Friday, December 12, 2008

Are Associates & Non-Equity Partners the New Black?

Legal practice consultant Ed Poll has a great new article up on JD Supra titled Do you still want to be a partner?

The question Ed poses, considering our uncertain economy, should we assume that becoming an equity partner in a law firm is still a wise decision? He then follows up with some interesting factors one would need to consider, quoted here:
  • "When your voice may be so small in a large firm as to have no influence over the direction of the firm?
  • When the "buy-in" to the partnership is at a value asserted by that partnership rather than by an independent study?
  • When the sale of your interest could be only under very restricted terms and at a value determined by a formula different than the formula used for the "buyin" and only back to the partnership, not to a third party (even if a lawyer)?
  • When your income percentage will be determined by a "compensation committee" in which you have little or no voice?"
We often read about the market pressures on legal partnerships, and how the current economic fallout should influence the decision to admit Associates into partnership. But as Ed points out, this is a negotiation between two parties, and the answer might not be an automatic 'yes' on the other side.

With regard to pricing, if the legal industry's PPP numbers don't drop this coming year, I'll be very surprised (and suspicious they are indeed being gamed). However, if and when they do drop, you'd have to think buyin price would drop also. Yes? And also wonder... Are partnerships, big and small, being overvalued? ... all very interesting, to say the least.

The use of non-equity partners is another trend that's been on the upswing for a while now. But again, has largely been written about (and dictated) by the Firm perspective. For example, this post which cites Bruce MacEwan on Non-Equity partners effect on profitablity.

So the question on my mind, is how plausible it is, that this trend might become reversed? Will our poor economy produce a bit of a standstill on raising Associates into Partnership? (even non-equity partnership) And especially for those Associates with a solid book of business, will they be able to cut a better deal on the way in?

Even in a down economy, there will be firms who are intent on locking up their best assets. Or better yet, watching the firm across the road and wondering who's available. If quality Associates were stocks in the stock market, the buy-low sell-high adage would certainly seem to apply. How many fortunes were made via well hedged bets placed during the depression?

My point being, the move up to equity partner status is a business opportunity, for both sides. For Associates & Non-Equity Partners, you may not need that third mortgage, and could have a number of potential suitors. And for law firms, aquisition targets could also be plentiful. Especially if your competitors decide to cover their heads and wait out the storm.

Knock, knock.


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