No Good Deed Goes Unpunished

For the past decade, law firms have taken the easy way out with personnel decisions.  To avoid making hard choices and delivering uncomfortable messages, U.S. law firms have gone on a staffing spree with non-equity partner positions.  As a result, firms find themselves massively overstaffed at the partner level.   While there are no quick fixes to this problem, there are some actions firms can take to remediate the damages.

Law firms take pride in their paternalism as being a driving feature of their cultures.  They proclaim themselves to not be the kind of firm that throws out associates who labored in the vineyard for eight years or votes out equity partners who are no longer valued because the rules of the game changed around them.  Using non-equity partnerships to avoid taking counter-cultural actions seemed a small price to pay for law firm leaders being able to sleep at night.

Unfortunately, no good deed goes unpunished.  A basic business premise is to operate the right people and the right number of people.  For law firms, this means not only having the best talent but being able to field lawyers with the range of experience and billing rates to meet the needs of clients.  The overall number of non-equity partners as a percentage of the number of lawyers in the AmLaw 200 has increased 78 percent since 2000 to the point where 170 of the 200 are multi-tiered partnership.  There are several firms where the number of non-equity partners is close to exceeding the number of equity partners and associates combined.

But this is more than a structural problem.  Typically, law firm executive committees see non-equity partnerships primarily as a means of enhancing profitability statistics.  To support themselves, however, many non-equity partners who benefited from their benevolence of their firms now find themselves doing work that should be performed by mid-level associates or below, just to produce hours.  Of course, the associates who should be doing the work are forced to reach down and take work off the desks of younger associates and even paralegals.  So what starts as an inefficiency for clients is compounded by limiting the training and development of the law firm’s entire associate platform.

This is not a problem that a law firm can solve overnight.  In fact, the recent announcement by at least one firm that they will be converting all of the non-equity partners back into equity partners may be a means of doing a “reset” on the entire organization.  There are, however, some less radical actions that firms can take to begin right sizing the partnership structure.

1.    Establish minimum expectations for equity partnership, both financial and non-billable.
2.    Make it clear that non-equity partnership, absent a unique circumstance, is transitional.
3.    Develop a three year timeframe for non-equities during which they undergo six month reviews.
4.    Develop a policy for the implementation of equity expectations.  If non-equity partnership is going to be an ongoing transition to equity, create some ground rules.

Every firms’ view on the use of non-equity partners is different but the net result over time is inevitable.  And, typically, correcting that result may be very painful.