Partner Bleed

Once again, the issue of large law firm partners being terminated by their firms arises. In today’s Wall Street Journal, the moral of the story is that lawyers must contribute to the well-being of their firm. If they don’t, they will be terminated irrespective of whether they are a partner (equity interest) or an associate (employee). In other words, they must adhere to the formula of The Business of Law® … P = R – E, the basic formula of all business. Or said another way, lawyers are now beginning to realize the practice of law is a business, just as every other service profession (and manufacturing and distribution) is. And, the line between partner and employee is becoming narrower each day.

In a recent article in the New York Times, the reporter focused on the proper issue … the productivity of the lawyer. Age is irrelevant. There are 80-somethings who are contributing to the “bottom line” of the firm and there are 20- and 30- somethings who are not. Those who do not contribute to the bottom line can be sustained in the firm for only so long before their weight begins to cause the firm to collapse. That is one of the primary reasons for the failure of many large firms in the recent past … the failure to address management decisions that impact the operation of the firm in a business-like manner.

Being a partner is no longer the key to the magic kingdom. Partnership agreements are written in such a way that a partner can be terminated from his/her equity position without much difficulty. “What have you done for me lately?” is not an idle phrase in the world of law firms. Just as every employee in every firm/company must contribute to the well-being of the organization. It’s for this reason that lawyers are concerned about maintaining strong client relationships and not willing to share their client information with others in the firm. Cross selling is a concept that is yet to be fully embraced because of this phenomenon.

Ways in which a lawyer can contribute to the bottom line and well-being of the law firm are contained in the formula: Increase the revenue of the firm (collected billings) or decrease the expenses of your efforts relative to the revenue you bring in.  In other words, if you can produce client revenue that will keep other lawyers busy, if you bill a significant number of hours (or related value billing efforts) above the average, or if you have a key client relation that is significant for the firm, you will be viewed as an asset of the firm. If your collections decline, if your time expended doing client work declines or if you utilize a disproportionate share of the firm’s resources, then you will be a drag on the performance of the firm and, at some point, terminated.

If anything is different as a result of the Great Recession for law firms, it’s the realization that P = R – E, and law firms are governed by this formula as is everyone in the commercial world.


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