Reprinted with the permission of The American Lawyer (Copyright 2013 )
In the wake of Dewey & LeBoeuf’s collapse last year, The American Lawyer published an article we had written about an issue that turned out be a major contributing cause of that implosion: the wide compensation spreads within the equity partnership of large law firms. With the release earlier this year of regular Am Law Daily contributor Steven J. Harper's book, The Lawyer Bubble, and a recent American Lawyer survey that detailed the compensation spreads at many large firms, the issue has gained even greater attention.
Let’s cut to the core of what’s potentially problematic about these widening spreads. Not only must a compensation system be presented and perceived as fair, a firm leader must ensure that it is as fair as can be reasonably expected, consistent with that firm’s unique culture. Any system that is patently unfair, irrespective of firm culture, is one that asks, indeed demands, that those within the firm embrace it. There will be examples where that is the case, either because partners and associates sign on to that expectation, or because they have no choice. But remember, the best talent with the best business in today’s market does have a choice. And it doesn’t always vote with its wallet.
Individual power is related to dependence in most law firms. Depend on a partner for his or her book of business, or even particular skills, especially if that expertise is rare, and that partner’s power rises. When any individual acquires influence disproportionately greater than that of other partners, he or she can become almost indispensable to the firm. In many cases the individual can demand special perks or preferential compensation, or break rules others are expected to respect. It does not mean that the firm will cease to exist if this lawyer leaves, only that such a loss would create palpable financial pain for some period of time.
This is where the concept of flexibility enters the picture, and where expedient judgments may dictate that it is in a firm’s best interest to provide a special accommodation rather than risk or even initiate the departure of an influential partner. As a consequence, if, as a firm leader, you are giving certain individuals preferential treatment or looking the other way when star performers behave contrary to firm culture, you are fostering a double standard. Will resentment ferment among other partners, creating a dynamic capable of undermining the performance of the entire firm? It darn well should. Trading doing “what’s right” for “what’s expedient and convenient” is not a viable option for those in leadership positions, yet it seems to have become standard operating procedure at too many firms.
Your final decision as a firm leader comes down to weighing the value of developing a star culture versus the costs of doing so—and those costs are more than simply hard dollars. In our earlier American Lawyer article, we warned about how widening compensation spreads can inadvertently weaken practice groups, especially when collaboration is required; foster tension between peers alienating by near or future stars; and eventually induce mid-level partners to leave—an occurrence that can serve as a leading indicator of potential firm failure. Whether affirmatively adopting a star culture, or just allowing it to develop, there are other considerations for you to study.