Look at partnership with open eyes

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Published on 3/16/09

The financial turmoil that law firms, along with the rest of the economy, are experiencing today may lead to a reassessment of the conventional wisdom that every lawyer should want to become a partner.

The essence of being a partner is ownership. This means being the last person to receive financial benefit from the firm, after staff, associates, vendors and suppliers. It means being personally responsible for the debts and liabilities. It means lying awake at night wondering how to improve the efficiency and growth and profitability of the law firm.

This is not an easy way of life, and it becomes far more difficult in times of economic stress.

Of course, questions about the wisdom of automatic partnership transcend the current economic scene. Would we advise our clients to move forward with a decision if questions like these were on the table? Is becoming a partner wise:

  • When your voice may be so small in a large firm as to have no influence over the direction of the firm?
  • When the "buy in" to the partnership is at a value asserted by that partnership rather than by an independent study?
  • When the sale of your interest could be only under very restricted terms and at a value determined by a formula different from the formula used for the "buy in" and only back to the partnership, not to a third party (even if a lawyer)?
  • When your income percentage will be determined by a "compensation committee" to which your only input is submitting a year-end report that is subjectively evaluated and that can thus be colored by committee member perceptions of the information included?
  • When, if you do participate in the governance of the firm, you will likely receive no additional direct or bonus compensation and might, in fact, have to continue your full practice to maintain your income?

These questions are daunting enough, but consider the partnership risks in today's economy. Why seek to join a partnership when, irrespective of how low your earnings from the firm may be, you will be jointly and severally liable for the debts of the law firm in the event of the firm's collapse?

Then consider the opposite side of the issue. Law firms with profitability problems increasingly move to eliminate ("de-equitize") higher-paid partners as they continue to hire new, young, lower-paid associates. Each of the laid-off partners was (presumably) added to the partnership because the firm had a strategic goal for his or her practice at some point. However, when the overall profitability suffers, the leadership makes a change rather than hold on to partners who were once added for a reason.

Most human beings are optimists (until they conclude otherwise), and I suspect most young associates and older partners believe the sacrifices they make early in their careers are worth it because they are convinced that partnership is desirable - until they are shown the door.

Achieving partnership in a law firm, of course, remains a worthy and honorable goal for most lawyers. But it should not be taken as an automatic one. Strive to become partner, but do so with your eyes open.

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