October 23, 2012

Best Practices in Partner Right-Sizing

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May/June 2010 Issue | Volume 36 Number 3 | Page 55


Best Practices in Partner Right-Sizing

While many firms have weathered the recession safely, others are still facing tough choices about cuts in their partnership ranks. If your firm is facing that decision, remember that the humanity you display today is critical to your firm’s future.

Looking back at the cost-cutting measures used by law firms during 2009, more than 12,000 positions were eliminated, including approximately 5,000 associate positions. Some firms cut partner positions as well, of course. However, the unfortunate case may be that some still need to go deeper to “right-size” their partnership ranks.

In March, Hildebrandt Baker Robbins and Citi Private Bank released their joint 2010 Client Advisory. A substantive look at the 2009 economics of the AmLaw 200, it also addresses possible economic repercussions for firms in 2010. One such repercussion: the issue of firms that have too many partners who are generating low-to-no revenues. According to the report,

During the years prior to the current downturn, the number of partners in firms was actually growing at a pace faster than the number of total lawyers, meaning that many firms became ‘over partnered.’ During 2010, many firms are likely to begin addressing this issue using a variety of tools…. We expect to see a general paring back of the ranks of income partners across the market, as well as a general weeding out of marginal equity partners.

In other words, between the associate and staff reductions already made, and cutting budgets to bare bones elsewhere, the only place some firms can now look to further prune costs is in the ranks of partners who don’t contribute substantially to the firm’s revenue.

If your firm needs to consider “right-sizing” its partnership ranks, bear in mind the following advice and best practices before you proceed.

Explore Alternative Measures First
Like so many things in law firm management, a humane and well thought-out plan, not one simply focused on profit centers and profits per partner, will help your firm come through the current crisis, perhaps even healthier than it was before. Never forget that a firm is totally dependent on the contributions, loyalty and motivation of its legal talent to be able to continue being a player in the law firm world. And if you handle layoffs in a hasty or disrespectful way, people will remember—both inside and outside the firm’s walls.

So if you want to keep your “keepers,” those who will contribute significantly to the firm’s future revenue, you must demonstrate your humanity in all decisions related to potential layoffs of their colleagues today. It is likely to engender the loyalty you’ll need in coming out of this downturn.

The first step on this path is to think about what other options you can implement to reduce the costs associated with partners apart from letting them go. There are several alternatives that can enable firms to reduce partner salaries or draws, including these:

  • Sabbaticals
  • Reduced-hour schedules
  • De-equitization
  • Early retirement offers
  • Retooling into new practice areas
  • A move to administrative roles for particular partners

Note, too, that several of these options—sabbaticals, reduced hours, de-equitization and a shift to administrative roles—may also be used as transition stages for those you want to encourage to eventually leave, but absent the harshness of “showing them the door” too quickly.

If You Must Downsize: Create a Compassionate Process
If the firm finds that it must downsize its partnership ranks, it’s very important to choose the affected individuals carefully. Don’t merely use the numbers to determine who must go. Factor in the significance of the partner’s intangible contributions in areas such as firm citizenship, team building and mentoring. And do not underestimate the impact a given partner’s departure can have on the morale of his or her group or the firm as a whole, either. That factor especially can have long-lasting effects.

The next critical step is to create a humane process that, while meeting the firm’s needs, offers a compassionate and smooth departure. Remember, your firm valued these individuals enough to make them partners. They deserve to be valued in this process as well. Here are elements to incorporate in your planning.

Create a feasible timeline. Experienced lawyers typically need more time to secure new positions—the more experienced, the longer the search. In the current marketplace, it’s not unusual for partners to take six to twelve months to find a new position. To help them land safely, give them sufficient support through this period, either through severance pay or time provided to remain in the office.

Keep identities confidential. Partners are more likely to experience a negative impact on their client relationships and future job opportunities in the face of a layoff. So even if the firm is publicly announcing partner downsizing, it’s imperative that management does everything in its power to keep identities confidential. In addition, layoffs should not be characterized as “performance-based” if the firm’s goal is to help the partners land well.

Communicate changes to others in the firm. Firm management and practice group leaders should share information about the reduction in partners, why this decision was made, and the strategic plan moving forward firm-wide before the news reaches the media. You want to be in charge of the information flow and how the reduction should be perceived. Don’t leave it up to the media to put a good spin on it. They won’t.

Provide assistance to partners in transition. This assistance can come in many forms:
Most helpful is to provide potential employment contacts wherever possible, perhaps through firm alumni, clients and colleagues in other organizations. It’s in the firm’s best interest, of course, to help this person land well, and particularly in-house with an existing client of the firm. Ask other partners to be proactive in initiating client connections for transitioning partners wherever possible.

Identify a “transition liaison” within the firm. This liaison would serve as the go-to person for departing partners when they need resources, connections or other information during the transition period.

Create an atmosphere where transitioned partners are treated as soon-to-be well-respected and valued alumni. This is critical in maintaining positive relationships in the future—relationships that can have a tremendous impact on the firm’s reputation and potential client referrals.

Provide career transition and outplacement resources. Many partners haven’t looked for a job in a very long time and are ill-equipped to navigate the process alone. They are more likely than associates to make mistakes early on in the job-hunting process, since most have not been in the job market in a while, or ever experienced one like the current marketplace. They may need assistance with business or marketing plans, advice on starting a solo practice, or help with today’s networking options. They may need guidance on corporate interviewing techniques or effective ways to position themselves for roles in academia or public service. In the current marketplace, those without significant books of business are less likely to find help from search firms and will need help identifying opportunities.

Keep the Firm’s Bridges Secure
Layoffs haven’t exactly been uncommon over the past couple of years. However, this is never an easy decision for a firm’s leaders, and especially in the matter of your own partners. It requires taking time to create a process that allows the departing partners to make as smooth a transition as possible. Remember, bridges once burned are very hard to rebuild, both outside and inside your firm.

Marcia Pennington Shannon is a principal in the Washington, DC, attorney management consulting firm Shannon & Manch, LLP. She is coauthor of the ABA book Recruiting Lawyers: How-to Hire the Best Talent.