Tuesday, 14 September 2010

Tough Times for Equity Partners

Perhaps the title should read "A tough time to try to become an equity partner" which, although more accurate is less snappy.

It would appear from the statistics and results being released that there are fewer equity partners in law firms that in previous years. Firms (or rather existing equity partners) have protected their own earnings and the PEP figures (which they seem so fond of) by the simple expedient of either not increasing their partner numbers or by actively reducing them. Five years ago, perhaps, an equity partner would be 'carried' to an extent by his colleagues - for a while at least. Not now. The principle now seems to be 'perform or out'.

Only one major firm (as reported in "The Lawyer") has increased its ratio of equity partners over the last five years - although that figure is skewed by the partner activity over the last 12 - 18 months. Field Fisher Waterhouse, for example, have reduced their equity partners (that is, full. "A" level partners) from 41 to 27, according to "The Lawyer".

So what? Should we care? Only to the extent that it is another demonstration of the ruthlessness of the industry. In a way it is nice to see that this ruthlessness is applied to fellow equity partners as well as to employees. No-one would appear to be safe.

More seriously, however, this could be (some firms will, of course, have given the matter more thought than others) a further example of short-term thinking. Presumably those partners who no longer have equity in a firm will fell a little miffed. I suspect that it is, therefore, unlikely that they will continue for any length of time in that firm. Of course, this might not be a problem, if the partner really wasn't performing. I doubt, however, that this can be the case with all of them (surely?).

The other serious issue is that of motivating about-to-become-equity-partner level staff. Most lawyers only have one promotion path in mind - that of making partner. This progression has suddenly become more difficult and so firms will need to become ingenious in motivating the people before whom they used to dangle an equity partnership.

It will be interesting to see movement in this market over the next few months - and the clever ways in which firms work with their good senior associates or fixed share partners in order to keep them.

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