10 Proven Strategies To Effectively Implement the Two-tier Partner Structure

This article describes 10 proven strategies that we have recommended to clients to effectively implement the two-tier partner structure.

Partners in a great many law firms have recognized the value of creating a two-tier partnership structure ' as opposed to the “up or out” alternative ' for dealing with those long-tenured associates the firm has invested a lot of money in developing, yet do not satisfy all of the objective and subjective criteria to become equity partners.

During recent consulting assignments with mid-size and larger law firms, managing partners who are keenly aware of the need to develop more effective methods to integrate non-equity partners into their firm's career development program have expressed some frustration with the less than effective implementation of the two-tier partner system in their firms.

To quote one managing partner: “It is one thing to attract and spend a lot of time and money training high-quality associates and progress them to non-equity partner status, but it is more challenging to integrate them into the firm to enable them to feel as though they are more than 'higher paid associates.'”

By the time an attorney becomes eligible to progress to non-equity partner status, a law firm has invested heavily in time and money to train them. Non-equity partners should be among the most profitable attorneys in the firm. They have experience and the partners should assign work to them and expect high quality work product with minimal oversight and direction. Further, they should be capable of supervising younger attorneys and managing/coordinating certain non-billable matters for the firm.

Problems Reported by'Non-equity Partners

Below is a composite of the key perceptions that were offered to the author by non-equity partners about their firm and its equity partners during recent consulting assignments. During personal and confidential interviews, a majority of the non-equities said that:

• Equity partners were excellent lawyers and basically “good people,” except for the fact that they did not know how to supervise and develop attorneys.
• They would like to become equity partners in the firm, if only the current equity partners could “get their acts together.”
• The equity partners were not nearly as interested in the professional development of the non-equities as they claimed to be. They (equity partners) were more interested in the non-equities billable hours and collected billable hours.
• During pre-employment interviews, equity partners misrepresented the type of personal and professional development the non-equities would receive.
• The non-equities did not feel as though they were an integral part of the “team” serving the firm's clients, i.e., they were told only what they had to know to complete the assigned work, rather than being told the rationale for the assignment and the broader scope of the client project.
• The non-equities were among the last to know what the firm's plans were. One common complaint echoing these concerns was that the secretaries knew more about what was happening at the firm than they did.
• The non-equities were not making adequate contributions towards satisfying the client's objectives.
• A considerable amount of the work assigned to the non-equities did not provide appropriate intellectual and personal challenges.
• The more experienced non-equities were not given sufficient independence and responsibility for their work and were instead micro-managed by equity partners.
• Equity partners failed to provide open and honest communications and constructive feedback about the non-equities' work.
• The non-equities were not given adequate opportunities to develop and use their skills and talents in areas in which they excelled.
• The equity partners talked about opportunities for partnership, but were unwilling to discuss the criteria for making equity partner or the length of the equity partner track that was likely applicable to the non-equities.

Strategies to Enhance the Integration Process

Following is a list of proven strategies that we have recommended to our clients to enhance the integration of the non-equity partners into their firms. Equity partners should:

1. Conduct personal meetings with the non-equity partners to determine:

• To what extent do the non-equities perceive (the firm's) stated values about “open communications, and concern for quality of life and professional development” as an accurate representation about how associates are treated, professionally and personally?
• Whether the non-equities believe their opportunities for advancement, professionally, personally and financially, are better than, less than, or about the same as opportunities available to their peers for performing similar kinds of work by other law firms and corporations.
• Whether the non-equities believe their “total” compensation (cash and benefits) is better than, less than, or about the same as the “average” total compensation paid to their peers, for performing similar kinds of work, and demands on their time, by other law firms and corporations?
• Whether the non-equities believe that the equity partners' demands about their billable time and expectations of their total time commitment is reasonable when compared to other law practices performing similar kinds of work in private firms and corporations?
• Whether the non-equities perceive the present methods followed by some equity partners for assigning work as being conducive to providing to them “stable, diverse and challenging workloads?”

2. Allow for individual differences among the non-equities while ensuring that such differences do not interfere with collaboration at the firm.

3. Strive to work with the non-equities to gain an understanding of what professional and personal objectives the latter want to achieve, and how the firm can assist the non-equities achieve their objectives while ensuring that such differences do not interfere with collaboration at the firm.

4. Make the non-equities' professional and personal development a high priority. The lines of communication between the equity partners and the non-equities have to be open, reasonable and candid. For example, equity partners should invite the non-equities to attend many of the equity partners' meetings and retreats. When the equity partners intend to discuss issues that should not be heard by the non-equities, the latter should be excused from the meeting.

5. Reassess the firm's non-equity partner career development program and decide which programs are working, which ones need to be tweaked, and which ones may require major surgery.

6. Develop objective and subjective criteria to evaluate the non-equities' professional performance and personal characteristics, so that the equity partners may offer constructive recommendations concerning their performance and career development.

7. Designate one equity partner to head a committee of equity and non-equity partners to develop a coherent approach for the professional and personal development of the non-equities, including developing strategies to address the non-equities' concern, including enhancing the quality and frequency of communications.

8. Recognize that the individual lawyers' effectiveness can be an insurmountable mode of ensuring excellence. A well-timed “great job” for a good performance is a much more effective motivator than a kick in the pants when things go poorly.

9. Make it clear that, while individually, the non-equities have free rein to excel, collectively they are the keepers of the firm's future. The firm will grow if it permits its non-equities to perform for their individual benefit and for the firm. Therefore, the equity partners must provide an environment in which both the equities and non-equities will thrive.

10. After the equity partners agree to the above, integrate the program outlined above into the firm's career development program and present at separate meetings to the non-equity partners as well as to the associates.

Conclusion

In the current and foreseeable practice environment, law firms are unable to continue to admit as many equity partners and not dilute the earnings of current partners. Therefore, to continue to attract, motivate and retain experienced associates and recent law school graduates, law firms have had to create alternative approaches to develop, retain and promote associates in a relatively slow growth environment, while preserving the relative income levels of current partners.

By implementing the above strategies in an appropriate manner, law firms will be able to continue to attract and retain high quality associates, offer to those deserving associates who satisfy the criteria the opportunity to progress to equity partner status and provide a career path for those associates in whom the firm has invested time and money but who do not satisfy all of the criteria to become equity partner.

Joel A. Rose, a member of this newsletter's Board of Editors, is a certified management consultant and president of Joel A. Rose & Associates, Inc., Management Consultants to Law Offices (www.joelarose.com), in Cherry Hill, NJ. He has extensive experience consulting with private law firms, and performs and directs consulting assignments in law firm management and organization, strategic and financial planning, lawyer compensation, mergers and acquisitions, and legal services marketing. He also plans and conducts retreats, and has special expertise resolving problems within firms. Rose may be contacted at 856-427-0050 and [email protected].

This article describes 10 proven strategies that we have recommended to clients to effectively implement the two-tier partner structure.

Partners in a great many law firms have recognized the value of creating a two-tier partnership structure ' as opposed to the “up or out” alternative ' for dealing with those long-tenured associates the firm has invested a lot of money in developing, yet do not satisfy all of the objective and subjective criteria to become equity partners.

During recent consulting assignments with mid-size and larger law firms, managing partners who are keenly aware of the need to develop more effective methods to integrate non-equity partners into their firm's career development program have expressed some frustration with the less than effective implementation of the two-tier partner system in their firms.

To quote one managing partner: “It is one thing to attract and spend a lot of time and money training high-quality associates and progress them to non-equity partner status, but it is more challenging to integrate them into the firm to enable them to feel as though they are more than 'higher paid associates.'”

By the time an attorney becomes eligible to progress to non-equity partner status, a law firm has invested heavily in time and money to train them. Non-equity partners should be among the most profitable attorneys in the firm. They have experience and the partners should assign work to them and expect high quality work product with minimal oversight and direction. Further, they should be capable of supervising younger attorneys and managing/coordinating certain non-billable matters for the firm.

Problems Reported by'Non-equity Partners

Below is a composite of the key perceptions that were offered to the author by non-equity partners about their firm and its equity partners during recent consulting assignments. During personal and confidential interviews, a majority of the non-equities said that:

• Equity partners were excellent lawyers and basically “good people,” except for the fact that they did not know how to supervise and develop attorneys.
• They would like to become equity partners in the firm, if only the current equity partners could “get their acts together.”
• The equity partners were not nearly as interested in the professional development of the non-equities as they claimed to be. They (equity partners) were more interested in the non-equities billable hours and collected billable hours.
• During pre-employment interviews, equity partners misrepresented the type of personal and professional development the non-equities would receive.
• The non-equities did not feel as though they were an integral part of the “team” serving the firm's clients, i.e., they were told only what they had to know to complete the assigned work, rather than being told the rationale for the assignment and the broader scope of the client project.
• The non-equities were among the last to know what the firm's plans were. One common complaint echoing these concerns was that the secretaries knew more about what was happening at the firm than they did.
• The non-equities were not making adequate contributions towards satisfying the client's objectives.
• A considerable amount of the work assigned to the non-equities did not provide appropriate intellectual and personal challenges.
• The more experienced non-equities were not given sufficient independence and responsibility for their work and were instead micro-managed by equity partners.
• Equity partners failed to provide open and honest communications and constructive feedback about the non-equities' work.
• The non-equities were not given adequate opportunities to develop and use their skills and talents in areas in which they excelled.
• The equity partners talked about opportunities for partnership, but were unwilling to discuss the criteria for making equity partner or the length of the equity partner track that was likely applicable to the non-equities.

Strategies to Enhance the Integration Process

Following is a list of proven strategies that we have recommended to our clients to enhance the integration of the non-equity partners into their firms. Equity partners should:

1. Conduct personal meetings with the non-equity partners to determine:

• To what extent do the non-equities perceive (the firm's) stated values about “open communications, and concern for quality of life and professional development” as an accurate representation about how associates are treated, professionally and personally?
• Whether the non-equities believe their opportunities for advancement, professionally, personally and financially, are better than, less than, or about the same as opportunities available to their peers for performing similar kinds of work by other law firms and corporations.
• Whether the non-equities believe their “total” compensation (cash and benefits) is better than, less than, or about the same as the “average” total compensation paid to their peers, for performing similar kinds of work, and demands on their time, by other law firms and corporations?
• Whether the non-equities believe that the equity partners' demands about their billable time and expectations of their total time commitment is reasonable when compared to other law practices performing similar kinds of work in private firms and corporations?
• Whether the non-equities perceive the present methods followed by some equity partners for assigning work as being conducive to providing to them “stable, diverse and challenging workloads?”

2. Allow for individual differences among the non-equities while ensuring that such differences do not interfere with collaboration at the firm.

3. Strive to work with the non-equities to gain an understanding of what professional and personal objectives the latter want to achieve, and how the firm can assist the non-equities achieve their objectives while ensuring that such differences do not interfere with collaboration at the firm.

4. Make the non-equities' professional and personal development a high priority. The lines of communication between the equity partners and the non-equities have to be open, reasonable and candid. For example, equity partners should invite the non-equities to attend many of the equity partners' meetings and retreats. When the equity partners intend to discuss issues that should not be heard by the non-equities, the latter should be excused from the meeting.

5. Reassess the firm's non-equity partner career development program and decide which programs are working, which ones need to be tweaked, and which ones may require major surgery.

6. Develop objective and subjective criteria to evaluate the non-equities' professional performance and personal characteristics, so that the equity partners may offer constructive recommendations concerning their performance and career development.

7. Designate one equity partner to head a committee of equity and non-equity partners to develop a coherent approach for the professional and personal development of the non-equities, including developing strategies to address the non-equities' concern, including enhancing the quality and frequency of communications.

8. Recognize that the individual lawyers' effectiveness can be an insurmountable mode of ensuring excellence. A well-timed “great job” for a good performance is a much more effective motivator than a kick in the pants when things go poorly.

9. Make it clear that, while individually, the non-equities have free rein to excel, collectively they are the keepers of the firm's future. The firm will grow if it permits its non-equities to perform for their individual benefit and for the firm. Therefore, the equity partners must provide an environment in which both the equities and non-equities will thrive.

10. After the equity partners agree to the above, integrate the program outlined above into the firm's career development program and present at separate meetings to the non-equity partners as well as to the associates.

Conclusion

In the current and foreseeable practice environment, law firms are unable to continue to admit as many equity partners and not dilute the earnings of current partners. Therefore, to continue to attract, motivate and retain experienced associates and recent law school graduates, law firms have had to create alternative approaches to develop, retain and promote associates in a relatively slow growth environment, while preserving the relative income levels of current partners.

By implementing the above strategies in an appropriate manner, law firms will be able to continue to attract and retain high quality associates, offer to those deserving associates who satisfy the criteria the opportunity to progress to equity partner status and provide a career path for those associates in whom the firm has invested time and money but who do not satisfy all of the criteria to become equity partner.

Joel A. Rose, a member of this newsletter's Board of Editors, is a certified management consultant and president of Joel A. Rose & Associates, Inc., Management Consultants to Law Offices (www.joelarose.com), in Cherry Hill, NJ. He has extensive experience consulting with private law firms, and performs and directs consulting assignments in law firm management and organization, strategic and financial planning, lawyer compensation, mergers and acquisitions, and legal services marketing. He also plans and conducts retreats, and has special expertise resolving problems within firms. Rose may be contacted at 856-427-0050 and [email protected].