Law Firm Management News July 2014 - Partnership: an idea on the brink?

Charles Martin
Macfarlanes, London


Partnership. The word explodes in a supernova – champagne for some – of possibilities. It can be a great thing for clients and lawyers, but challenges loom that go to the heart of the way legal services are provided.

Partnership is responsible for some of the best and worst things about the profession. Intergenerational fairness is in the eye of the beholder. The picaresque journey from indentured articled clerk to white-whiskered senior partner used to be underpinned by reliable ground rules. These included an implicit understanding that the lawyer would not leave the firm and the firm would not sack the lawyer. In the 30 or so years before the financial crisis it was also underpinned by an assumption of pretty much ever-increasing profitability.

Now that neither applies there is nervousness at all levels of seniority. Younger partners want more short-term recognition. More senior partners may feel that they were under-rewarded in the past in exchange for an assumption of continuity of earnings until retirement. Those in the middle may feel grateful to have been partners at a time of high profitability and fearful of the future. And associates may question the whole idea of partnership, with its rigid expectations of commitment in a world that does not work that way any more.

It is not clear that either lockstep or ‘eat what you kill’ deal well with this. But the issues transcend even fundamental differences in remuneration structure – and therefore culture and expectations – and go to the nature of partnership.

Every firm will address these challenges in its own way. For many, they come on top of the complexities of dealing with fairness in the context of multi-jurisdictional practice and in the face of the changing shape of the traditional law firm pyramid. Good profitability will help soothe the pain, but relative fairness is essential for cohesion, even when the most ‘unfairly’ treated are earning more than some FTSE 100 chief executives.

To respond to the pressure for fairness, firms must be prepared to change. The threat of extinction should be enough to convince them. And to get that change right they will need wisdom in distinguishing between baby and bathwater.

When it works, it works

When partnership works well there is no better mechanism for aligning professionals with each other and the firm. It should create every incentive to work as a team and partners can come and go without crystallising the kind of goodwill payments that would ensure the profession remains the preserve of those who can pay the entry price.

It should drive financial efficiency, as both revenue and capital expenditure come straight out of the pockets of partners. The disconnect between owners and managers in the corporate model is plain. Look at activist shareholders or the ambivalence about how to pay the stewards of shareholders’ assets – senior management.

Many of the most effective lawyers are independent of spirit and thrive in an environment of collective self-determination. Partnership can also encourage distinctive ways of working that contribute to wider choices for clients and lawyers. It can be a very good thing and should not be chucked on the bonfire of the outmoded lightly.

There can be bad partnership. There are plenty of examples, but Dewey & LeBoeuf is pretty compelling. Trust is always vulnerable to abuse.

What clients want

Why should any of this matter outside the world of lawyers in private practice? Well, few could argue that all is well with the legal industry. I have touched on some of the frustrations in private practice, but external drivers of change are even more forceful. Clients may not be interested in the plumbing I have talked about but they do care about getting a service that meets their needs more effectively.

Getting the governance and structure of the providers of legal services right is part of achieving the change clients want. Alternative business structures, listed law firms, larger groupings of providers (almost certainly aggregated by the Big Four accountancy firms) and changes to the nature of the relationship between firms and those who work in them are all part of the answer. And all would have a considerable impact on client choice and the way legal services are delivered, not just on lawyers. So clients should be interested in partnership, the alternatives and what the impact of change will be on the legal market.