In a recent article entitled “Layoffs Threaten Law-Firm Partners,” The Wall Street Journal broke the startling news — irony intended — that “as firms grapple with continued lackluster demand for legal services, some are handing out pink slips” to unproductive partners. The article quoted one unnamed partner as saying, “you’re only as secure as the amount of money you bring in.”
Given the fact that many firms – big, little and in-between – had begun de-equitizing or even showing the door to unproductive partners well before the great economic downturn, this hardly qualifies as a late-breaking story. The WSJ story, moreover, seemed to suggest that the pink slip trend was primarily the result of partners’ decreasing personal billable hours: “The new round of [partner] cuts comes as productivity among the highest-paid tier of a firm’s lawyers remains stubbornly low, with some partners billing less than 1,300 hours a year, down from the prerecession industry benchmark of 1,900 hours.”
The Money-Making Matrix
The WSJ article misses the point that today productivity goes way beyond the time a partner personally bills (and the firm actually collects). We know of numerous firms who happily tolerate 1,100-1,200 annual billable hours from some of their big dogs in light of their $10+ million in originations or their roles as project executives managing practice groups or engagement teams that include scores of worker bees.
Any measure of partner productivity – particularly senior partners — must consider all the dimensions of their role as driving wheels in a complex economic engine that has a lot of moving parts. In truth, many consider the best measure of productivity to be leverage — a partner’s pivotal role in keeping a bunch of other billers busy and profitable. In addition to handling their own matters and practices, senior partners also must serve as a go-to cog in the money-making machine that requires the profitable utilization of associates, paralegals, of counsel lawyers and so-called service lawyers (i.e., the vanishing breed of legally-proficient practitioners who aren’t good rainmakers).
Slowdown or Change of Direction?
The WSJ article also suggests that partner career stability has become precarious primarily because of a post-recession “lackluster demand for legal services.” This implies that the traditional model of safe ‘n’ secure partner tenure might re-stabilize once the economy fully regains momentum. We can’t agree. We think “alternative demand” is a better description than “lackluster demand.” That is, we don’t believe the total amount of legal things that need to be done has shrunk. If anything, it is increasing in the face of the complexity of the global economy.
What is happening, at an escalating pace, is that clients are redirecting work, whether to internal teams or to external providers – including non-lawyers and other non-law firm vendors – that can deliver work more efficiently and cost-effectively. This means that many senior partners can expect to see a continuing erosion of business and client loyalty, not a return to the “luster” of yore, where clients fell obediently into line, there was plenty of scut-work to rain down on associates and paralegals, and up-and-coming lawyers politely waited their turn at the feeding trough.
Scarce Food, Altered Incentives
Law’s “New Normal” really has changed traditional partner career expectations. The time-honored “complacency model” in which equity partners were assured a lifelong slice of the profits was viable only as long as there were ample amounts of pie to slice. Peak performance was not required in an environment of copious clients, inexhaustible legal work and unprotested annual rate increases.
Productivity was not required at all career stages in a profession that historically cut a lot of slack to fading performers whose earlier efforts contributed much to firm growth and success.
The Young and the Hungry
The successor generation of partners is sending signals that it will not accept a model that compensates past contributions rather than current economic traction. In many cases, they’re the ones who are pushing for those pink slips, or at least are happy to see the firm weed out dead and dying wood at top compensation levels. They themselves are years away from being much concerned about lifelong partnership. For them, the future is now, and they can hardly wait for boomer partners to exit the stage and transfer the keys to the treasury. They are perfectly comfortable with the idea of law firms pushing out low-productivity partners who will not step aside on their own initiative.