Senior lawyers accept need to restructure partnerships but firms still wield blunt tools. Friederike Heine reports

The majority of City partners feel that commercial law firms are not accurately identifying and dealing with underperformance in their partnerships, according to new research.

Legal Week's latest Big Question survey on partnership restructurings found that 72% of respondents believe firms are failing both to identify and deal with underperforming partners, including 25% describing performance management at law firms as 'poor'.

The findings come after several firms have moved to restructure their partnerships in recent months, with Linklaters and Simmons & Simmons both undergoing exercises including both partner exits and de-equitisations.

Despite criticism about how firms are dealing with underperformance, almost half of respondents (43%) support the concept of partnership restructurings, arguing that they are justified in the current market conditions. A further 46% reported 'mixed feelings' on the subject.

White & Case London head Oliver Brettle (pictured above right) said: "Given the economic realities (and with little natural attrition), some active management is necessary. No law firm that aspires to be a leader in its field can afford not to manage its firm proactively."

Slaughter and May practice partner Paul Olney commented: "It is understandable that partner contributions are being looked at more closely in the current environment, but for firms wishing to retain the ethos and collegiality of a partnership it is important that there is a textured evaluation, where contribution is not judged solely on a limited range of metrics over a short period."

Only 11% of the more than 100 partners responding to the survey felt that sizeable partnership restructurings are broadly unjustified.

Given the extent of partner cuts at major law firms in recent years, nearly one fifth of partners (17%) reported a very real fear of being personally affected by a restructuring, whether that means being asked to leave or take demotion. A further 52% admitted to sometimes feeling concerned, with only 31% unconcerned.

One magic circle partner said: "A constant fear of being demoted or asked to leave can remove partners' pleasure and enjoyment in developing their own practice as well as undermine a collegiate partnership culture. However, in large partnerships, law firm managers have no choice but to have a rigorous appraisal system."

Marc Bartel, a partnership specialist at Heidrick & Struggles, commented: "There is a lot of short-termism involved in managing a partnership, which is why a lot of law firm leaders have difficulties dealing with underperformance. Law firms would rather let underperformers go instead of investing in training or even redeploying people to other areas of the firm."

Despite the level of support for partner culls, more than 80% conceded that such proactive management undermines the concept of partnership to some degree, with only 19% arguing it does not undermine the idea at all as partners know what is expected of them.

The survey also shows the extent to which many partners are moving away from the idea of a lockstep-based remuneration structure for partners in order to better reward individual achievements and deal with underperformance.

Nearly 40% of respondents said lockstep has 'had its day', with a similar percentage arguing that in order to keep it workable in the modern legal market, there has to be a degree of flexibility.

"If a law firm operates in lots of different markets, its partnership is inevitably more difficult to manage, and having a rigid compensation structure compounds the issue," commented Ashurst senior partner Charlie Geffen (pictured above left).

"Metrics have a profound influence on how people behave, which makes a law firm's choice of metrics extremely important. People need to have a good understanding of what is expected of them."

Brettle concluded: "If you then build in the different market realities (booming recruitment market in Hong Kong, slower in the eurozone), you can see how lockstep is challenged. Once you introduce 'flexibility', the system ceases quickly to be lockstep with its clarity, and is likely to become confused, and perceptions of unfairness may arise. It's much better at that point to be clear and embrace a meritocratic system."

Partners on restructurings

  • 72% feel firms are poor at identifying and helping underperformers
  • 51% believe shake-ups undermine partnership
  • 69% have significant worries about being managed out or demoted
  • 20% believe lockstep-driven partnerships are still workable in a modern environment


Related: