The Future of Law Firm Partnership

As the nature of partnership evolves, leaders from law firms of all sizes continue to look closely at economic and legal trends to determine how best to serve clients <br/>
The Future of Law Firm Partnership
As the nature of partnership evolves, leaders from law firms of all sizes continue to look closely at economic and legal trends to determine how best to serve clients

Wanting to make partner at a law firm? Or are you dreaming of leaving a large partnership to head out on your own with a few others? Do partners at other firms sound happier and more successful than you feel? Or are you being evicted from a partnership, however civilly the point was put?

In all of these scenarios, considering the nature of partnership as it exists today – not yesterday – in business-facing law firms may help to determine your next move.

In a 2002 article entitled “What are the Obligations of Partners?” Altman Weil, Inc. consultant Thomas Clay wrote, “Partners who do not consistently achieve the required level of contribution should be relegated to a status other than equity ownership.” Some managing partners told Clay he sounded harsh, to which he replied, “If they are making that choice, then the organization has the right, and possibly the duty, to require those partners to suffer the consequences. Living up to one's obligations is ultimately about fairness among owners.”

Summarizing the decade's changes in a 2012 update of that article, Clay wrote that “it's a buyer's market.” Technological and sociological factors had greatly impacted on the practice of law, changing it forever.

Executive Partner Lisa Borsook of WeirFoulds LLP in Toronto calls the 21st century so far “a tsunami of change” for the legal profession: Law became more of a business, accelerated by the economic crisis of 2008. In-house departments, themselves under budgetary scrutiny, greatly increased in size and mandates. For some firms, and certainly for in-house counsel, outsourcing gained a noticeable place in the marketplace.

The Nature of Partnership

Whether or not the essential nature of partnership commitment can truly be said to have changed within that time is a matter of some debate, and one that is semantic to a degree. Pick up any history book on a law firm (e.g. Ian Kyer on Fasken Martineau) and you are likely to read about partners who were keenly focused on business development. They just didn't use that term. Observers can be ahistoric when they dismiss earlier eras of partnership success being all about “relationships” as though such relationships were effortless on the part of partners. These relationships were managed even though the term “CRM” had not yet been coined.

Today's managing partners describe at least two key emphases, which they have invested into their firms since the year of Clay's remarks. First, they are adamant that in order to survive, their firms need to appraise and improve their internal processes. Second, using the term “relegate” to describe non-equity partners or employee lawyers represents an attitude that has become outmoded.

This is not to say that law firm leaders are soft on the idea that non-performing partners can continue as is. Far from it. Expectations have heightened. According to the managing partners with whom Lexpert spoke, there is virtually no sinecure left for partners, in any firm. If one does not live up to the commitment, attention is paid and corrections are made one way or another. There are no exceptions.

The pace of change seems to be increasing at a rate that may not be actually exponential but certainly feels as though it is. “Partnership is significantly different than it was 20 years ago, 10 years ago,” says John Rogers, CEO of Stewart McKelvey in Halifax. “The pace of change is going to increase. In days past, all partners participated in every decision from the smallest to the strategic. That has evolved.”

In 2014, managing partners may continue to be as diplomatic as they ever were, but are very unlikely to call Clay's clarion call “harsh.” Instead, they're likely doing something about it. They've likely got a plan of action to deal with the evolving nature of law firm partnership.

First, law firm leaders are examining the size and locations that are optimal for partnership and making changes if they are determined to be due. Is there a right size, medium, large or small?

Les Viner describes the “great advantages” he sees of a partnership the size of Torys LLP: “Our firm has about 100 partners in four cities. We are large enough to undertake transactions requiring deep bench strength, yet small enough to work together with one another on a regular basis. So we can assemble ‘true teams' of lawyers who know and trust one another, and our partnership is a ‘real partnership.' Major partnership decisions achieve a very high degree of alignment and strong execution that derives naturally from the consensus-building process. This enables the firm to invest in long-term strategic initiatives as well as in long-term client relationships.”

Toronto-based Viner, who is the firm's managing partner, acknowledges, “The disadvantage is that we cannot offer global coverage.” What of a law firm that does offer global service, can it offer partnership esprit de corps across continents? Turns out it must.

According to John Coleman in Montreal, Managing Partner – Canada for Norton Rose Fulbright LLP, who was instrumental in the evolution of the Canadian firms that joined the global Norton Rose, “Culture drives strategy. You can't have profitability without cohesion.”

Global firm Baker & McKenzie LLP also prioritizes the importance of culture. Craig Courter, the firm's COO, says that in addition to forging connections between lawyers by video- and tele-conferencing, the firm holds regional in-person meetings and an annual partner meeting. It is a large matrix organization, with thought leaders throughout the countries, regions, practice groups and industries. “Yes, we're careful,” says Courter, “and cost-effective.” However, as a result of the firm's efforts, “Clients don't see the borders because we know how to work together.”

All three of these firms eclipse in size the 10-partner firm of Lax, O'Sullivan, Scott & Lisus LLP in Toronto. It's hard not to cheer for the firm's future when listening to Managing Partner Matthew Gottlieb. He passionately describes the decision that he and his mid-career colleagues made to leave larger full-service business firms to constitute essentially, and eventually let us hasten to add, the successors to what appears to be one of the most culturally distinctive law firms in Canada. Lax O'Sullivan Scott, as it then was, has an oeuvre of annual Christmas cards that are humorous if not genius. An April Fool's prank on its part was mentioned in a national newspaper. One year, the firm held a charitable dinner for 60 senior lawyers in the manner of a spoof on one of Lexpert's Award programs. Partners in this firm are excellent, dedicated counsel, certainly, but they also seem to have made fun as well as profit. How does such a firm evolve with the times?

According to Gottlieb, “To our partners the defining feature of a Tier-One boutique is independence. We have only one business line – providing first-rate counsel – and we're all pulling in the same direction. With 10 partners, even with potential to expand, we can control our own destiny.” This does not mean that the new partnership can rely solely on the client base of the founding partners. While the firm originally served clients mainly referred from other firms that were themselves conflicted, the newer version of the firm has increased the percentage of clients it brings in directly. For their part, the original Lax O'Sullivan partners evidently sought out new partners to develop the firm differently than the original partners had done. Very foresightful.

Client Responsiveness

All firms – medium, large and small – devote energy to analyzing, with varying degrees of formality, the economic and legal trends in which they and their clients find themselves, and determining best courses of action to serve their clients in changing contexts. They point to the future and attempt to get there as a partnership. As Clay points out, in the years since 2002, providing “client-determined” service quality is key, which in his estimation means that “clients, prospective clients, and internal clients [other partners] must receive from every partner the level of attention, treatment, responsiveness, timeliness, communication, concern, etc. that the client deems appropriate.”

As an example, Courter says of Baker & McKenzie's model, “It is really to be a leading firm in each market,” known for the highest quality of its service. To do so is imperative, in a mature legal economy, if a firm wants to stay ahead of its competition. This being the case, how far should firm partners go to find out what clients want?

In an “Open Letter to GCs and Law Firms: In Many Ways, Our Challenges Are Similar,” Daniel Desjardins, Senior Vice President, General Counsel and Corporate Secretary at Bombardier Inc. in Montreal, observed that “many law firm leadership teams do understand that the current law firm models need to change … They're doing more project management, utilizing more legal process outsourcing, and realigning their models to be more in tune with client needs. These are all good steps.”

Desjardins doesn't stop there. “Will the changes being made be enough for subsequent challenges coming down the line? I believe the answer is no.” He describes traditional law firm/in-house department communication: “The structure of the law firm has not encouraged it to learn from its customers. Historically, the emphasis has always been on seeking to learn about its customer's business to understand and serve the client better, which is right and good … too often, this is left to individual partner initiatives rather than being a process developed by the partners and, thereafter, coordinated and orchestrated by the overall organization.”

Desjardins prescribes a change in the dialogue going forward: “I suggest we extend the conversation much further to make it a two-way discussion. While law firms do need to understand their client's business, they can also benefit from asking existing core clients about their experiences, processes and policies. Where appropriate, these can be adapted and applied to the law firm.” For example, if a law firm is expanding to a specific country, the “leadership team could ask existing clients who are already operating there about their experience.”

Surely this is the kind of communication that would go on between two Canadian businesses that partnered together, such as a retailer and a supplier. Is a law firm, then, a business like any other in this regard? It remains to be seen. For smaller law firms, especially those working with small to mid-sized corporate clients who may not have large legal departments, communication of this nature may happen more organically. For law firms and companies of a size that require communication to be process driven, it will be interesting to watch those that take up Desjardins's suggestion.

Compensation and Billing

Desjardins also touches on the matter of partnership compensation, which underlies many of the issues above. Adjustments to law firm compensation assessment and distribution will surely reflect the changing expectations on partners in the years ahead. For what will law firm partners be compensated? The short answer is their multi-faceted legal services plus business development. The longer answer is more complex. Clay wrote, “Business development goes far beyond simply ‘selling.' In law firms, it is a much more nuanced and sophisticated process and one in which any partner can participate by finding and committing to the right activities.” Many of these “activities” will presumably become compensable. But even though law firm partners are “owners,” are they more likely to lead and participate in these necessary activities if they are compensated as corporate executives would be, i.e., for a range of activities that fit into a system?

Certainly, the systems are coming. Borden Ladner Gervais LLP offers “BLG Adroit,” advertised to “utilize process improvement and enhanced project management methodologies to create maximum value, efficiency, consistency, predictability and transparency both in the delivery of our legal services to you, and for in-house counsel in the delivery of legal services to your internal clients,” led by two Lean Six Sigma “Greenbelts” (for two different viewpoints on Lean Six Sigma, see p. 9 and p. 77 of this issue). Gowling Lafleur Henderson LLP launched a Legal Project Management initiative, named Gowlings Practical, “which will apply practical project management principles to the delivery of sophisticated legal services.”

These corporate, or more precisely manufacturing, processes dedicated to client service require that partners fit their activities into a firm's overall system (which does not accommodate “lone wolves”). More importantly, they necessitate changes to the cost structure of purchased legal services and, potentially, law firm profitability. What is the future of partnership in this context?

Let's look back. Ron Baker at summarizes the historical finding from William G. Ross, The Honest Hour: The Ethics of Time-Based Billing by Attorneys. Although US-based, it is relevant to the discussion of law firm profitability in the future: “In essence, the timesheet was intended to be a cost-accounting tool, not a pricing method. Prior to the 1950s, lawyers were using fixed-fee schedules, published by the courts and the ABA, to establish prices … Because these fixed-fee schedules helped determine price, timekeeping was viewed as a guideline that would allow a firm to measure the profitability of an engagement, not as the means of pricing that engagement. The timesheet was developed to control the ‘inventory' of the attorney (time), but as hourly billing became diffused, it became the inventory.” We are now at a point where timesheets no longer satisfactorily measure the inventory.

The Nature of Legal Work

To an extent, the very nature of legal work is changing. When ATD Legal Services PC became part of Deloitte Canada's Legal Project Solutions Group, it continued to offer lawyers for hire to complete labour-intensive tasks, such as document review and due diligence, to law firms and corporate legal departments. After the acquisition, the question arose, are these tasks really practising law (for which one needs law society membership and insurance)? To another extent, advances in technology may replace people actually doing some of these tasks beyond hitting a submit button.

According to Les Viner, Torys is looking at its roles along a spectrum: “Partnership is a bundle of rights and responsibilities. Counsel is a different bundle, and associate is different again. We are looking at careers by articulating the rights and responsibilities as clearly as we can, as opposed to presuming that everyone wants to be a partner for all that entails, and by doing that we are creating attractive options for people. Then lawyers can make their own choices. Our goal as a firm is to make sure that everyone knows where they stand and what is expected of them, and that they have professionally satisfying careers that dovetail with their own skills and experiences, and desired level of commitment, within a respectful and collegial environment. Law firms need to invest more resources in talent development and talent management. We are doing that.”

Just after Viner spoke with Lexpert for this article, Torys announced the opening of the Torys Legal Services Centre in Halifax. According to the Halifax Chronicle, “Viner said the Halifax centre will enhance the legal work done in those offices by focusing on essential corporate services, including due diligence, contract review and corporate reorganization.

“All legal services centre work will be priced through fixed-fee arrangements - per project, per task, per item, per diem or per month depending on client requirements. The centre's lawyers will focus on national work and won't generally practise Nova Scotia law or seek local clients.”

At the same time, Stewart McKelvey's Rogers maintains that clients continue to expect the role of their lawyer “as trusted advisor to be lived every day,” notwithstanding the heightened “expectations in terms of responsiveness” and the new pieces in the “toolbox.”

Up until now, one of the barriers to the evolution of law firm partnership has been a tendency toward hierarchical thinking among many lawyers, which got its start presumably from the days of competing to get into law school and was reinforced by “making partner.” A senior lawyer remarked a few years ago, “Nobody wants to be on the B Team,” by way of giving his take on why women lawyers were leaving law firms.

Attitudes are changing. For example, it is now well accepted that in-house counsel roles are not “B Team.” Although internal attitudes within law firms have been more difficult to shake, there is no choice now: Different teams within a firm and with other service providers, providing different elements of legal service are required. These teams or “partners” are more likely to be profitable if you don't think of any of them as “B.”

Some firms have tried non-equity partnerships on for size. Other firms have had success with employee lawyers, including Knowledge Management lawyers at Stikeman Elliott LLP, who operate with the esteem and respect of other firm members, according to Jay Kellerman, the firm's Toronto Managing Partner.

Partners raised in traditional large-city firms, serving the business clients who tend to come in their doors, may not be aware that there is a range of other options small and mid-sized firms, in smaller centres, serving business and consumer clients. In the U of T Faculty of Law's recent notice for a new Dean, it said its alumni “enjoy rewarding careers … in every sector of Canadian society.”

This is not to say that there is a bucolic place in which lawyers need not worry about serving clients with economic efficiency, rather it is simply to point out that there are other profitable ways and places to practise law or have a legal-related career … and live a life. Can there be variations in the partnership model to accommodate more than one type of “A Team”?

It is interesting to note that when ATD Legal was acquired by Deloitte, its founder, lawyer Shelby Austin, become a partner with Deloitte.

Jean Cumming is the Editor-in-Chief of Lexpert.