A Wake-up Call: Unproductive senior partners are quickly becoming history as the youngergeneration debates contributions and the bottom lineAuthor(s): JILL SCHACHNER CHANENSource: ABA Journal, Vol. 83, No. 6 (JUNE 1997), pp. 68-70, 72Published by: American Bar AssociationStable URL: http://www.jstor.org/stable/27839605 .

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LAW PRACTICE

Unproductive senior partners a are quickly Decornine history as

#m the younger generation debates contributions and the bottom line

BY JILL SCHACHNER CHANEN W-%.

ftaMBteard knew it had to be done. As the partner in charge of shepherding Gibson, Dunn & Crutcher of Los Angeles into the next century, Beard saw that the 650-lawyer firm could not sustain its growth and profitability without

making some painful changes. Since the 1980s, some of the

firm's partners had been enjoying a free ride on the income escalator

without justifying their compensa tion through productive contribu tions. Gibson Dunn decided that the ride had to come to an end.

Last year, in what is viewed as an unprecedented move among law firms, the firm offered a one-time early retirement package to all of its partners over 50 years of age. Though scattershot, the beefed-up benefits package was designed as a neat solution to an otherwise thorny issue confronting law firms across the country: unproductive partners.

"There was an underlying cur rent of wanting to make a more pro ductive partnership," Beard says. "We wanted to make room for the younger, more able partners."

Until corporate America sagged at the end of the '80s, many large

Jill Schachner Chanen, a law yer, writes regularly for the ABA Journal.

law firms had the luxury of ignor ing their individual partners' pro ductivity. The culture and compen sation systems of the profession, in fact, condoned underproductivity by rewarding seniority and steward ship over billable hours, business development and management.

But as law firms have retooled to meet their clients' new business imperatives, many have found that they can no longer afford to keep anything less than partners who contribute to the firm's bottom line through billable hours, business generation, and training and devel opment of associates.

This realization is reverberat ing throughout the legal profession. "There is a certain level of anxiety [among law firm partners] because tenure does not exist anymore, any where," Beard says.

At its heart, the problem of un

derproductive partners is one of age demographics. The concepts of mar

keting, lateral hiring and revamped billing systems are foreign, perhaps even anathema, to the profession's senior statesmen.

Partners now in their 50s and 60s never had to worry about wheth er their clients would take their busi ness elsewhere. Being a good lawyer was all that was required, says Rob ert Vanderet, a member of the management committee at O'Mel

veny & Myers, a 575-lawyer firm in Los Angeles.

Looking back, Vanderet de scribes his firm as a dinosaur ^^^M in this respect. "There

,.^^d0H^| was a point when busi- ̂ jj^^^^H ness development ^?j^^^^^^^^l was the last thing jfl^^^^^^^^^l anyone had to wor- i^^^^^^^^^^^H ry about. We only ^^^^^^^^^^^H had to worry about ̂̂^^^^^^^^^^H a job j^^^^^^^^^^^H on our cases, l^^^^^^^^^^^^l the l^^^^^^^^^^^l just flow to O'Mel veny because ^^^^^^^^^^^H were the only ones in ^^^^^^^^^^H town doing what we

did, even if we just sat in our offices," he says. l^^^^^^^l "A lot of us who started in that era never

^^^^^^H really developed a skill or taste for developing business through anything but good ̂ ijj^l lawyering."

If senior partners have just W^? begun to accept the need for ag gressive marketing and lawyering, the younger generation of partners came to their firms with these ideas JH and skills on their radar screens.

Jfl They were, after all, the first

generation of lawyers forced to jus tify their salaries and positions ^^^H when law firms began to con-

J?^^^? tract after learning the les- M^^^^M

68 ABA JOURNAL / JUNE 1997 ILLUSTRATION BY BRENDA GRANNAN

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sons of Wall Street. Now that these lawyers have become partners who command large amounts of busi ness and work long hours, they are making similar demands on their firms' senior members.

"There is tremendous pressure from the bottom up," says Martha Fay Africa, a principal in the San Francisco office of Major, H?gen & Africa, a legal recruiting firm. "The bottom is the more junior partners who are coming into mortgages, tu

itions and other big-ticket, person

al-life items. They are driving the issue. They want the money, and they want it now."

She views this trend as trou bling because it largely affects only middle-aged and older partners. "The unfortunate thing I see is that [people are] deemed unproductive

when they are around the age of 45 to 55 and get let go at a time when their marketability is reduced by virtue of their age. It is a particu larly pernicious thing for a law firm to wait and then cut them loose."

Vanderet suggests that the issue of productivity al so is hitting the larger, more established law firms hard er than some of the newer, upstart ones that were formed by younger partners devoted to being aggressive businesspeople. "For a lot of major law firms, being in a competitive environment is something new, whereas

less established firms already have had to work at that."

As the idea that each partner must be able to contribute in a valuable way becomes more widely accepted, law firms now find them selves entangled in an even more difficult question: What does it mean to be productive? The answer, many are finding, is one that can not peacefully co-exist with a cul ture that once exalted seniority and stewardship over all else.

A Changing Culture The inevitable clash is chang

ing the culture of law firms, says Arthur Olick, a partner in the New York office of Anderson, Kill & Olick. "The practice of law is less and less a profession that concen trates on individual excellence and service to clients, and where part ners work together and take care of one another. The collegiality of law firm partnerships is giving way

to the corporate Imentality of

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and how you contribute to the bot tom line."

When asked to define what they want from their partners, law firms increasingly are following the model set for them by their clients and counting widgets. For law firms, widgets are those things that are measurable in dollars and cents, or business originations and billable hours.

Thomas S. Clay, a principal with the law firm management con sultants Altman Weil Pensa in

Newtown Square, Pa., says this fo cus is myopic. "Partners need to be productive in ways more than just looking at dollars," he savs. "I see

partners who are billing and meeting business origination requirements but doing noth ing else. They are not meeting the obligations of being an owner."

Clay advises partners to define productivity in terms of ownership. Qualities such as client service, practice devel opment and management con tributions must be considered as valuable as billable hours and business development.

"Bringing in the fees may put dinner on the table this year, but it does nothing for the firm for the next few years," he says. "It is the same

problem that you are now see

ing in businesses, which is an orientation toward short-term economics. Businesses are now

recognizing that they need to think about the long term. You need to look at dollars, but that is not all of it."

David Maister, a former Har vard Business School professor and now a management consultant in Boston, agrees that law firms' use of a factory-production model to gauge productivity is mistaken. Profitabil ity, he says, is a better gauge be cause it gives partners incentive to work efficiently, whether by dele gating to the most capable but low est-priced attorney or by focusing on their area of practice expertise.

"Very few firms have a costing system that allows them to mea sure the profitability of their mat ters. As a result, they reward pro duction and not profitability. All the incentives are exactly counter to being efficient because every one's incentive is to horde work and do it themselves," says Maister, au thor of Managing the Professional

Service Corporation. "Law firms reward sausages

and have no measure of whether the sausages are made efficiently," he says.

He believes law firms need to return their focus to the pursuit of professionalism. "Rather than liv ing up to the very highest stan dards, training people and looking after clients, lawyers have shut down everything but the numbers. It is like General Motors just run

ning a plant harder by forsaking maintenance, and research and de velopment. That is what firms are

doing, just running everyone hard er. I consider that to be stupid, not

more businesslike." Firms that continue to push

their partners to run harder are in danger of creating internally com

petitive cultures that cannot sus tain long-term growth.

"A lot of firms are facing limit ed profits to distribute to their part ners, and they have some super stars in their organizations that they cannot afford to lose," says Ar thur Greene, a partner in the Man chester, N.H., law firm of McLane, Graf, Raulerson & Middleton and a consultant with the Ann Arbor, Mich.- based Anderson-Boyer Group.

"These superstars are being rewarded quite heavily. In some firms this is having a negative ef fect, because partners are then in competition with one another for

limited dollars," he says. "Firms are

focusing mostly on this production of dollars and not on management, being a good lawyer or training."

As law firms continue to grap ple with the attributes they most value in their partners, they also are exploring how to encourage pro ductivity. For most, compensation is the strategic tool being used.

The Right Incentives "Firms have two things to offer

their partners: money and position," posits Nancy Lasater, a Washing ton, D.C., lawyer who represents partners and law firms in her em

ployment law practice. "All law firms tie Lpromictivityj to

compensation because that is what they are all in it for. This is a business."

Anderson Kill's Olick understands the need to use compen sation to reward or

penalize partners, al though he decries what it is doing to the profession.

"The practice of law has become in creasingly a business where the bottom line is most impor tant," Olick observes. "If you want to hold onto your personnel,

including partners, you have to ad equately compensate them. To do so you have to have a compensation system that maximizes profits and, at the same time, is regarded as fair and equitable by all the part ners. If you don't, you will have de fections, which is one of the reasons law firms fail.*

Compensation can be an ap propriate incentive to encourage productivity, but most law firms use it incorrectly, says Lasater, who chairs the law practice man

agement and litigation sections of the District of Columbia Bar.

She suggests that they use it as a way to stress the partnership's core values that contribute to the overall welfare of the firm. If, for example, a firm compensates a

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70 ABA JOURNAL/JUNE 1997 ABAJ/JIM CACCAVO

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partner only on the percentage of revenues he or she generates for the firm, that partner has no incen tive to participate in training or de velopment of associates. However, if the partner is told that his or her share of profits is $25,000 less this year because of being nasty to the secretarial staff, the firm has con

veyed a message about upholding nonmonetary values as well.

Using money to convey such values, however, does require that law firms abandon the objective com

pensation systems that they have widely embraced;? where the partners are paid a percent age of their billable hours and revenues

?for more subjec tive systems.

Lasater also em

phasizes the impor tance of gauging pro ductivity, however a

partnership chooses to define it, over an

appropriate time pe riod.

A one-year time frame, for example, typically is not long enough to determine whether a partner has become unpro ductive because it does not take into

account shifts in the market that can have an effect on business de velopment and hours.

Plunkett & Cooney, a 150-law yer firm with 10 offices in Michigan and one in Pittsburgh, recognized this problem with the corporate downturns of the late '80s. The firm saw the practices of many of its once highly productive transaction al law partners dwindle. To ward off a reoccurrence of that, all of the firm's partners are now required to develop two areas of expertise, says Joseph Walker, the firm's managing partner.

"In the 30 years that I have been practicing, it seemed that law yers were always able to do well no matter what the economy was do ing," Walker says. "But in the '90s it caught up with us. We had part

ners whose practices were changing and we tried to recycle them into other areas. We spent a lot of time retraining them rather than lose them. We bit the bullet."

Plunkett & Cooney has a sub jective compensation system, Walk er says, which allows it to address concern about members' productivi ty before it is reflected in their pay checks. "If your firm has a formula based compensation system and partners are underperforming, their compensation is going to be affected immediately and directly," he says.

"We have a rough justice sys tem here. When any lawyer, not just partners, begins to underper form, it will not immediately and directly affect his or her compensa tion. That allows us to work with the lawyer for a period of time and cushion what could be a financial blow over a longer period of time." He adds: "It costs us money, but we think it is a better approach."

Kenneth Morgan, a former member of the executive committee of a mid-sized firm in Detroit, be lieves, however, that the shock of a diminished paycheck can be just the impetus a partner needs to learn to become productive.

"Firms that say be a good lawyer [and the compensation will follow] ... do not create an incentive for unproductive partners to become

productive," says Morgan, who re cently started his own litigation practice in Detroit.

His former law firm abandoned a subjective compensation system for a more formulaic one, in part,

Morgan says, to address productiv ity concerns. One factor that the firm used to calculate compensa tion was collections, on which the firm placed a premium in order to increase cash flow.

With this incentive, Morgan says many of his former partners took a renewed interest in the qual

Iity of their work because they thought clients would be

more likely to pay their bills if they were happier with the services performed.

The system also helped identify other productivity is sues. In one instance, Morgan says, the firm barred a part ner who had "chronic realiza tion problems"?due to inade quate skills?from developing new business.

The firm recently, though, went to a more subjective system, mainly because the

model was causing too many changes in the firm's culture.

Focus on Teamwork Because compensation

often provides the wrong in centive, law firm partners are

beginning to search for ways to encourage productivity through teamwork. One tool that increasingly is surfacing

is partner evaluations. The actual process varies,

but generally it asks all partners to evaluate their fellow partners' contributions?economic and other wise?annually. Each partner is then given a series of goals for the following year based on the evalua tions. Productivity is then gauged on meeting those goals.

"Firms that have the evalua tion process in place are able to talk to partners for several years about what they need to do to be success ful," Greene says. "If, after two or three years, they have not turned it around, the writing is on the wall. It can be a very positive thing for everyone. Many times the partner knows that he is struggling and can end in a better place."

But it only works out that way if a firm recognizes it has to be able to talk about and measure produc tivity over the long run.

72 ABA JOURNAL / JUNE 1997 abaj/pete souza

Nancy Lasater: A firm c?n use compensation to reward activity that reflects its core values.

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