For some law firms the decision to take action on the problem of underproductive partners is less difficult than figuring out exactly which partners fall into the category of underproductive. The problem is that even though law firm leaders know underproductive partners when they see them, they are insecure in taking action without some more objective standard.
I serve as a sort of an outside director on several law firms’ boards. At a meeting last week, one of the agenda items was a plan to handle their problem with “a growing number of equity partners who were not meeting the firm’s expectations of a partner.” Everyone was in agreement that something should be done. At issue was that some directors felt we were talking about a handful of partners – four or five at most, when others were looking at a group of 20 or 30. We concluded that the firm had to start by coming to an understanding of what is expected from an equity partner, and then figure out how to measure individual partners’ performance against those expectations.
The Role of Equity Partners
Your reaction may well be, “Duh, of course that’s the way to do it.” But moving from concept to reality gets a bit tricky. First we need to come to an understanding of precisely what it means to be a partner in a law firm. While this differs among firms, I’ve come to the conclusion that there are four roles that a partner must play. The particular roles a partner fulfills is what distinguishes an equity partner from a non-equity partner.
The first (and most basic) is that a partner must, in most firms, be a working attorney. This involves performing client work and bringing in revenue as a result of the partner’s personal efforts. I hear a lot of talk about partners who bring in large amounts of business rather than actually performing work, but it is rare that we actually see such a model. The firm’s intellectual capital resides in the partner ranks, and using that capital to generate revenues from clients as a working lawyer is a basic role of a partner at any level.
The second role is the generation of business. Only a few law firms are able to generate business as an institution. Most work comes into a firm and clients stay with firms due to relationships with individual lawyers. For a firm to survive, partners must provide work to fill not only their own desk but also the desks of associates.
The third role is to perform non-billable work on behalf of the firm. Partners must manage their firm, recruit new lawyers to join the firm, train young lawyers and teach them how to practice law, and a hundred other tasks that the firm can’t or won’t delegate to paid professional managers.
Finally, the fuzziest of the roles is that of an owner. Owners have an entrepreneurial zeal. They put capital at risk and use risk to create rewards. Owners are constantly looking for new ways to enhance the profitability and reputation of the firm. Non-owners pick up a paycheck in exchange for their labors and think up reasons why new ideas won’t work.
Creating a Standard
The expectation of partners varies dramatically among law firms. An individual who is a superstar in one firm may be an under-performer in another. It is a function of the normal performance range of partners within the firm.
Within any partnership there is a normal curve of distribution for each one of these roles. That is, if we graph the degree to which equity partners fulfill each of these roles, there is a bell-shaped curve with a median and the bulk of partners clustered around the median. The number of partners decreases the farther ones gets from the median, either positively or negatively.
Consider the above graph for partner billable hours in a typical large law firm with 100 equity partners. If the firm listed the partners in descending order according to the number of billable hours recorded in a year, the hours recorded by the 50th partner in the list would be the median. Generally speaking, about two-thirds of the partners will be producing an acceptable number of hours and clustered fairly close to this median number – let’s say 34 partners above the median and 34 below. This leaves 32 partners whose performance is either quite a bit above or below the mainstream partner work ethic – 16 above and 16 below.
The bell curve in the example above is typical of most law firms. Carrying this a bit further, we can create a model whereby we evaluate the performance of each equity partner for the four roles in relation to the range of normal performance for all equity partners. To use this model:
1. Create a list of equity partners in descending order of billable hours as in the example above (alternatively, feel free to use fee revenue collected). The middle number is the median (number 13 if there are 25 equity partners). There will probably be a fairly clear division between the normal hours worked by most partners and the partners who are well below that norm, but if there isn’t (or if you don’t want to make a subjective judgment) take the bottom 15 percent of the equity partners.
2. Do the same exercise for value of business originated by each attorney using whatever statistic your firm chooses to consider (billing attorney, relationship attorney, producing attorney, etc.). Remember, the issue is actually putting work on the attorneys’ own and others’ desks. Look at the bottom 15 percent of the equity partners or, alternatively, partners with under $100,000 in originations.
3. Create three lists. The first is for the equity partners who do a large amount of non-billable work for the firm (regardless of whether it is recognized in the compensation system). This will probably include the members of the Executive Committee, practice group chairs, the recruiting partner and similar responsibilities. It will probably contain the names of about 20 percent of your equity partners. The second list is for those partners who will serve when asked, but are not among the people actively involved in firm activities. These people serve on committees, are willing to interview associates and lateral candidates and attend meetings. In most firms, this list will contain the names of about 60 percent of the equity partners. The third list are those partners who rarely or never are involved in non-billable activities for the firm, may not attend many meetings and generally are not interested in firm affairs. Typically, this third list will have about 20 percent of the partners.
4. Finally, consider which of your equity partners act like owners. This is kind of a thumbs up or thumbs down with a lot of people you won’t be sure about. The result will probably be the 20/60/20 percentage division with the last 20 percent being the partners who clearly don’t think of themselves, or act like, owners.
Now, you have created four lists of people who are lacking at least one facet of fulfilling their role as an equity partner. Compare the lists giving each name one point for each under-performance list they are on. Then list the names in descending order of points. This makes up your priority list of under-performing equity partners.
One important point. If you take action on underproductive equity partners by making them non-equity or even firing them, you will shift the median to the right on the bell curve for all of the four roles. The partnership becomes stronger, more entrepreneurial, and more profitable. But a whole new group of partners who were within the range of normal performance before are now under-performing. The standards change and the bar gets higher.