A Partner Protection Plan

, The American Lawyer

   |5 Comments

Another Dewey lesson: as firms become more like corporations, the partner-shareholders may need the protections offered by an outside director or ombudsman. Plus, a second opinion on the subject.

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What's being said

  • Mike O'Horo

    I understand the benign neglect. The majority of partners spent their entire careers under the most beneficial circumstances in the history of business, i.e., 20 years of rising demand (and accompanying pricing power). If business magically appears at a sufficiently prodigious rate that you can constantly raise your price and compensation, what's there to worry about or fight about? Don't know where business comes from? Who cares; it comes, doesn't it? Partners had the luxury of practicing law and ignoring everything else: governance, management, finance, marketing, sales, etc. As far as anyone could see, it wasn't broke, and there was no need to pay attention to it, much less fix it. Now, it's definitely broken, badly, and in a few cases so far, fatally. There will be more. As the partners with the greatest personal demand vote with their feet to escape the BigLaw mess, forming elite boutiques to skim the cream off the market without the BigLaw overhead and politics, their former firms will get weaker and weaker with each departure. Each departure also makes it more acceptable and attractive for the next partner to exercise that option. It doesn't take long for this to become a run on the bank. (To the right of Eric's article you'll see a link to a story about K&L Gates/Womble Carlyle partners leaving to form such a boutique; that story cites several others.) BigLaw would be well served to recognize that they're now in a fix-it-or-lose-it situation.

  • When I was a recruiter, I was constantly amazed by the lack of interest in, or investigation of, law firm finances by partners moving to a new firm. Lateral partners, like the firm, get caught up in the excitement (or relief...) of the move, and seem to make the assumption that if the firm is still trading, financial management must be ok. Unfortunately, outside governance risks allowing partners to abdicate their responsibility still further, and does nothing to ensure the firm won't collapse due to the kind of cascade failure which occurred at Dewey (and other firms) when it was clear to enough partners that it wasn't going to get any better. *All* partners in *all* firms need to operate a policy of enlightened self-interest, making sure they can pay their way and making sure they know what's going on, rather than sticking their heads in the sand; "too busy" should never be an excuse for not getting a grip on your own career.

  • Angie

    I think what Dewey shows clearly is that a firm with a corporate structure is inherently unstable. It's entire asset base can get up and walk away, all at once, at any time . Lateral partners will never embed in firms because keeping hold of their books is the first priority. There is no point having a partnership at all, the potential liability is too great, and the loyalty too weak, to make it worthwhile. Other partners are not colleagues but competitors. There is little point to having partners at all, they are likely to be net-negative to a partner's bottom line. Transparent management is key for partnerships to work, and that remains true as BigLaw heads for stratospheric head counts. A partnership kept in the dark will act on rumor, preparing their exits quietly and en masse. Soon enough the dam breaks and they pour out the door, the death spiral is already unstoppable before the management even knows about it. At root, Dewey failed not because of debt or guarantees, but because the partners walked and no-one could stop the tide. The partners' actions were as opaque as the management's. That could happen in days to any firm. Partners must have transparent management and accurate financial information. The collegiate spirit of a partnership must be fostered, including by reining in the pay differentials within the partnership. Anything else is a ticking time bomb. The Dewey collapse was triggered by rumor and fear. Now that it has happened to one giant firm, every other mega-firm is at once substantially less stable. The fear is out there now, and it takes one, possibly false, rumor to trigger an unstoppable implosion.

  • Tax Guy

    Your article starts with the assumption that the firm is in fact, as well as in name, a partnership. We all know that in the vast majority of Biglaw firms the partnership is in name only. I have not been a partner at a Biglaw firm, but was a partner at an even more non-partnership partnership, Ernst & Young, a Big 4 accounting firm. As a partner you were entitled to know what the management committee decided to tell you and no more. The partnership agreement even forbade the partners from requesting a copy of the partnership tax return from the IRS! Don't actually want the "owners" to know how much you really make and how much you are paying partners. Only the management committee decided how much each partner made, and only the management committee knew what each partner made. If you had had the temerity to question anything you would have been summarily bounced out on your behind, since the partnership agreement also let the management committee fire any partner, for no cause whatsoever, at any time. So as bad as Biglaw is, there are places that are worse.

  • Patrick McKenna

    Aric, to your point, I recall one managing partner telling me: "One element I installed was the 'Consigliere' to the firm leader. Basically it was a process whereby any partner who had a question or challenge, was free to bring it up to my consigliere partner – a senior who was acknowledged for his embrace of the firm culture and values; someone that I had labored with for years, and whose judgment and fairness was well respected. Any partner had access to approach and in total confidence lay out his / her concerns if they were, for any reason, concerned about doing it directly to my face. My promise to the partners was that there was no issue or subject too sensitive or too toxic, and no excuse for not getting it to me. And no matter what, my pledge was that whatever I was doing, would be halted instantly and I would carefully go through with the consigliere whether the issues and concerns were not being weighted fully enough, or if they were game-changing in their nature, before proceeding. It only happened twice during my years of service, but it was worth having for the effect it had on the trust in my decisions and elimination of any fear or concern of my being or becoming an arbitrary or arrogant leader, as contrasted with servant and follower of the best interests of my partners."

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