Friday, November 15, 2013

New ALM Legal Intelligence Report: Law Firm Partnership "Ain't What it Used to Be"

It is hard to believe that less that 20 years ago law firm partners followed a relatively safe and dignified trajectory from junior partner through retirement.. American Lawyer Media released a report this week: “Up or Out: When Partners Need to Go."  which paints a grim and unsettling landscape of  partner termination practices in large law firms. The survey was commissioned by SJL Shannon and conducted  by ALM Legal Intelligence in the summer of 2013 .

Since the Start of the Great Recession law firms have had limited ability to raise rates, face pressure to offer discounts and alternative fees and have already cuts staff and expenses to the bone. The vulnerability of firms is further intensified by the fixed pool of clients. The only way to grow business is to poach clients from other firms. This is often accomplished though the hiring of lateral partners.
 

Lateral Partners: Failing Early and Often. Senior Fellow  James  Jones from Georgetown Center for the Study of the Legal Profession is  quoted as stating that lateral hires have only a 50% chance of succeeding. Many law firms recruit partners without first determining how they fit in the firm strategy or defining the metrics by which the new partner will be measured. The processes for communicating a failed lateral match to the partner is the most depressing piece of this somber report,

The report suggests that a new round of partner cuts is the next strategy for improving the balance sheet. The only positive news in the report is that terminated partners reported that they  found new positions within 2 to 4 months. Most didn’t face reduced compensation and were able to retain their clients through the move.

Key Points

•    53% of the departing partners have been at the firm less than 6 years
•    Law firms and partners provide contradictory explanations for partner departure. 55% of law firms reported that departures were voluntary vs. 93% of partners reported that they left voluntarily.
•    The top reason for partner “lay offs” were due to :the inability to develop and cultivate new clients or sustain a book of business.
•    77% of partners report that they learned about their performance issues for the first time on the day they were terminated.
•    Only one in ten partners received outplacement assistance
•    Lateral partners are left to fend for themselves with out guidance, feedback or an integration strategy.
•    44% of terminations are not communicated by law firm leaders such as Executive committee or Practice Group leaders.
                                                                                                    
Lateral Partners Fail Early and Often One of the most stunning aspects of the report is the revelation that  from a human resources perspective, partners  are treated worse than the average  law firm file clerk. I think it is safe to say that no Amlaw 200 firm would dream of terminating a staff member without a well documented performance plan and a series of formal warnings. Some law firms are reported to rely on passive aggressive activities such as cutting pay  and with-holding support rather than having an honest conversation.

Recommendations
Develop Strategic Hiring Plans Law firms need to develop framework to align hiring with  overall firm strategy and develop time lines and metrics to guide performance and communication with lateral partners.

Fix the Exit Process. Firms need to treat exiting partners like valued alumni who become part of the firms referral network. Mishandled terminations hurt the films reputation as well as internal morale.

Firms Better Act Quickly
 Earlier this week ALM Daily reported on the recent Wells Fargo and Citiback Law Firm financial surveys:

 "The underproductivity is largely centered in the partner level of all the law firms," says Jeff Grossman, of Wells Fargo, who notes that associates are logging many more hours than partners. "It continues to be one of the biggest challenges law firms are facing. ... Not enough partners are being asked to leave...."




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