Last week I wrote about some aspects of client service in today’s Biglaw. Today I want to focus on Biglaw’s embrace of partner de-equitizations and layoffs. These tactics are one of the ways Biglaw has been dealing with the fallout of the Black Death that has struck our industry.
Unfortunately, it seems like this year has gotten off to a bad start Biglaw-wise, in terms of both demand and a continuing lack of creativity by management at nearly every single firm. That brings consequences. Stay tuned. I have already said that I don’t mind if the paunchy mid-section of the Am Law 100 starts embracing a “bottom’s out” approach to the partnership — but at least have the guts to embrace it, not spin it.
I am really starting to dislike the tone that managing partners are starting to adopt when they talk about eliminating partners. Yes, I said eliminate. You may have seen them. Public statements where managing partner X almost gleefully informs the public of the elimination of nearly ten percent of his “partners” in the face of falling revenues. And looks for applause because his firm’s PPP went up $17,000 as a result. Go read some of the recent Biglaw “report cards” for a taste of this rancid stew.
We should be clear about the consequences of such a practice….
A de-equitization in the current environment is tantamount to a suspended death sentence on the head of the partner unfortunate to have had judgment passed on their current worth. I keep on circling back to a thought that has stuck in my head over the past few months — that Biglaw is heading towards a “bottom’s out” way of dealing with its partners. At some firms, it is already a way of life. Others are bumbling toward that sordid finish line, propelled by declining client demand and increasingly commercially meaningless “brand names.”
How many de-equitized partners recover their equity status? At their current firm or even somewhere else? I would wager not many. Think about it. If you bring in a matter that needs servicing by someone senior, who are going to turn to first? Most likely it will be to a fellow equity partner. That is the covert contract that underlies many partner interactions anyway. Protect each other’s business. Keep each other afloat. Someone cast out or pushed to the rear? They will need to try and recover on their own. Many can’t. Most de-equitized partners just fade away, and Biglaw managing partners hope they do so without too much of a fuss.
No one is dismissing the challenges Biglaw firms face in the current environment. And managing partners are paid millions to handle a difficult role — one that they are often ill-equipped to carry out considering they are usually elevated from the ranks of former rainmakers. The distance between rainmaker and “public face” of a billion (or at least multiple hundreds of millions)-dollar organization is vast and difficult to traverse. And no one at that level is too keen on admitting needing help from more experienced executives, nor does a partnership facing an uncertain future want to spend too much on expensive non-lawyers (i.e., not rainmakers) to handle administrative tasks. Better to blow a few hundred thousand at a time on the next lateral with big promises making the rounds.
Now when a managing partner speaks, it is not off the cuff. Marketing has had input, and the executive committee (or whatever the cabal of powerful partners at the firm calls itself) has surely spent many hours discussing the firm’s “strategic direction” — and molded an outward-facing message accordingly. For those firms that have thrown away the pretense of being a traditional Biglaw partnership, the message left with the interested public is thus more important than the fate of any one former “trusted colleague.” Forget about the years of service, the well-earned professional reputation, or the family that depends on said colleague’s income. They haven’t been able to “adapt to the current realities” and the firm needs to “repurpose them.” It is a matter of survival really — at least from the managing partner’s perspective. And like all messy situations, there is unfortunately truth reflected in that perspective.
So the message needs to go out, with three primary audiences: the media (including the American Lawyer, ATL, etc.), clients (existing and potential), and the current competition (i.e., potential laterals). The message may take various forms, but at bottom there are two objectives: (1) to distract from current challenges, as in look at our modestly growing PPP, and (2) to paint a rosy picture of the future. But it does not have to be delivered so harshly. And firms need to take a hard look at whether or not they are failing their partners. By over-hiring associates and other non-partner timekeepers who are eating into partner hours, only to leave for greener pastures at the first opportunity. Or by guaranteeing near-seven-figure incomes in non-lockstep firms to senior service partners, when more incentive-laden compensation plans would do just as nicely in rewarding performance. It is not like there is an active market for service partners to lateral anyway. You have them, try and keep them busy, and pay them when they are able to produce. Avoid expensive mistakes. Seems easy enough, but Bill and Managing Partner Bob were summer associates together. No need to act quickly on good ol’ Bill’s skydiving collections when we can just squeeze out some recent laterals. The ones whose joining we trumpeted with such fanfare just three years ago.
At minimum, firms that want to celebrate eliminating or de-equitizing partners should at least have the dignity to do all they can behind the scenes to help those partners either regain equity status or find appropriate roles elsewhere. I hope they already are doing so. And these firms need to make explicit what we already know about them, and embrace their “new identity” proudly. Let’s see a managing partner boldly proclaim that his firm will continue to demand performance from his “partners, or else,” and extend an invitation to anyone looking to practice in such a system to join. There may or may not be takers for such an offer. (Depends heavily on whether they are willing to pay extra on current collections as opposed to a partner’s current firm.) But don’t hold your breath waiting for someone to make it.
How should Biglaw deal publicly with partner layoffs and de-equitizations? Let me know by email or in the comments.
N.B. Confirming the strange associations a brain can make, the arrival of Passover has spurred my interest in learning more about a relatively (and unfortunately) undocumented segment of Biglaw: those who were on track and got “passed over” for partnership. If anyone would like to share their story with me, and possibly serve as a subject of an interview on what the experience was like, please let me know. I think we would all benefit from hearing from you.
Anonymous Partner is a partner at a major law firm. You can reach him by email at firstname.lastname@example.org.