WHAT NEW PARTNERS NEED TO KNOW

By Phyllis Weiss Haserot

Partnership in a law firm, until recent years, was the clear and unquestioned goal of almost all lawyers who entered non-solo private practice. Now life is much more complicated, in-house positions in corporations have become equally or more attractive, and more and more attorneys are questioning the culture and strains of law firm life as the optimum place to spend their most productive years. For the majority of associates and young partners in firms, however, the concept of partnership is still the brass ring. Unfortunately, most are not prepared for the changes to their economic and psychological life, and indeed, their daily lives at work, not to mention the continued and often increasing stresses on their personal lives. We know that firms can do a much better job of preparing their next generation of owners, producers and managers.

Unintended Consequences

Interviews with senior associates and individuals in their first or second year of partnership (particularly equity partnership) frequently face a number of surprises, even shocks, when they enter their new, long desired status. In most firms, especially in most of the large and mid-sized firms, they are not told by management or the more senior partners what to expect, financially and psychologically, as to monetary and time commitments, stress, and the internal politics they will have to navigate in order to succeed at the firm. Some of the results we've observed are conflicts between new and existing partners, reduced productivity, taking a longer time to fulfill their spectrum of responsibilities, and serious questions about their future satisfaction at the firm. From the firm's side, whether explicitly acknowledged or not, these are more than soft "human capital" issues. They are hard profitability issues.

A brief run-down of the unexpected consequences of partnership today reported in our experience and in a March 1998 article by D.M. Osborne in The American Lawyer : Serious individual cash flow problems; lack of anticipation of the expenses they have to assume personally; changed perceptions and disillusionment with many partners (their insecurity, lack of cohesiveness, and extreme self-interestedness); competition with partners they had worked collaboratively with for years; the need to work even harder than as an associate (when they thought they were already working all out); time robbed by administrative duties; the stresses, ill-preparation and time consumption from billable hours attributed to business generation responsibilities; the need for greater dedication to client service.

On the other hand, if understood and handled well, partnership has benefits beyond the potential for large compensation increases and status. Partners can enjoy more flexibility and control over their professional and personal lives and act to make their firms better working environments and more responsive to the needs of clients - the ultimate determinant of business success. These benefits are most likely to be experienced for the long-term in firms where associates and new partners are enlightened about the business of practicing law in general, and the specifics of the particular brand of culture and governance of their firm.

Firms spend years - and large investments in both time and money - identifying, developing and selecting new partners. Somehow, the attention level tends to drop after partners are selected. (Even aggressively pursued laterals are too often neglected after the initial rush of excitement and publicity.) The sooner new and prospective partners (those desirable senior associates whom the firm is really eager to keep) understand financial and interpersonal issues, the smoother will be the transition from associate to partner. And the sooner they will be performing at the productivity level the firm seeks and expects.

New partners need to be better prepared as to what to expect in four categories:

We have spent so many words on the problems because we don't think that they are widely enough recognized and acknowledged. What strategies and tactics are needed to transform associates into stronger partners for both their own benefit and the benefit of the firm?

Sharing Information

Firms can give new and prospective partners the information they need by: holding informational briefings; encouraging them to ask questions (rather than discouraging questions and straight answer responses); reviewing appropriate information during performance evaluations; and generally fostering an environment of openness.

Ideally, the informational briefings should be held in the senior associate years rather than waiting until the new partners have plunged into their new roles with uncertainties and unanswered questions about expectations. However, if that has already occurred, the educational process should begin now. In fact, we believe it should be viewed as part of law firm continuing education.

Depending on the size of the firm, the briefings and discussions can be done in a group format or on an individual basis. They may be conducted by members of firm management and specialists within the firm. In many cases, however, management is not comfortable and prepared to deal with the sensitive and complex issues and may find it difficult to be as objective as necessary. In those instances, outside experts in law firm business development, financial matters, organizational development and conflict resolution can be valuable as educators, coaches and resolvers of conflict. They should act as a bridge and intermediary between management and the new or prospective partners to clarify and help implement plans and policies. This must be done, or course, with the full cooperation of management and inside specialists in administration, legal personnel and marketing.

Four Big Issues

Here are some of the specific issues and questions to deal with, custom-tailored, of course, to your particular firm.

As to other firm governance roles, new partners need to get a clear idea of the pluses and minuses to their careers and compensation of taking on other necessary firm responsibilities regarding administrative functions, recruiting, training and mentoring.

"Income" or "contract" partners also must learn what may be in store for them if they become owners. All legal personnel, even fairly junior associates, must be educated about the economic realities of today's and tomorrow's law firm business and how it must operate in order to survive and thrive.

From a financial perspective, a new partner must adapt to a completely different cash flow existence. Instead of receiving a salary at regular intervals from which income and social security taxes have been withheld and paid, the new partners must adapt to paying their own income and social security taxes out of the cash distributions received from the firm. Often, these distributions are irregular, with distributions deferred to the end of the firm's fiscal year. In this situation, the new partners must either provide for borrowing money to live until the year end distribution or modify their life style until the first year end.

It always comes as a shock to new partners that they must pay both the employers and employees portion of the social security and Medicare taxes. In addition, as partners, they are often required to contribute their own money to the firm's retirement plan in lieu of the firm making a contribution on their behalf. When the requirement for a capital contribution is added, the new partner often feels cash poorer than when he or she was an associate.

The issues and problems mentioned above occur to a greater or lesser extent at almost all firms with more than 10 lawyers (and sometimes in smaller ones). As stated earlier, they cannot be dismissed as "touchy-feely" issues that are not worth the time of smart, busy lawyers. They are profitability issues that can be resolved by sharing more information early on and making a serious attempt using the required resources to address tensions that get in the way of hard-working, high achieving partnerships. A firm's new and perspective partners have been training for their new positions for six to ten years. How foolish to fail to train the future owners of the firm in the changes to their financial and inter-personal lives.

© Phyllis Weiss Haserot, 1999

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Published in The New York Law Journal, March 2, 1999.