Career Development  -->  Making Partner

 

The typical lawyer’s career track changed dramatically beginning about 20 years ago.  Until then, it was typical for a lawyer to join a firm upon graduation from law school, work hard as an associate for five to seven years and then, in most cases, be admitted to the equity partnership, staying until death or retirement.  In the late 1980’s, the partnership track for large firms was extended to nine or ten years, and other layers of attorneys started to be added between the associate and equity partner ranks.  Now, there are all sorts of categories of law firm lawyers, including senior counsel, of counsel, special counsel, and so forth, with the title and criteria for each set by the particular firm.  It is now common for law firms to have at least two tiers of partners:  equity partners who share directly in the profits of the firm; and non-equity, income, or contract partners who, in most cases, receive a base salary plus bonuses usually based upon their personal production.   

 

Equity partnership involves shared liability for the debts of the firm, voting rights regarding the affairs of the firm, and compensation based on a share of the profits.  Historically, once an associate spent a certain number of years working for the firm, he or she would be considered for partnership.  That associate either was elected to full equity partnership status, or was turned down or “passed over” and then was expected to leave the firm within a reasonable period of time.  This one-tier partnership and “up or out” system began to erode in the 1980’s as the increasingly competitive legal marketplace required new approaches to the traditional partnership system.

 

As partners began to move laterally between law firms, more flexibility was needed to allow for their addition and, if necessary, removal if they did not meet expectations.  Rather than offering lateral partners full equity status, which involved difficulties in their admission and removal from the partnership, law firms sought a structure which would allow for a probationary period.  Thus, partners were hired on a contract partner or non-equity basis with the provision that they would be considered for full equity status at a stated time, usually within one to two years.  Often, certain benchmarks regarding business generation and billable hours requirements were written into their hiring agreement.   Their compensation is not tied to the profits of the firm; rather, it was tied to the lateral’s performance.  Those that did not prove themselves within this probationary period could be given an extended contract, or could be asked to leave the firm without requiring the more stringent procedures required for the removal of a full equity partner. 

 

Additionally, as the competitive environment heated up, not all senior associates were fully up to the challenge of assuming the responsibilities of partnership at the time of their consideration for promotion.  While they may have acquired excellent legal skills, they may not have been ready to take on all of the additional responsibilities of partnership such as generating and managing client relationships, supervising and training associates, and handling firm management duties.  Creating a second probationary tier of non-equity partnership allowed firms to give these valued associates a promotion while allowing them to transition into full partnership duties over a period of a few years. 

 

Many firms do not have a specific deadline by which these attorneys must demonstrate their ability to become equity partners; they are permitted to stay in that position for an indeterminate period.  For some attorneys, this allowed them to become full equity partners a few years later rather than being required to leave the firm under an “up or out” policy.  For others, it became a “limbo” from which they would not emerge.

 

In fact, some associates prefer non-equity status to that of full-equity partnership.  While still attaining the title of partner and the ego-boost of promotion, they do not have to shoulder all of the burdens of firm ownership.  Some associates have turned down offers of promotion to equity partnership in return for reduced pressure to develop new business, take on management and administrative responsibilities, put in more hours and  work harder, and make a huge capital contribution (or sign on for a loan to cover it) just when their law school loans are finally under control. 

 

Both categories of non-equity partners described above are presented to the public as partners but are, in reality, employees of the firm.  Law firm policies vary regarding voting rights for non-equity partners, and different tiers of non-equity partners within the same firm may be treated differently in this respect.  There also are differences regarding whether non-equity partners may attend partnership meetings or receive the firm’s financial information. 

 

An important consequence of a multi-tiered partnership is the concentration of risk in a smaller number of full equity partners who are on the line for leases, debts, malpractice risk, capital contributions, and so forth.  Furthermore, if no part of non-equity partner’s compensation is dependent upon firm profitability, there is no incentive for them to contribute to the firm’s benefit as a whole.  In other words, if the bonus component of a non-equity partners’ pay is dependent only upon individual production, it in fact would be against their interests to spend valuable time on firm management, associate training and mentoring, and other activities not tied to their personal bottom lines.  And, finally, there may be a negative impact on morale, where a class system develops along the lines of the various partnership and associate tiers, with partners not in the full-equity position being considered second class citizens.

 

For those associates who have skills and abilities that are valuable to the firm, but do not possess all of the attributes necessary for promotion to partner, many firms have created permanent associate positions with titles such as special counsel, senior attorney, and so forth.  From the business perspective, the “up or out” policy was unwise with regard to these associates.  Given the costly investment in training and development of these associates and their institutional and client knowledge, they are able to handle relatively sophisticated work with minimal supervision and, thus, can be profitable for the firm.  These lawyers are, in essence, permanent associates.  They have a semblance of job security, although they still are employees at will.  There is no pressure for them to develop business.  But, on the other hand, there is virtually no opportunity for them to advance within the firm and no real incentive to grow professionally.  Some attorneys are comfortable in this situation; others eventually seek other employment where they see more possibility of career advancement.  Once again, there is the possibility of the perception of second class citizenship, bringing down morale.

 

Traditionally, the “of counsel” title was reserved for senior partners of the firm who were semi-retired.  Now, that title can connote almost any non-partner/non-associate relationship between a lawyer and a law firm.  Some law firms have given their semi-retired partners the title of “senior partner” or “partner emeritus” to differentiate them from other “of counsel” types.  To make it even more confusing, some lawyers are of counsel to more than one law firm at a time.

 

While there are distinct advantages to multi-tiered partnerships, de-equitizing underproductive partners or designating underperforming lawyers as non-equity partners or some sort of permanent associate often only delays the inevitable.  In many cases, these attorneys were found lacking some essential ingredient that would allow them to advance within the firm.  Unless they improve or can continually justify their existence from a business perspective, they eventually should be let go.  Otherwise, the law firm might end up with a number of highly paid lawyers who did not pass muster for full partnership and who, in reality, prevent the firm from growing at the lower levels where potential new partners are groomed. 

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