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Davis Polk Confirms That We're In The Twilight Of The Lockstep Firm

Another firm transitions away from full lockstep compensation.

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For decades, one marker of a truly prestigious law firm was a commitment to lockstep partner compensation based on seniority. It reflected a “one-firm” philosophy that every partner’s practice contributed to the overall success of the firm and that long-term partnership buy-in was a mark of strength. Firms that allowed partners to “eat what they killed” could collect high-quality talent, but clients looking to build a relationship with a firm that would stand the test of time could look to the lockstep firms as paragons of top-notch stability. There’s a reason why there are bigger firms and there are more profitable firms but we still deploy a special reverence when discussing Cravath and Debevoise.

Davis Polk was also on that ever-shrinking list, but Bloomberg Law reports that yesterday the firm decided to tweak its lockstep formula:

“The firm is strategically focused on measured growth and we are cognizant of the market environment in which we find ourselves,” said Davis Polk managing partner Neil Barr in an interview with Bloomberg Law.

“We ultimately concluded that our existing compensation structure, which paid partners solely on the basis of seniority, was simply not compatible with our strategic designs going forward.”

It’s not like Davis Polk is going to stop being one of the world’s elite law firms and transition into a firm of fiefdoms. Lockstep competition is still at the root of the new model. Rather it’s a recognition that the world is changing. To the extent anyone had trouble reading the writing on the wall, circumstances sandblasted off the rust when Cleary Gottlieb, another of the old-school lockstep firms, lost a rainmaking team to Freshfields last year. It’s a competitive market out there and lawyers at the front end of the seniority curve have few incentives to stick around and wait for the big rewards that lockstep offers down the road when a growth-oriented firm is prepared to evaluate and compensate talent as it comes. Offering some modifications allows Davis Polk to be more competitive in seeking out and retaining young stars unwilling to wait to reap the benefits of the value they have today.

When it comes right down to it, this is still a service industry and client philosophies have changed. A generation-spanning relationship of trust with a lockstep firm isn’t as much of a priority when clients can micromonitor their matters and shop legal work around to find the best deal — with most aiming to work with a handful of law firms rather than one or two relationships covering the wide gamut of matters. And firms need to meet clients where they are.

That’s not to say that something isn’t lost as the lockstep model wanes. I’ve said before that one of the reasons I chose to work at Cleary out of law school was the lockstep worldview. Lockstep at the top bred the culture of a shared endeavor. Resources weren’t hoarded internally and associates weren’t placed in an immediate scramble to lock down a spot in the orbit of the “right” partner to advance their career. It also mattered to me that the vagaries of the business cycle didn’t drive the firm — corporate is bringing in all the money one day and then a recession shifts the balance to bankruptcy and groups didn’t need to worry that they’d get trimmed because everyone knew that these rough patches were why the leadership agreed to get paid equal shares in good years and bad. Lockstep may exist for the benefit of the partnership but it’s a model that really did trickle down.

But it’s also a little like complaining that sports aren’t as “good” as they were before free agency. The bargain of pure lockstep was a career where everyone gets theirs eventually. But with two economic freefalls in 12 years, it’s unreasonable to ask a partner sitting on substantial business to wait their turn. Maybe someday we’ll find a model that balances the benefits of lockstep with the realities of the free agency period in partner books.

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Time will tell, but maybe Davis Polk already has.

Elite Wall Street Firm Davis Polk Moves to Modified Lockstep Pay [Bloomberg Law]

HeadshotJoe Patrice is a senior editor at Above the Law and co-host of Thinking Like A Lawyer. Feel free to email any tips, questions, or comments. Follow him on Twitter if you’re interested in law, politics, and a healthy dose of college sports news. Joe also serves as a Managing Director at RPN Executive Search.

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