with currency conversions, the company is legally based in Switzerland, and shares in it are sold back to the remaining partners on retirement. The shares however, are less important than the way the money is distributed. No matter how many shares he or she holds, each partner receives an equal salary and share of the profits.

"This is the crucial thing, the thing that sets us apart from other agencies," explains McConnell. His views are echoed by other partners. (In the course of my interviews with 10 of the 19 partners, I find the same answers being given to many of my questions. No partner exactly repeats what any other says, but elements keep recurring, like the same cards coming up again and again in a game of patience.)

In Pentagram, each partner really is as equal as all the others. Every year, the profits made by each partner are pooled and divided out equally among all of them, regardless of who has done the most billable work, or who has had a bad year.

This frees the partners to some extent from the tyranny of billing. "If people want to take on a project because it's interesting, even though it may not bring in much money, or any money, then they can do so, because they have the support of the other partners. That gives immense creative freedom," says Justus Oehler, partner.

The structure has been in place since the foundation of the group in 1972, by Theo Crosby,

an architect; Colin Forbes, Mervyn Kurlansky and Alan Fletcher, graphic designers; and Kenneth Grange, a product and industrial designer. These five (which is why, with a touch of devilry, they named it Pentagram) were determined that by creating such a co-operative they could find an alternative to stifling corporate hierarchies, and find fresh ideas in a multi-disciplinary approach.

Then, as now, graphic design dominates the field. But a sprinkling of architects and interior designers, product designers, branding experts and, shortly, a new media specialist complete the set.

Lorenzo Apicella, partner, speaks warmly of the cross-fertilisation such a range of disciplines gives rise to: "Several partners might collaborate on a project, or not formally collaborate but share ideas. As projects are offered, people can express an interest, make suggestions."

The freedom to take on low-paying projects also contributes to the vast range of work that Pentagram produces: not many could boast making a new letterhead for a local shop alongside designing the restaurant of the Oxo Tower. But doesn't this also allow some partners simply to coast along on the earnings of their fellows?

Not at all - quite the opposite, answers Paula Scher, a partner in New York. "You feel awful if you feel you haven't done enough. It's not that anyone puts pressure on you, they're far too nice, but you put the pressure on yourself," she explains. Each partner receives a statement each month showing the group's earnings and outgoings.

There is no finance function: each partner manages his accounts for himself, though an external financial adviser is on hand. No HR function. One business development manager, most of whose time seems to be spent turning down work. The company's lawyers are at arm's length.

You can imagine what Sir Martin Sorrell might think of it. McConnell recalls that the WPP chief executive scoffed at the idea in the 1970s. Sir Martin remembers things differently; through his PR he insists he didn't criticise the partnership model, but (with unusual mildness) called it an "alternative".

The company must be doing something right with its "alternative", financially as well as in terms of critical acclaim. For the year ending September 30 2001, fee income was £6,586,916 for the London office. According to the filing at Companies House for Pentagram Design Limited, this was down slightly on 2000, when the turnover of the company was £6,730,652, up from £5,110,840 in 1999. All these figures omit the US offices, of course, where 11 of Pentagram's partners are based. This is likely to add considerably to earnings, as the New York office takes on many big and lucrative projects.

As each partner is free to take on his own work, and acts as his own studio with a few assistants, each can devote full attention to the work in hand. "Clients are often surprised to find that. With other agencies, you might see the partner or principal for the first meeting and never again, but with Pentagram you get that attention to detail right the way through," says Angus Hyland, partner.

The partners communicate constantly with each other in gatherings within the offices, and communication between offices is also frequent. Every year they meet for several days to take care of practical details such as finances and new work, but the main issue is always the same: who should be chosen to join the charmed circle.

Design is an industry of prima donnas, and finding partners who are both of the calibre Pentagram requires and willing to participate in its unusual system can prove difficult. "The question you have to answer [about a prospective partner] is whether this is someone you could have dinner with and spend a weekend with," asserts David Hillman, partner. Each prospective partner must spend at least two years with the group as a partner-elect before being asked to stay on; many don't make it.

These simple but strict criteria appear to exclude women, it would seem from looking at the partner list. Hillman acknowledges the male atmosphere of the group, but insists this is not because women are unwelcome, a sentiment repeated by the male partners. "We do look for women, but we can't find them," is the common response.

Perhaps surprisingly, Scher, one of the two female partners, says the same thing. She explains it by noting that women designers tend to prefer to work alone, to be flexible around their families, to take on small and less profitable jobs. Despite all her looking, she has found only a handful of suitable candidates, each of whom has expressed a disinclination to join, one because her husband was already a partner. "That would never work," asserts Scher.

It all sounds a bit unconvincing, as Scher herself admits: "I always suspect that when people say things like they can't find women it's because there is [unacknowledged] sexism at work." And the maleness of Pentagram cannot be denied; Scher finds it "overwhelming", even though the men are universally charming. But the partners insist that enrolling more women is a constant aim.

Is there any limit to the number of partners? Some believe a limit may be reached at about 50, but others contend there should be no limit in theory. But how to retain such a clubby atmosphere with a big increase in members?

Other agencies who borrowed from the Pentagram model have decided that remaining small is the key to retaining creative independence and fluidity of direction. Cartlidge Levene, a graphic design company set up in 1987, acknowledges Pentagram as an important influence. "Pentagram is the classic design group consultancy, and many people have modelled themselves on that. We don't operate exactly like Pentagram, but it has been an influence," says Ian Cartlidge, a director. Cartlidge Levene has deliberately remained small, with eight partners. "We have consistently been that size, because we feel comfortable with it," Cartlidge continues.

Pentagram's growth has led it to various locations in the US, from New York and San Francisco to Austin, Texas. Its UK background notwithstanding, the expansion has made Pentagram an international company, says Michael Beirut, a partner in New York. "All the offices feel very different, but we all have very much a global outlook now," he contends.

There are no offices in continental Europe, though several of the London partners have their roots there. Asia remains unexplored.

So, if Pentagram's model is such a success, why aren't there hundreds of other Pentagrams doing the same thing? The answer is that it's much harder than it looks, says McConnell. Equality is the biggest stumbling block. He has been a partner since 1975, while newer partners are barely into their 30s, but all share the same footing. "Whenever I hear people at other companies claim to be like us, I just ask whether there are senior and junior partners, and if there are I think, ha! you're not like us at all," says McConnell.

Pentagram has already weathered two recessions in its 30-year history and come out on top. The group's ethos has survived those shocks, and the retirement of all the founding partners. It looks set to ride out this recession too, with its strange structure intact.

And that is the remarkable thing. What is it that holds these people together? It is easy to see how Pentagram works in theory. Loose enough to allow each partner the freedom to take on the work he likes, as he would if running his own practice, with the added benefit that every piece of work does not have to yield high fees. Tight enough financially to ensure rampant creativity does not lead to bankruptcy, with fiscal responsibility enforced by peer pressure and monthly reporting.

But in practice? Surely there must be disagreements, professional rivalries, jealousies even. "There are disagreements, but we work them out," says Hyland, echoed by the others. If one partner holds to a different view than the others, he has to be argued out of it.

What allows the company to carry on in practice, according to the partners, is the word that keeps coming up in almost every conversation with them: generosity.

"Generosity means that we respect one another's work and we share ideas and are willing to give one another the [financial] freedom we need," says Weil. "There's an extraordinary spirit of generosity that makes the atmosphere good to work in," echoes Scher. "It's by treating each other with generosity in every sense that we go on," says Apicella.

This is the creed that each new partner must profess. The partners agree that they have to look for someone who is the right type, for which substitute substitute "believer", with the object of that belief the idea of generosity and the importance of the perpetuation of Pentagram.

As I prepare to leave Pentagram's offices on a Friday afternoon, the scent of cigar smoke drifts around and I hear the clink of the drinks trolley as it trundles to where the partners are gathering. Through the window as I go I see them lounging and chatting. If it is a cult, it seems like a very nice one.

fiona.harvey@ft.com