In the past few weeks, I have enjoyed stimulating discussions with several Walker Clark clients about whether their law firms should have non-equity partners.
This subject leads to one basic question that has profound implications for many law firms today:
Should we have partners at all?
The question is not whether to have non-equity partners. (As will be explained in an upcoming WorldView article, the answer is "It depends.")
Instead, it is whether the legal profession has outgrown the concepts of partners and partnerships.
Relatively few law firms in the world are structured as true business partnerships. This is a corporate structure from which most service-sector businesses, including law firms, migrated decades ago. Even fewer firms structured as partnerships actually function like partnerships in the traditional sense.
Nonetheless, the legal profession in many jurisdictions has retained some of the worst features of the partnership structure. Especially in the past five years, managing partners have increasingly told me that their partnership structures more frequently complicate, rather than facilitate, the efficient making and implementing of business decisions in their firms. Today, law firms remain one of the very few remaining enterprises -- except perhaps "mom and pop" businesses and sole proprietorships -- in which the owners of the business are also expected to:
- administer it
- market it
- lead and manage teams of its workers, and
- prepare and deliver its products and services to customers.
These burdens feel much heavier in small law firms, where they are carried on fewer shoulders; but they also can weigh down the management of larger firms.
As clients have become more sophisticated in their needs and expectations for legal services, they also have become more skeptical about traditional law firm structures and processes that appear to them to add cost but not value. Our profession's clinging to the 18th-century concept of a professional services business owned, operated, managed, and marketed by law firm "partners" might now be a serious vulnerability in the 21st century, increasing irrelevant to clients' priorities and financially disadvantageous to law firms.1
This is not to suggest that law firms should completely jettison their traditional notions of partners and partnership. However, it might be time for law firms to begin to consider whether more modern corporate structures might produce better business decisions, most cost-effective client services, and better long-term financial performance, while -- and this is very important -- preserving the truly differentiating ethical and professional values that make the practice of law unique.
1. In my introduction to Good Governance in Law Firms, I observed:
The traditional governance and management structures that still exist, to some extent, in most law firms around the world are often significant obstacles to running a business entity that delivers highly skilled professional services profitably and at a reasonable cost. In the majority of law firms, the owners are also expected to play significant, time-consuming, hands-on roles in managing the business, selling the firm's services and supervising their delivery, producing the largest portion of the revenue, and -- one must not forget -- they must also find time to practise law. The emergence in some jurisdictions of alternative business structures for law firms, along with the continuing frustrations of trying to make the traditional model work as a viable, cost-effective business structure in a modern business environment, suggest that the traditional law firm could become extinct in most parts of the world long before the end of this century.
Clark, ed., Good Governance in Law Firms: A Strategic Approach to Executive Decision Making and Management Structures (Globe Law and Business, 2014), p. 5. Click here for more information about this book and other titles in legal management from Globe Law and Business.
Click here to learn how Walker Clark can help your law firm make sure that your governance structures support, rather than inhibit, good decision-making and successful implementation.