At any law firm, only a small percentage of all lawyers are partners. And even within the ranks of the partners, there are two tiers: the equity partners and the salaried partners. It is not easy for a lawyer to become an equity partner at the firm. Partnership equals ownership and it takes at least ten years of experience, business acquisition skills and a solid business case to be voted in as a new equity partner.
In the past, once in, you would be left alone for the rest of your career at the firm. Partners were independent, self-steering and self-responsible business units. As said, this was the past, today partners are not home-free and these days a partner’s financial performance is tightly monitored.
For the majority of partners their financial performance is directly connected to their renumeration. Many law firms have some sort of renumeration committee that annually reviews each partner and decides on what part of the firm’s profit a partner will receive. It is not uncommon to take other elements, besides revenue and billable hours, into consideration as well. For various reasons the annual partner review however, is a root cause for tensions and debate. Let’s look at some of the bottlenecks.
The financial information might be wrong or incomplete
In our day-to-day practice we do often a Financial Business Analysis©. If there is one thing that we have observed through the years, it would be that the data we receive straight out of a law firm’s financial system typically misrepresents what is actually going on. This has nothing to do with poor administration but is just a consequence of how matters are being recorded.
Firstly, a new matter is always opened on the name of one individual partner. Even if during the course of the matter other partners also work on the case, the revenue will be in the name of the partner who originally opened the file.
Secondly, many law firms use Origination Credits of some sort. This could take many shapes and forms, but all of them will distort the data and blur the view on an individual partner’s performance. Often one partner can claim ‘ownership’ of a client and get part or all of the revenue in their name, regardless the amount of time they have actually spent on the file.
Thirdly, just focusing on bottom-line revenue completely misses the point. Not all revenue is created equal. The profit margin will largely depend on leverage and effective hourly rate. Your reputation will depend on the quality of the practice. If two partners both create 1 million in revenue and partner A has 10 matters of 100.000 and partner B has 100 matters of 10.000, partner A definitively is the better performing partner.
Financial data is only half the story
Partners do not operate into a vacuum. Therefor there is a need to take other elements into account that are not directly derived from the firm’s financial system. What exactly these soft elements are varies wildly between firms. The way in which a partner interacts with his/her team might be one. Firms typically don’t appreciate partners that mentally or physically ‘mistreat’ associates. Contribution to the firm, might be another one. What such elements have in common is that they are to a high degree subjective and could therefor be seen as unfair.
The elephant in the room
The main issue I have with all these measurements and appraisals is that they are looking in the rearview mirror. It focuses on the past and criticizes flaws, rather than identify growth opportunities. It is a common misconception to consider the equity partners ‘complete’ and their skills and talents a given that cannot or need not be changed.
We firmly believe that every partner is entitled to further development and growth. Partners should not be seen as independent, self-steering and self-responsible business units that are best to be left alone. It is in the interest of the individual partners and in the interest of the firm to permanently stimulate development and growth of each of their partners.
The annual partner review should not focus so much on what a partner did, but on development opportunities instead. Bear with me, I am not preaching some sort of softy tree-hugging approach. Development should be quantifiable and progress should be measured at all times. In that respect our method does not fundamentally differ from the present methods. What is fundamentally different is that we should look forward and focus on the future, rather than focus on the past by looking in that rearview mirror.
We have a method for that
TGO Consulting has over the years developed a method that might help you to unlock more of your partners’ potential. Our method integrates financial data and skills and attributes. It includes a smart tool for assessment and measuring progress. Please drop us an email if you are interested in learning more on this method and on how it could fit-in with your firm’s particular culture and needs.