Some Thoughts on Origination
July 10th, 2009 by Jim Cotterman
Measuring the source of new work for purposes of remuneration decisions continues to challenge law firms. Clearly when a partner or team of partners bring a new client to the firm there is measurable origination. And there is at least implied agreement that origination should be shared when multiple individuals hold meaningful relationships within a client organization and those relationships draw work to the firm. I say ‘implied’ because there is very little sharing taking place — it appears that fewer then one-quarter of the clients in law firms are shared for origination purposes; with a sizable portion of firms not sharing at all (Compensation Systems in Private Law Firms, 2009). Now one might say that only the largest clients at large law firms may present realistic opportunities for multiple relationships. And we can see from surveys, larger firms, which have correspondingly larger clients, exhibit a greater degree of sharing. Still this issue of getting lawyers to sell and service clients collectively challenges leadership. It is a critical issue in succession programs, as well as for remuneration. Even if clients are not large enough to support multiple relationship partners, some thought should be given to creating a team that will ensure relationship continuity over time.
When tracked, small law firms are least likely to reallocate origination. Large law firms, while more likely to reallocate origination credits, engage in individual partner negotiation as the primary method to determine when and how origination will be adjusted. Large firms are also more likely to focus on the current client relationships when discussing origination reallocation. Many firms do not track origination because of the fear that a corrosive internal competition will result. This does not mean that those firms do not consider this contribution when making compensation decisions. Origination reigns supreme as the most critical partner compensation factor. This metric, more then any other, determines whether a lawyer becomes – and remains - an equity owner in a law firm. And it may well be a determining factor in when and how lawyers exit the firm in their senior years. So not tracking origination says more about culture and operating philosophy then it does about its importance.
Unfortunately, tracking origination is very much like trying to maintain a mailing list. You work hard to keep it updated only to find it is 30% wrong whenever you go to use it. Such it is with the tracking methods for origination. Going to matter level tracking aids is a more current and hopefully realistic tracking method. If done well it can provide real-time assessments specific to each matter and should reflect evolving relationships over time. The best origination records still require compensation decision makers to make inquiries of practice leaders and other partners so that informed adjustments can be made.
Getting this wrong can cause all kinds of havoc. Example, Partner Paula is not given recognition for origination of a $1.5 million portfolio of a $5 million client where she has worked hard to build a trusted advisor relationship with the business unit CEO. She leaves her firm and takes $1 million of work with her. Clearly she was off in her estimate of $1.5 million, but the firm was also off in not recognizing the possibility of the $1 million. The new firm recognizes the $1 million as Paula’s origination. This scenario plays out in firm after firm, year after year. This is why leaders in many firms are constantly reinforcing organization and team values. It is also why the compensation decision makers work hard to get behind the numbers to understand, as well as anyone can, how work gets to the firm.
This entry was posted on Friday, July 10th, 2009 at 4:07 am and is filed under Partner compensation. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.