Defining Partner Obligations – The Rules Have Changed

by Joel A. Rose
 

Law firms continue to struggle in order to define the obligations of partners.  This article sets forth what I believe to be the minimum contributions that should be expected of any equity owner in a law firm.

A partner is not fulfilling his or her obligations as an owner of the business if he or she does not meet all the minimum requirements.  I hope that you will be able to use these suggestions in thinking about your partnerships, how they operate and how individual partners contribute.

Owner Definition:

Without engaging in a definitional struggle or semantics, I want to make sure that we are on the same page with regard to the definition of “ownership.”  In my opinion, (equity) owners of law firms will contribute in all the ways set forth in this article.  They will share risk and reward, invest their time and capital in the business and will do so in a firm-minded manner (nonequity owners should remain nonequity until they do or can fulfill the minimum obligations).  Owners have achieved the right to certain benefits of ownership.  In addition, they have agreed to undertake obligations, as equity partners, greater than those of nonowners.  Too many partners seem to believe that their obligations and contributions can decrease once they wear the mantle of ownership.

Adding Value:

Adding value has become a platitude strewn about by nearly everyone.  But, adding value is precisely what we need from partners.  They must do something that enhances the value of the firm other than doing legal work.

Consider the litigation partner who typically works 2,300 billable hours per year, bills that commensurate amount and has exceptionally high working attorney fee receipts.  This partner, however, does nothing else.  Her contributions are valuable, this year, but the firm is no better off the next year or the following year.  What investment or legacy has this partner left that improves the firm’s fortunes or competitiveness?  None, really.  Although she is a useful economic producer.

Or, how about the 53-year old partner who has steadily seen his work decline until he bills only 1,100 hours per year and does nothing else on behalf of the firm.  He says “I am ready to do anything that is available in terms of legal work,” however he does very little to either go get work from clients or others in the firm.  In addition, he is a negative influence around the firm, constantly harping about the fact that the firm is no longer collegial and is losing its soul.

Neither of these individuals is acting very much like an owner.  Although they may have current value, they clearly are not adding value to the firm.

The Fallacy of “Finder – Minder – Binder – Grinder”

In the past, it has been said that firms have “finders” – those who find the work; “minders” – those who mind the work; “binders” – those who manage the work and clients; and “grinders” – those who simply turn out legal work.  It has been thought that partners should select (typically independently) from these functions in the firm and fulfill the obligations of the partner.  Firms no longer have that luxury.  The owners of the organization need to do it all.  That is not to say that the “mix” of contributions would be the same for all partners.  Not all partners would find work in the same manner nor would they all produce legal work at the same level.  The point is, however, that we need the efforts of all partners in all areas, if they are to be treated like equity owners.

The Contributions:

In my opinion, partners in law firms have to act like true owners in a business and should be concerned with production, sales, management and profitability.

  • Client-Determined Service Quality:  This means that clients, prospective clients and internal clients (other partners) must receive the level of attention, treatment, timely service, etc., that they expect from every partner.

Professional competency is the “price of admission” to the mature legal market.  Client-defined quality will increasingly become the competitive differentiator.  Lawyers can no longer be comfortable in delivering the quality of service they chose.  Clients and prospective clients have too many options and are increasingly demanding.  Partners also must serve other partners and their clients in an acceptable manner.  Law firm mission statements and similar documentation are crowded with platitudes regarding “highest quality legal services.”  Unfortunately, firms often ignore assessing service quality because the partner produces a high volume of fee receipts.  If there is any single criterion on which a partner cannot fall down on, it is this one. 

  • Practice Development: Every partner should energetically participate in practice development efforts for one’s self and for or with others.

There are things that any lawyer can do to help develop the firm’s practice.  Not everyone should aspire to becoming a traditional rainmaker.  However, there must be ongoing efforts in practice development by all owners in order to increase or maintain business.  Strategies such as writing to demonstrate competency, speaking and effective networking, cross-selling and similar activities are still effective means of practice development.

  • Management Contribution: Every partner has an obligation to participate in (some portion of) management to ensure the effective, efficient running of the professional and business sides of the practice.

Law firms increasingly have management needs that did not exist ten years ago.  Some of these needs are ongoing, such as those of a practice leader, others are ad hoc, such as someone assigned to evaluate the firm’s insurance plan. 

  • Skill and Knowledge Transfer:  Every partner should, through formal and informal means (mentoring, CLE, briefing/debriefing, training, programs, etc.) participate in the development of younger attorneys into effective practitioners.

The transfer of knowledge and know-how regarding technical and practical law practice is poorly attended to in many law firms.  This increasingly frustrates younger lawyers, resulting in lawyers who do not gain skill as rapidly as they should and, therefore, are not as valuable (economically) in the marketplace.  A trend among (some) corporate counsel, is not to allow law firms to use young associates, because these associates are not perceived to add value.  The faster the skills of new lawyers can be built, the quicker the market will recognize the associates’ value.

  • Firm Mindedness: An owner must act in a collaborative, team-oriented manner, complying with firm policies, systems and procedures, treating all lawyers and staff with respect and putting the firm first.

Law firms do not have the time to deal with aberrant behavior, even on behalf of economically productive lawyers.  In addition, tolerating such behavior sends the wrong message to other attorneys.  Many managing partners have told me that they agonized for years over what to do with “the 800 pound gorilla,” who was a productive, economic contributor but a total non-team player and an obstructionist. Effective organizations should not tolerate destructive behavior that tears apart the firm’s culture.

  • Personal Economic Contribution: Each owner should seek to produce working attorney revenue, on a yearly basis, in an amount that would cover his or her compensation plus allocated overhead and an added profit factor.

At a time when leverage in law firms is increasingly difficult to achieve, when there is immense pressure on hours, rates and realization, it is necessary for all lawyers to be economically viable (from a productive perspective).  The objective is for each owner to meet the economic threshold and participate in the profits available from other sources in the firm, i.e., associates, paralegals and other partners.  As a practical manner, not every owner will be a break-even “by the numbers.”  This may be satisfactory for a select number of partner as long as that attorney is deemed (by the firm) to add value in other ways.  Ideally, these “other ways” can and should be quantified. However, there may be instances – and for the sake of the firm’s profitability relatively few instances – where a partner’s qualitative contributions may be acknowledged by lawyer management and a significant majority of partners   in terms of their contribution to the firm.  However, absent clearly adding value in other ways, an owner must be economically viable “by the numbers.”

Conclusion

Evaluating a partner and determining what his or her contribution should be is not an easy task.  It is also a task that must occur and must increasingly be rational and candid.  I asked the managing partner of a firm that had recently implemented the program I have suggested herein “how it went this year during compensation time.”  He said, “The decisions weren’t any easier, but we were dealing with a clear set of criteria and our judgment was rational.”  That is all you can ask for.

©1999-2017 Joel A. Rose & Associates