The figures for law firms' year-end earnings are coming in. The Magic Circle firms are breaking through the £1 million PEP barrier as Clifford Chance has broadcast. These results coincide with two other sets of results. First, trainees and first year associates are getting vastly increased raises for stipends and salaries. Second, equity partnerships are on the decline and have been for a number of years, while salaried partnerships and permanent associateships are on the increase.
So who exactly is sharing in these "spectacular" PEP results, as The Lawyer defines it? And, more importantly, how are these rare specimens--equity partners--being selected?
In situations like these it's worth going back back to first principles. Law firms are essentially flat institutions, but we can take a tripartite view which looks at lawyers in a firm as "finders, minders, grinders". Finders bring in the clients; minders look after them and supervise the work; and grinders do the grunt work."
But since law firms really only consist of partners and associates, these categories overlap. Associates are grinders and minders and partners are minders and finders. These days with the rise of transactional work the role of the finder is king. Work and clients is potentially fickle. Institutional clients always, or nearly always, obtain two quotations for a job. This can be fudged to ensure that the "desired" lawyer gets the transaction.
Finders have to focus on marketing and raising the profile of the firm to make clients want to keep instructing the firm. The lawyer therefore rather than the firm is the key to making this work. Some Magic Circle firms can rely on their brands to attract work, but that's no longer a shoo-in. The recent defection of partners from them to big US law firms demonstrates the brand isn't inviolable, especially when these lawyers take their clients with them to their new firms.
For the second tier and beyond of corporate law firms, where the brand is at best inchoate, the rainmaker is crucial to bringing in the work. And the expected result would be that finders would be rewarded and given equity partnerships above others. This is especially the case in firms that operate an "eat what you kill" form of remuneration over "lockstep" (managed or otherwise).
Merit will dominate and win. Well, maybe. It depends on who has been able to weasel their way into the management positions in the firm where partnership decisions can be influenced. It is the case apart from the founders and those who have been around for a very long time that minders have that spare time to take on the management roles. Finders are too busy. Emmanuel Lazega's ethnography of a northeastern US law firm illustrates these tensions quite well.
The upshot is that minders can be wary of finders because they represent that which they are not, or likely to become. They're a threat. Who better then to see promoted to equity partner than another minder who can be assured not to propose anything too radical. When this happens we see the exodus begin. Look, for example, at the numbers of lawyers who have left Allen & Overy. It becomes a race to the bottom, for once finders and potential finders suspect themselves of being sidelined, or not being given the resources they need, they will move elsewhere and, of course, take their clients with them.
I imagine in the last analysis, what I am describing might take place at the margins. We are seeing graphic examples of law firms being ruthless. Freshfields has de-equitized 100 partners (from 520 to 420), which means they were fired for not being productive. Mayer Brown has demoted or fired 10% of its partners (see Legal Marketing Blog) and there was the classic rout by Sidley Austin a couple of years ago. (According to the 7th Circuit Court of Appeals, these partners were employees [?])
Law firms must have and maintain the capacity to examine themselves ruthlessly and critically. The days of the cosy partnership with long lunches and a lifelong marriage disappeared a long time ago.