Law Practice

Brave, New World of Partnership


Many law firms now have two-tiered partnerships: equity partners on one level, and, below them, salaried partners without equity stakes in the firm. The result is, in effect, an extended partnership track–eight years, say, to become a junior nonequity partner, then perhaps another five until full equity partnership is offered to those who make the grade. But even for them, partnership doesn’t offer the kind of job security it once did. Increasingly, partners are finding themselves demoted or forced into early retirement if they don’t meet today’s tougher productivity standards, as younger colleagues fill their spots in the partnership ranks.

Certainly, things can work both ways. Valued rainmakers are like free agents on sports teams, routinely looking for more lucrative partnerships elsewhere. When they find them, they often take along not only their clients but also well-regarded colleagues, potentially decimating the firms from which they’re departing.

As a result of this sea change, many lawyers are asking themselves what once was the unthinkable: Is making partner worth the trouble?

“Associates voiced strong reservations about their desire to achieve partnership status, observing that the lifestyles of partners and the necessary sacrifices partners make in their personal lives led associates to question whether that professional goal meshed with their own goals,” states a report on attrition among associates who graduated from law school between 1998 and 2002. The report was issued in 2003 by the NALP Foundation, a research affiliate of the National Association for Law Placement in Washington, D.C.

Within the first two years of practice, nearly a quarter of the associates at law firms of all sizes have moved on, ac­cord­ing to the NALP report, titled Keeping the Keepers II: Mo­bility and Management of Associates. After nearly five years, more than half of those hired out of law school have left their original firms.

While the five-year attrition rate for women, 54.9 percent, was only slightly higher than for men, 52.3 percent, attrition rates jumped more significantly for minorities. The five-year attrition rate for minority male lawyers was 68.0 percent, and the attrition rate for female minority lawyers was 64.4 percent.

The NALP study found that firms of 500 lawyers or more generally had lower attrition rates than smaller firms. The highest attrition rates generally occurred at firms with be­tween 251 and 500 attorneys. (Other studies have identified higher attrition rates at larger firms.)

In recent programs sponsored by the ABA on diversity in the legal profession, both women lawyers and lawyers of color said they continue to face barriers to advancement in law firms and other practice settings.

“I think a lot of people, they’re looking at the partner they’re working for, they’re looking ahead, and they’re ob­serving, questioning whether that’s what they really want,” says Mark Harris of New York City. He left after several years as a law firm associate to establish Axiom Legal, which sends lawyers to work in-house at corporate legal departments.

Nice Work If You Can Get It

But others say law partnership is still a great gig.

“Frankly, I think it is as attractive and in some ways more attractive” than it used to be, says John R. Sapp, managing partner of Michael Best & Friedrich in Milwaukee and the author of Making Partner, A Guide for Law Firm Associates, published by the ABA Section of Law Practice Manage­ment.

Sapp says law firm partners enjoy many advantages today, including higher compensation and greater opportunities to do interesting work. These benefits were created by efficiencies of computerization and the trend toward lawyer specialization.

Another managing partner agrees. “It’s one of those jobs where you get to work consistently with committed, intel­ligent people–your clients, your colleagues at the firm and you get challenged to solve problems,” says Debora de Hoyos of Mayer, Brown, Rowe & Maw in Chicago. “Those of us who stick with it find that very gratifying.”

One thing that has changed in recent years is the number of desirable alternatives to partnership, says de Hoyos. She cites in-house corporate counsel work as an example. These jobs offer more interesting work and higher pay than they used to, and more partners now find them appealing.

Another alternative is to pass up the ultra-competitive environment of the nation’s largest law firms and join a smaller law practice, says Carol Kanarek, a New York City lawyer who works as a career counselor.

“There are many, many high-quality smaller law firms out there that are competing with large law firms in many areas,” she says. “That’s not something that you used to see.” At the same time, Sapp says, “We’ve had a significant increase in the number of folks who do not want to make the time commitment” required of partners, particularly when they and their spouses both have professional careers. He thinks the financial flexibility created when both spouses have professional jobs may be one reason for this change.

Meanwhile, the financial payoff is a major motivation for lawyers who do pursue partnerships at larger firms, says de Hoyos. “Whether you are male or female, if you stay with practicing law at this level, chances are the money is a significant part of it.” David M. Neff agrees that the money is a big motivator. “Typically, people would not want to give up equity partnership unless they want to work fewer hours,” he says. “And that would be pretty rare.”

Neff, a bankruptcy lawyer, has been a partner at two different law firms. In 1993, he became an equity partner at Jenner & Block in Chicago. In 2002, he made a lateral move to become an equity partner in the Chicago office of Piper Rudnick. Still, he thinks it is harder to become a partner today than it was even a decade ago.

“There are just a heck of a lot more lawyers around,” Neff says. “That means there are probably a heck of a lot more talented lawyers around. And when you combine that with the mobility of lawyers, there’s just a lot more competition to get into the capital partner ranks.”

As a result, “There is a greater requirement that you have your own business” to improve your chances at becoming an equity partner, Neff says.

Fighting the Odds

Neff is not alone in citing changes within recent decades in what it takes to become a partner.

When Kanarek graduated from law school in 1979 and went to work as an associate at a large Manhattan law firm, the number of partners there and at many other firms was roughly equal to the number of associates, and it was generally expected that associates who worked hard and did a good job would be made partner. “There was a presumption when you were going in that there would be a partnership for you,” she recalls.

Now, those presumptions are practically reversed, she says, as “a whole constellation of factors” weigh against an associate’s chances of eventually making partner.

Those factors include a trend toward specializing early in one’s career on a narrow practice area that may or may not still be hot when a particular lawyer is considered for partnership, Kanarek says. Moreover, now there often is “leverage” of as many as four or five associates–and sometimes even more–for every one partner at big firms, she says. This ratio greatly increases the competition among associates for partnership slots and greatly decreases the opportunity to work closely with partners and learn from them.

“It’s not enough to be just a really good lawyer” in competing for partnerships, Kanarek says. “You have to be a really good lawyer, in the right practice area, in the right time in the economy. There are so many variables that are just beyond anyone’s control.” In some cases, a lawyer’s choice of law firm can significantly affect his or her chances at making partner several years later, Sapp says.

“Assuming your goal is to be a partner, you should recognize that your choice of firm is one of the most important decisions you will make,” Sapp writes in Making Partner. “The reality is that firms vary enormously in how many partners they make, what is required and what being a partner entails.”

Rather than simply focus on firm prestige and associate pay when deciding where to work, it is important to read trade publications and “ask a lot of tough questions of the people who are there already,” Sapp advises. Information worth seeking includes the ratio of associates to partners, the firm’s partnership structure, the firm’s criteria for achieving partnership, and the percentage of associates selected for partnership.

It also can be illuminating to get a picture of the firm’s finances, although firm managers may be reluctant to share that information, says Frank McClain-Sewer, who formed his own firm in New York City after leaving a midsize Man­hattan firm where he was a junior partner.

“To the extent that you’re allowed to look at the financials to see the debt distribution ratios for those partners with power versus the nonequity junior partners,” he says, “that would be the kind of document that would allow you to make an informed decision whether you want to become a partner or whether you can live with that level of inequity.”

The challenge today isn’t just becoming a partner. Thriv­ing and even surviving in the partnership ranks isn’t as easy as it once was.

“There is still, I think, a romanticized notion of being an equity partner in a large firm,” Neff says. “And then, when people get there, they see that it’s an awful lot of hard work­­­­­–a lot of demands on your time, and a lot of pressures to perform,” he says, citing the need to bring in business, and the need to keep busy despite a higher billable rate that discourages colleagues from assigning work to their partners. “Pressures can be even more intense when you become a capital partner than when you were a noncapital partner or an associate.”

Shannon L. Spangler, managing partner of the San Fran­cisco office of Shook, Hardy & Bacon, says there is more pressure on existing partners to generate business compared to just a few years ago.

Spangler attributes the increase to changing attitudes on the part of corporate clients, who bring in new lawyers–both in-house and outside counsel–more frequently than they used to. “The longtime relationships that we used to count on, you can’t take those for granted,” she says.

There was a time when partners stayed at their firms until they retired or died. “Moving from Firm A to Firm B, and taking a client group, was basically unheard of, at least in New York,” recounts Joseph Hinsey, who was a partner at White & Case in New York City for more than 20 years until he left in 1987 to teach at Harvard University. In those days, once you became a partner, a uniform compensation scheme applied in which all partners at the same seniority level received the same increases, recalls Hin­sey, a professor emeritus at Harvard Business School.

Today, both lifetime job security and lockstep compensation are long gone from most U.S. law partnerships, Kan­a­rek says. Because of more stringent law firm productivity demands, “You find that people are billing enormous numbers of hours right up until the time they retire,” she says.

New Focus on the Bottom Line

The tendency in a competitive business environment is to emphasize law practice as a business. With that mindset, the need–or desire–to maximize profits trumps traditional professional values that include loyalty to one’s partners, even in the face of their failings.

“In the past, if some partners were very good at business development and others were less so, law firms tended to take a relatively tolerant view of that and just say, ‘Ah well, people play different roles,’ ” says David H. Maister, a legal consultant in Boston. “Now, there’s a lot more follow-up that takes place, and the extremes of performance on the downside are not accepted.”

Partners who don’t meet present-day productivity standards can be–and often are–expelled or demoted, forced into nonequity partnerships or senior counsel positions, Maister says. Such actions, however, can pose risks for firms and the partners who remain.

In 1999, for instance, Chicago-based Sidley & Austin (which has since become Sidley Austin Brown & Wood) an­nounced the demotion of 32 partners, most of them over 50 years old.

The demotions triggered an investigation by the U.S. Equal Employment Opportunity Commission for possible age discrimination.

Workplace anti-discrimination laws do not apply to part­­ners because they are not employees. But many of the part­ners at Sidley were treated like employees and had virtual­­ly no voice in running the firm, the EEOC contended in pleadings filed in U.S. district court. There­fore, they should be considered employees for purposes of enforcing anti-discrimination laws, the commission maintained.

The pleadings were made in support of a subpoena seek­ing discovery of relevant information from the firm. The Chicago-based 7th U.S. Circuit Court of Appeals ruled that the commission was entitled to obtain some of the information it was seeking. The EEOC’s investigation is continuing, but there are no court proceedings on the matter at this time.

The implosion in early 2003 of Brobeck, Phleger & Har­rison, a onetime San Francisco-based powerhouse, provides another cautionary tale about the risks of partnership. When Brobeck closed its doors, it left a number of longtime partners without promised retirement benefits. Now, a group of retired Brobeck partners along with other plaintiffs, including the firm itself, is seeking to recoup their losses in court. The suit was filed in early October in Cali­for­nia state court. Defendants are Brobeck’s former managing partner, Tower Snow, who was expelled in 2002, and his new firm, London-based behemoth Clifford Chance Rog­ers & Wells.

The suit contends that Snow and Clifford Chance improperly encouraged the departure in 2002 of some 16 Bro­beck lawyers and their clients to establish a new San Fran­cisco office of Clifford Chance. The suit seeks more than $100 million in damages based on allegations including breach of fiduciary duty, unfair competition and tortious interference. Clifford Chance says the allegations are without merit. Hanger v. Clifford Chance Rogers & Wells, No. 03120659 (Alameda Co. Super. Ct., Oct. 8, 2003). Law firms in recent years have been adopting organizational structures intended to insulate partners, especially equity partners, from liability for legal claims and other obligations.

In traditional general partnerships, such obligations were difficult to avoid because partners were personally liable for the firm’s debts. Today, growing numbers of law firms are set up as limited liability partnerships or companies–LLPs and LLCs–to protect partners’ personal assets.

These new forms of corporate structure, however, are still largely untested in the courts. At firms that do suffer financial setbacks, it isn’t certain whether LLP and LLC organizational structures will shield partners from personal liability. Because law firms rarely go bankrupt, there is little decisional law on point. Also, even though most law firms are now LLPs and LLCs, it isn’t unusual for partners to personally guarantee certain firm debts, such as office leases.

Nonequity partners may view one of the few advantages of their status as a lack of personal liability for firm debts. That’s because nonequity partners are likely to be characterized as the equivalent of employees, Neff notes.

But a potential pitfall awaits nonequity partners if they are represented to firm creditors as indistinguishable from equity partners. This is at least arguably the case, since business cards, firm letterheads and the like ordinarily do not make clear which “partners” in fact have no stake in the firm. If creditors rely on such alleged misinformation to their detriment, nonequity partners might be included in any claim in which equity partners can be held personally liable, Neff suggests.

Neff says he is not aware of any cases that have litigated the issue. But he notes that section 16 of the Uniform Part­nership Act states that an individual who holds himself or herself out as a partner may be estopped from denying liability for the partnership’s debts to another party who relies on those representations.

In some ways, law firms have become their own worst en­­emies, suggest some legal management experts.

One of the chief villains is the billable hour, which some view as an arbitrary and inaccurate measure of the true worth of an associate or partner. The ceiling for billable hours has risen steadily for decades.

While billable hours offer some quantifiable standard for measuring a lawyer’s performance, they also tend to treat legal skills as commodities, Hinsey says. And since many law firms have become much larger through the 1980s and 1990s, often with many far-flung offices, partners may not be familiar with other attorneys in the firm and their work except through billable hours.

“In a very large firm, if a young associate bills 2,800 hours and another associate bills 1,900, which is the better associate?” Hinsey says. “Well, if you know the two, it may very well be that the second is the star. But if the decision-maker in the very large organization does not know the first lawyer or the second lawyer, is the right decision going to be made? Hopefully, someone up the line has the access to the expertise of the low-billing person. But analytically, each billable hour, it’s a commodity if you’re just looking at billable hours.”

Others say the emphasis on billable hours signals the deterioration of law practice as a profession. Maister says, “We’ve turned what should have been an incredibly noble, mean­­ingful profession–we’ve turned everybody in it into viewing what they do as burdensome labor.”

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