Law Practice Management

Economizing by De-equitizing Is Demoralizing, Consultants Say

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De-equitization of partners has become so popular at some law firms that the Snark humor columnist has nominated it for BigLaw Word of the Year.

The Snark, writing in the Fulton County Daily Report, defined the term this way: “The process by which an equity partner who shares in the profits of the firm is demoted to a glorified associate.”

The Snark’s assessment helps explain why de-equitization can be so difficult on lawyer psyches. Partners who lose their equity status may be motivated to improve their performance—or they may end up both de-equitized and demoralized, says Tom Troxell, a regional managing director of Citi Private Bank’s law firm group.

“You see income partners that have been de-equitized get into that category of billing fewer hours than some senior associates,” Troxell told the National Law Journal. “Rather than de-equitizing someone who sticks around, you can take partners who should no longer be part of the firm, and you can ask them to leave.”

One lawyer who was de-equitized in 1999 at Sidley Austin explained his reaction in a Wall Street Journal story in 2007. “It was surprising and hurtful,” said David Richards, who ended up at McCarter & English where he said there is less pressure to bill at high rates. “I thought I had been a good soldier.”

Legal consultant Joseph Altonji of Hildenbrandt International also has misgivings about the practice. Non-equity partnership should be a place for rising associate stars rather than “stagnated lawyers,” he told the NLJ. “That’s an unfortunate situation. That’s one reason you’re seeing a lot of terminations in those positions. It should be a step along the way from being a young lawyer to being a full owner of the firm.”

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