Women tend to be disproportionately affected by equity culls.

It is often said that a strong PEP figure helps firms to attract and retain the best talent. However, many law firms who are overly-focused on profit per equity partner ("PEP") as the key measure of success, risk hard-baking unlawful discrimination into the strategy and culture of their firm.

The term PEP has, for many law firms, law firm management consultants, and industry publications, become the dominant barometer for assessing the financial health and sustainability of law firm partnerships in recent years. Broadly speaking, PEP is calculated by dividing the annual profits of a firm by the number of equity partners (not including fixed share or salaried partners). The race to increase PEP year on year has become part and parcel of law firms' strategy for a variety of reasons (and not just for the obvious reason of increasing equity partner remuneration).

For example, PEP is likely to determine (at least partly) where a firm features in the annual law firm rankings – a firm which wishes to maintain or improve its position in the rankings will be focused on not just increasing turnover, but also PEP.

The rankings in turn are believed – rightly or wrongly – to have a knock-on effect on the ability to attract and retain certain clients. A high and growing PEP is also said to attract high performing lateral equity partners with significant books of business and commensurate remuneration expectations; a reducing PEP to cause them to leave. High PEP also ostensibly gives the "right" signals to the market (particularly the legal press) about the success of a law firm; the threat of shrill headlines announcing declining PEP no doubt keeps many a law firm managing partner awake at night.

But some firms are overly obsessed with PEP and allow it to drive their short and long-term strategy, affecting not only investment but also diversity, including gender balance. Unlike metrics such as revenue per lawyer or margin, it is a metric that can be (and is widely) 'gamed' by managing the number of equity partners, relative to the firm's profit. When PEP is regarded as too low, senior management typically turns to deep equity partner culls and to a significant increase of the bar to entry into equity.

Those who tend to be disproportionately affected by the culls are usually those equity partners who are perceived to be 'dilutive' of PEP by reason of having taken one or more maternity periods or of working part-time for childcare reasons. They also often impact older partners with extended absences or reduced hours due to health reasons, or who otherwise are encouraged to be a "good citizen" and transfer their key clients to the next generation of younger equity partners coming through, but without any guarantee of recognition or protection from exit when their own figures are significantly affected as a result.

It similarly becomes difficult to overcome the higher bar to full equity, for those female lawyers who have taken multiple maternity leaves (with the consequent impact this can have on their figures and practices in the short-term) or who are part-time working. This means that many female lawyers sit in salaried or fixed share partner status limbo on a long-term basis and do so disproportionately to their male peers.

These create potential sex, disability and age discrimination risks (amongst others), which cause not only exposure for the firm and key decision makers to substantial and unlimited discrimination compensation to equity partner losses, but also create regulatory and reputation exposure for the firm. Instead of driving recruitment, promotion and retention within law firms, it can have the opposite effect as women increasingly vote with their feet when they see female talent failing to break through to leadership in sufficient numbers, or exiting.

Although few firms intend to discriminate, it often becomes a direct consequence of a strategy aimed at blindly driving up PEP. What can firms do to reduce this risk as far as possible?

Operate fair, consistent and honest partner performance review and management programmes, which are thoroughly documented.

• Ensure that anyone on extended leave (including for maternity/adoption/surrogacy or related family reasons, or for long-term sickness) is also properly reviewed, and that their targets and objectives are adjusted as appropriate to the absence and to allow a phased return and reasonable re-entry period to rebuild their figures.

• Ensure their client base and associate resources are returned to them as soon as they return and that they receive full support and resources to rebuild their practice.

• Ensure targets for part-time workers are prorated (you'd be surprised how often this is forgotten in partner restructuring assessments).

• Involve HR to ensure that those with protected characteristics are treated fairly and consistently with their peers (and with reasonable adjustments for partners with mental or physical disabilities).

• Assess the performance, allocate (or reduce) remuneration, and base promotion (or otherwise) of Practice Group and Departmental Heads with regard to their success (or otherwise) in retaining, motivating and promoting lawyers (of all levels), who take maternity or sick leave, and who work part-time or with other flexible arrangements for family or health reasons.

• Adopt non-contractual grievance, disciplinary and performance policies and procedures for all partners, which allow for discrimination concerns raised by them against fellow partners to be dealt with seriously and consistently.

• Promote a greater number of female equity partners (rather than one or two) into meaningful senior management roles, and when they are in those roles ensure they receive consistent support and resources as any male partner would receive.

Finally, on an industry level it is probably time that law firms and other professional services firms developed a more nuanced approach than pure PEP to assess and value their relative success.

A starting point could be for law firm management consultants to devise a socially-modified metric which takes a wider view of stakeholders to measure business success of law firms, as in other sectors, in terms of purpose and of sustainability (i.e. 'triple bottom line' – economic, social and sustainability.)

This would inevitably have significant implications for law firm strategy but it would go a long way to levelling the playing field in determining law firm success. On the one hand, between those firms who genuinely embrace their social responsibilities and drive social change by eg accommodating, retaining, and promoting talented women to equity regardless of maternity and family needs; and on the other, those who, by focusing purely on PEP, often end up mainly attracting, promoting and retaining full-time, able-bodied men.

Imagine law firm success being measured not just by PEP, but by a socially-modified PEP; what an impact law firms could have, not just in profile and in attracting clients and talent, but also in leading the way in driving change in wider society.

Clare Murray and Zulon Begum are partners at specialist partnership and employment law firm CM Murray 

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