Lawyers enjoy using the prefix “non”. Nonlawyer, nonequity partner; as someone who was not a lawyer once told me, “I don’t like being referred to as a non anything.”
For law firms, making someone a partner is a little like a marriage. It brings legal obligations, creates emotional bonds, and can be hard to escape. Making someone a nonquity partner, on the other hand, is like living with someone. If you don’t like how it’s going, you can just cut your losses and move on. No fuss, no muss.
The concept of the nonequity partner tier has been around for a long time. ). But it has picked up considerable steam in the last decade as firms grappled with large groups of associates becoming eligible for partnership. Perhaps, given the numbers, equity partners were not as familiar with many of the associates who were eligible for partnership as they once were. These were often associates the equity partners were perhaps unsure of but didn’t want to lose (aka let’s hedge our bets). All too often, these were, unfortunately, women and people of color.
In most cases, a nonequity partner was (and is) a partner in name only
Whatever the reason, firms began offering nonequity partnerships. In most cases, a nonequity partner was (and is) a partner in name only: they have no voting rights and do not share in the firm profits at the end of the year. They have no rights of an equity partner under the terms of the partnership agreement. They were (and are), for all intents and purposes, glorified employees. The only real benefit in most cases was that nonequity partners could hold themselves out as partners to clients and the rest of the world.
As time went on, the use of the nonequity partner tier in law firms grew. Today, it is fairly typical for large firms to have a tier of nonequity partners composed of many lawyers. Some of these lawyers will stay in the tier. Perhaps a few will go on to become equity partners.
The use of the model is growing. Cravath Swaine & Moore, one of the old-line New York firms, recently announced it was going to create a nonequity tier. More recently, Above the Law and Law.Com reported that a Survey conducted by Hidebrandt and Citi Global Wealth revealed a significant jump in the number of nonequity partners. The Survey notes that 83% of Biglaw firms expect to increase the size of their income partner roles in the next two years. This increase is a “staggering jump” from the 68% growth reported by the Survey last year.
The truth is that law firms are composed of more and more nonequity partner employees and fewer equity partners. What was once a holding pattern so associates who might have been let go in the harsh “up and out” framework could get a second chance has morphed. It’s now the primary business model of most large law firms. Why?
One reason the nonequity tier has become popular is money. More money for the equity partners. Nonequity partners are paid a set salary. They don’t share in the profits of the firm. By limiting the number of equity partners, firms ensure that those who are equity partners get a more significant slice of the profit pie. Fewer partners with whom the profits have to be shared. And since nonequity partners are paid a salary, their compensation can be better budgeted. Of course, if there is a downturn, nonequity partners can be let go, reducing costs. Reducing costs better protects the equity partners end of the year share. It’s simple math.
Equity partners are like the proverbial hard to herd cats
Let’s face it, big law firms are big businesses. They need to be able to control and direct lawyers in the firms to achieve strategic goals and better manage the business. But in most firms, equity partners, particularly those with significant books of business, can operate pretty independently. In most cases, a firm’s only leverage over them is the risk of explosion. But that often requires a supermajority of the partners and is messy and disruptive. Equity partners are like the proverbial hard to herd cats.
Nonequity partners have no such independence. Toe the line or be gone. It is much easier to manage when you have this kind of control. And when you are running a big business, as most big law firms are, it’s necessary to have the ability to direct and control the workforce. That’s why most nonlegal businesses are not partnerships.
The traditional law firm partnership business model was generally a two-tier one: partners and associates. This two-tier model may have made sense in the old days. Firms were smaller then, the profession was more collegial and the typical law firm was less of a large business.
But those days are gone. The need to manage multi-million dollar businesses like businesses means we will see fewer equity partners. Of course, the return burn is that nonequity partners at law firms will, in turn, have less and less attachment to the firm. This lack of attachment impacts whatever “firm culture” the firm claims to have. I have previously written about this cultural change
The collegial law firm model in which many of us came of age is a relic of a bygone era
The collegial law firm model in which many of us came of age is a relic of a bygone era. The trouble, of course, is that most big law firms don’t want to admit it. They still proclaim they have a unique and vaunted culture. That the firm is like family and other such nonsense.
The simple fact is that in the future, we will see ever-increasing numbers of nonequity partners and fewer equity partners. Small numbers of these equity partners will govern firms. But the workforce will be primarily made up of employees who can be better controlled and managed. It’s inevitable.
It’s not personal; it’s just business.
Photo Attribution: Juan Carlos Uribe Garza via Flickr