Making equity post recession

November 21st, 2010 by Jim Cotterman

Making equity partner is like chasing a rising balloon.  Just when you think you have it in your grasp, it rises out of reach yet again. 

The last decade was largely about limiting entry to equity and growing the non-equity ranks (which by the way has its own set of perils).  And the recession put many highly skilled lawyers (technically and as advisors) at risk because they did not control enough business, or profitable business, or the right business in terms of strategic focus. 

The rising balloon issue is probably one of the most troublesome issues for non-equities.  They just don’t know what its going to take to make it into the equity ranks.  And many think they are performing better then some of the lesser performers already in those  ranks.  That suggests it’s harder to get in than to stay in (sort of like you need to defeat the champ to claim the title — ties allow the champ to retain the title).  Some of that is true, yet some is also explainable by periodic underperformance of an equity partner due to an extreme external factor or in the case of a retiring partner winding down.

The primary distinguishing characteristic of equity partnership is having a client following that aligns with the firm’s desired client segment in a quantity sufficient to at least sustain ones own production.  It’s even better to have good prospects of building that client following to sustain the firm’s leverage model.  Next is a willingness and ability to incur income and capital risk, including possible claims from personal guarantees on loans and office leases.  And finally the drive to become a marquee player in the market.  This last characteristic is what really makes the first one possible.

Given that some associates have self-selected out of equity consideration because of the time required to reach marquee level, it is not hard to understand how much more difficult it is if you approach this as a part-time practitioner.  Some mitigation can be achieved through effectiveness and efficiency, but generally the investment of time and effort is simply a prerequisite.  There are a few exceptions, but those involve unique situations that should not be counted on as a means to the end.

I believe the same could be said for earning potential.  Compensation closely tracks the volume of legal fees and profitability of your book of business.  Grow one and you grow the other.  There is movement to reward for other factors and those other factors are extremely important.  AFAs and Legal Project Management will alter this dynamic somewhat.  Leading diverse teams efficiently will take on greater significance.  And those diverse teams may include outsourced resources.  But the underlying driver of compensation is still a large, profitable client following.

Can someone become or sustain equity partnership as a part/flex time partner?  Yes, but it takes a significant commitment - by the individual, the firm and the clients - to flexibility, cooperation and collaboration to make it work.  Technology is a great facilitator of this,  and it is likely to do so even more in the future.  So anyone considering this path better be technology proficient and receptive to rapid change.

This entry was posted on Sunday, November 21st, 2010 at 1:47 pm and is filed under Legal Profession, 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.

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