Blink and it is October. The last quarter of the Biglaw year is officially in play. Unfortunately, there is no indication that this fourth quarter will see the flurry of pre-tax-law-changes deal activity that salvaged 2012 for a lot of Biglaw firms. So firm leaders will actually have to manage, over the next few months, (1) the usual expectations from the partnership regarding end-of-year bonuses and distributions; (2) the lateral activity “silly season” we’re now in, especially if the firm is recruiting laterals for the purposes of adding talent and not just a short-term revenue boost; (3) the broken associate system at many Biglaw firms, where attrition is celebrated with a fervor that used to welcome the huge Biglaw first-year classes of yore with their promise of profit-driving leverage; and (4) the decision on whether to invite any of their surviving counsels and associates into the partnership. Yes, Biglaw firms will continue to make new partners. The smarter non-lockstep one-tier shops will make as many as they can. Or at least should.
And people who are gunning for partner in today’s Biglaw should be more vocal about making the business case for their candidacy. If they can’t, they have their answer. But if they can and don’t, then they are actually proving that they are not yet partner material. Because for most Biglaw firms, more partners, especially younger ones, are essential. And trying to buy that young core on the lateral market is a difficult and expensive task.
Why should Biglaw firms be thinking of minting more rather than fewer partners?
A number of reasons, starting with the fact that making new partners is a relatively cheap way of trying to grow revenue. Think about your firm’s cadre of senior associates and counsel, particularly the ones who know they are “up” for partner. For that cohort, there is a valid argument that the last year or two of a Biglaw lawyer’s pre-partner career is the most profitable period for their firm. In my case, in my last two years before making partner, I generated a couple hundred thousand dollars per year more in revenue than the two years prior to that. Great deal for the firm, since I was only taking home a small percentage of that in additional salary relative to the prior two years. But I was motivated, and thus willing to be crazy busy. Interestingly, I don’t think firms get the same mileage out of their non-equity partners — especially the ones who have remained stuck at that tier for a couple of years. The allure of the brass ring adds some extra motivation. So firms should tell more associates they are on track, and make the ones that perform partners (unless they are in a practice area or an office that the firm is trying to shed, of course). Motivating more of your employees to give their all is not a bad thing. You can always pull a Kirkland and cull out those partners who will not make equity a few years down the road.
Second, as I mentioned before, many Biglaw firms have gone away from guaranteeing large salary increases to newly-minted partners. In fact, at many firms, making someone partner takes that person off the employment rolls, and opens the door to getting a capital contribution from that person. And make them pay for their health insurance and self-employment taxes. Plus, making new partners offers a very handy excuse for raising rates. So you take your most expensive employees, turn them into “owners,” and charge your clients more for their services because of the fact that you bestowed on them a title that cost you basically nothing. A very good deal for firms. Especially if you factor in that your new partners may actually be in a position to try and generate new business for the firm, armed with their new title and professional stature. All in all, it is a lot cheaper than trying your luck on the lateral market.
The downside risk of making partners at a greater rate than in prior years? There is of course an increased risk of someone making a mistake on a matter that reflects badly on the firm. But that is always a danger, and I would assume the firm would have already weeded out anyone who is a walking malpractice risk. If not, and the worst occurs, the firm can always blame the mess-up on the attorney not being able to handle the stresses of partnership, a condition that was obviously unforeseeable for the firm prior to actually making that person partner. Other risks? It may or may not be harder to fire partners than associates (an assertion belied by the increasing reporting on stealth partner layoffs in Biglaw), and the dilution of the partner “brand” by increasing the ease of achieving the position. To the extent the latter is a true issue, the development of the non-equity partnership tier has already done the major damage, and in these days of centralized Biglaw management, finding ways to “transition” people out the door does not seem to be much of a problem for firms.
Ultimately, senior associates (and even star mid-levels in the right practice groups) and of-counsels should be agitating to get a partner decision from their firms as soon as possible. The answer will very well define whether their futures are at their current firm or a different one. For anyone in that position, the process starts by making it clear that you want to be partner, having an idea about what you will be doing once you make partner, and being prepared to make that case to an unmotivated audience. Because senior attorneys in Biglaw are not rushing to increase the size of their partnerships, even though it may increase the long-term viability of their firms. They may be reluctant, but that does not mean that they can’t be pushed from within to make some changes to their approach. You can start by pushing your own business case internally. Do it well, and you may get to do the same in front of some prospective clients.
What do you think about two-tier Biglaw firms elevating more associates and counsel to the partneship? Let me know by email or in the comments.
Anonymous Partner is a partner at a major law firm. You can reach him by email at [email protected].