As an equity partner, you are no longer only responsible for yourself; you are responsible for the entire firm and everyone who works within it. You also become responsible to all the firm’s clients, not just the clients with whom you work directly. That means you need to take a broader view of the business and your day-to-day work than you would as an associate. Your focus can no longer be about just getting your own work done. As an equity partner, it’s about helping the firm as a whole reach its goals. Instead of applying your skills, knowledge and expertise just to your own work, you’ll need to apply them to add value to the firm, to help the firm grow and improve, and to attract the best talent.
When there are difficult decisions to be made or problems to be solved, you will be responsible for making those decisions or solving those problems. You’ll need to understand the inner workings of the firm and its business, evaluate the risks of certain courses of action, and make decisions to help move the firm and its goals forward. When making those decisions, you will need to weigh not only the factors that affect the firm’s bottom line, but also the factors that affect the individuals working at the firm. In short, as an equity partner, you are no longer an employee of the firm—you are the firm. Partnership requires sacrifices. As an associate, your focus is mainly on you—ensuring that your work is completed; that the clients you work with directly are happy with the work you do; and that you reach your individual goals and fulfill your individual responsibilities and requirements. But as an equity partner, your focus needs to be on the firm first, and that may require putting yourself and your individual interests second.
As an associate, or even a junior partner in some firms, your main responsibility is to complete client work in a timely and effective manner—and in many cases, to bill a certain number of hours to your client files. Your job as an equity partner is very different. Your main responsibility is to ensure that the firm continues to generate enough revenue to continue operating. As a result, one of the expectations of law firm partners is that they drive business to the firm—and you’ll have to generate enough business not only to keep you busy, but to provide work for others.
Part of your business development responsibility will be to become familiar with all the services your firm provides to its clients, not just those in your own area of expertise. You need to have at least a working knowledge of the work done by the other lawyers so that you can generate business to refer to the others in your firm.
In addition to bringing new business to the firm, you’ll also be expected to develop additional business from existing clients. This may require you to have a more comprehensive understanding of your clients’ businesses, needs and challenges than you had as an associate. This is another reason to familiarize yourself with the work done by the rest of the firm—so that you can pitch that work to your existing clients where it is appropriate. And you’ll need to be familiar with all the firm’s clients, not just the clients with whom you work directly.
As an equity partner, in addition to your legal work, you’ll be required to take on some of the management of the firm. You will continue to represent clients, but you will have tasks added to your workload, including administrative and nonbillable tasks, such as supervising associates, conducting performance reviews, hiring and firing, reviewing client bills and strategic planning. You will work with and mentor younger lawyers in the firm and help identify and develop future law firm partners.
As a law firm leader, you will need to communicate not just with your clients and your immediate team but with a broader cross-section of the firm’s lawyers and clients. It is your job to help uplift, inspire and foster the growth of the firm’s employees. You will need to delegate work efficiently and effectively.
How much do you know about your firm’s financials? As an equity partner, you will be directly responsible for the firm’s success (or failure) and its financial health. You’ll need to review the firm’s financial data to familiarize yourself with the firm’s revenue structure, its fees, receivables, margins and debts. You may need to review historical financial data to make predictions about the firm’s likely success or revenue in the future—whether it is the next quarter, the next year or the next five years. You’ll want to know who the firm’s competitors are and where your firm stands in the marketplace.
You will need to understand how the firm works and understand its financial picture so that you can make informed business and financial decisions. These decisions include everything from whether to invest in new technology to whether you should add a new area of practice to the firm’s services to whether to offer raises to your associates, and how much.
Your compensation as an associate is determined by your individual efforts—the hours you expend, the satisfaction of your individual clients and possibly a percentage of any business you bring to the firm. You receive a guaranteed salary and expect timely pay raises. In contrast, your compensation as a partner is tied to the success of the overall firm, not to your individual efforts. As an equity partner, you do not receive a salary, but rather a percentage of the firm’s profits. In some years, that may even mean that you make less money than you were making as a senior associate or a nonequity partner. In some firms, even if you bring in business, you may not get origination credit once you become a partner; rather than getting a percentage of the work you bring in, the fees generated from the clients you bring to the firm may be contributed to the larger “pot” to be divided among the partners.
Not only is the amount of your pay less predictable as an equity partner, but you may have to wait longer to get paid. You may not receive distributions frequently, which may mean waiting for a large portion of your compensation until the end of the quarter or even the end of the year. As a result, you may need to pay quarterly or estimated taxes on money that you haven’t yet received, so you should be prepared with cash on hand.
To become an equity partner, you may have to make a capital contribution or “buy-in” to the firm to purchase your share of the firm’s equity. In some firms, to attain partnership, the capital contribution must be made as a lump sum up front. In other firms, that contribution is made over time by deducting a specified sum from your compensation. If the firm runs into difficulty collecting its fees or encounters another financial hardship, you may need to make additional contributions to cover expenses, such as rent or payroll for your associates and staff to allow the firm to continue to operate.
Are you prepared to make the transition from senior associate—or even nonequity partner—to equity partner? Have you adopted an ownership mindset, made a plan for developing business, sharpened your management skills and prepared yourself financially?