“Partner” and Other Big Firm Euphemisms

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“Partner” and Other Big Firm Euphemisms

A version of this piece published on the Daily Record Website June 22, 2016, in the Daily Record June 23, 2016

Despite a mostly placid surface, the most recent of the Law Firms in Transition reports issued annually by law firm consultancy Altman Weil is alarming. True, it starts with the unstartling observation that larger firms continue to change in response to changing market conditions. And that anodyne tone continues. But then you start recognizing the unspoken norms and assumptions informing the report – and those are chilling.

“Non-Equity Partner”

I was reminded an old Steve Stills lyric: “You are living a reality I left years ago/ It quite nearly killed me.” The report is based on a survey propounded only to firms of 50 lawyers or more, and responded to by, among others, 49% of the 350 largest law firms. In short, the survey reflects the world and the thinking of Big Law. I myself labored in firms large enough to receive the survey until 22 years ago. I’m not there now. And to judge by the report, it’s just as well.

Around the time I left, for instance, I was just beginning to hear of a concept called the “non-equity partner.” That once-novel status is now reportedly a feature of the structure of nearly 100% of Top 200 law firms. By definition, the phrase must, at a minimum, mean that the partner does not receive “equity,” which equates roughly to ownership. (Thus Merriam-Webster’s relevant definition: “a risk interest or ownership right in property.”)

But wait: that’s contradictory, isn’t it? How can you meaningfully be a partner without a share of ownership? Neither in classical partnership structures nor in limited partnerships can you call someone a partner who owns no piece of the partnership control or profits.

In practice what the term means is someone who receives salary, and does not get a piece of the end-of-year profits. But, as noted, true partners divide profits. Anything less is simply a salary, and shouldn’t be called an incident of partnership. Economically, then, a non-equity partner is simply a mislabeled employee. There may be enhanced status attached to the label, and perhaps greater job security (hold that thought, though) but still what we’re really talking about differs at best in such particulars from the status of an associate.

Feeling Hobbesian?

Whenever something is persistently mislabeled, it’s time to take alarm. As was observed nine years ago by law firm consultant Robert Denney, “Whether firms admit it or not, the principal reason [for establishing a non-equity class of partners] is usually to avoid slicing the profit pie into more, and possibly smaller, pieces to maintain a high net income per equity partner.” In plain English, non-equities become that way to assure that the rich get richer, that the haves have more, and the have-nots have less.

This transfer of wealth and power is happening as we speak. Quoth Altman Weil: “Almost half of firms are taking the … step of de-equitizing full partners, moving them out of the profit-sharing class.”

Are we feeling Hobbesian yet?

“Underperformance” and “Counseling”

It gets worse, as one flips through the report. One learns, for instance that “[c]ompensation adjustments are being used in most firms to deal with underperforming partners…” That phrase “deal with” makes it sound as if “underperformance” were some form of misbehavior that the headmaster will need to address. Okay, so we know Altman Weil are really only talking about “compensation adjustments,” i.e. cutting people’s pay. But actually it can get worse. We learn that “chronic underperformers are being counseled out of their firms.”

Don’t slip and fall in all that euphemism. To say directly what the people at Alman Weil were too squeamish to: Firms are earning less than their shrinking class of true owners, the “made men,” wish, and lawyers perceived as not contributing enough to satisfy the overlords are being penalized for this supposed shortcoming by being fired. Not “counseled,” for heaven’s sake. Few people leave jobs they want to keep because they have been “counseled.”

Though why they’d want to keep such jobs, I’m not quite sure.  Why would anyone with his or her eyes open spend years trying to become an owner if that ownership was so evanescent? If the value and even the survival of one’s “ownership” were so dependent upon the favor of people who prosper more when one loses it? Well, you’ve got me. I can’t figure it out. But it’s happening.

Then too, work just seems not to be there for (oh, surprise!) the non-equity partners. Altman Weil say: “62% of firms report their non-equities are not sufficiently busy, including 80% of the firms with 250 or more lawyers.”

The Headmaster Awaits

Oh, okay. I grant it is possible that purely by chance and by some amazing coincidence the people who aren’t given a true stake in the business are so consistently the ones with too little work. Possible, like the possibility of drawing to an inside straight.[1] But a more sensible bet would be that the big guys are hoarding the work because they want to stay the big guys, and under the existing ground rules they endanger their status if they share the work. And when the non-equities aren’t busy enough because the equities don’t share the work, guess whom the headmaster, a/k/a the HR manager, will call next into his study? (A hint: a 2013 Altman Weil report suggested: “Over time, reduce the number of non-owner partners the firm has.”)

I’ve singled out non-equity partners, but actually there is a full trough of job titles for people who, most often, become losers in this Brave New World: of counsel and senior partner and staff attorney and permanent associate and contract attorney and many more.

Most people my age didn’t understand any of this when we started practicing law. There was another, more colloquial sense of the word “partnership” that we thought we were aspiring to: everyone working towards a common goal and a common benefit. Well, silly us! If the Altman Weil profile is to be believed, the risks of the biggest legal enterprises are now being increasingly spread over the whole group, and the bulk of the benefits are being enjoyed by only a diminishingly few members. (Incidentally, does this remind you of anything?)

Small Law Definitions

As I’ve said, I made my own break 22 years ago. And I’ve seen a lot of others do it since.

From my observation, most of the refugees to the world of Small Law have, in one way or another, tried to create workplaces that were about their owners. All of their owners. In the Small Law world, partnership truly means ownership. In the Small Law world, partnership means receiving a fair share of the firm’s proceeds and enjoying a fair share of the say in running the show, and relying on genuine job tenure.

To be sure, Small Law practitioners seldom have access to the huge clientele or the big money their bigger brothers and sisters do. At least up until that moment the Big Law “partner” is “counseled” out the door, he or she will probably earn more than we Small Law folk do. But in terms of what makes practicing law worthwhile, from where I sit, foregoing those extra dollars seems like a bargain.

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[1]. 4/47 or roughly 8-1/2%.

Copyright (c) Jack L. B. Gohn

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2 Comments

  1. Jack –
    Nice work. I agree. Law firms,large or small, die when the leadership stops taking responsibility for careing for the clients and protecting the associates and the staff. In order to protect the clients and the associates and the staff the leadership should be the last to get paid. Every associate and staff member should get a raise and bonus at year-end before the partners start carving up the money. The great lie that you describe so well, offers associates the title of “partnership” in order to be able to pay them associate wages because the firm is not well managed and is not growing . The true engine that drives very successful law firm that I have ever run into is that “credibility is everything “at every level . It’s a pretty simple game :(1) clients come first, (2) law firm comes second and (3) senior partners get paid last. Once that structure is lost, over time, all
    implodes while the senior partners are all slapping each other’s backs at the expense of everybody else.

    But your comments are actually more perspicacious. Our American legal profession must be constantly cost-effective, nimble servants of our clients. In the end we serve the purpose of conflict resolution and as the creators and recorders of the records of our society. We have a near monopoly on our services. It is not our place to be profiteers. It is not inappropriate that we govern our selves in a way that we believe our society should be governed.

    Jack, I love your articles. Keep us honest.

  2. Thanks for the kind words, Bob. I don’t say there’s only one way to manage compensation, but it must be fair, and it must be conducted in a way that calls things what they are. And of course clients must always come first, subject only to the commonsense proviso that clients can sometimes be abusive, dishonest and/or unreasonable and we don’t have to be governed by them when they are.

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