What Are the Obligations of Partners?

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“Partners who do not consistently achieve the required level of contribution should be relegated to a status other than equity ownership.” When I made this statement before a group of managing partners, one said, “Isn’t that awfully harsh?” My response was, “It may seem harsh but it is eminently fair. It is not fair to have some owners contributing in all the ways that sustain the health and vitality of the organization while others choose (independently) not to do so. 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.”

In 2002 I wrote an article entitled “What are the Obligations of Partners?” which began with the paragraph above. I have received more comments on that article than the dozens of other articles I have published during my career. Recently, several Managing Partners have asked if I would update the article in light of current law practice realities.

What has changed since 2002 that mandates a new, more rigorous standard for law firm owners? It’s a buyer’s market. Clients are demanding efficiency and innovation at lower price points. Facing onerous budget pressures, they have necessarily become less wedded to any one lawyer or firm.

Law firms can no longer rely on large, annual rate increases to drive profitability growth. Hungry competitors are fighting for work in a slow or no growth market and going down market if they have to. Nimble newcomers and non-traditional service firms are trying to redefine how legal services are delivered and priced.

In a highly competitive, low-growth market environment, the requirements of law firm ownership are more stringent and more important than ever before. Many firms are seeking to clarify or redefine the obligations of partners in light of the changing environment. What does it take to become a non-equity partner? To become an equity partner? To remain an equity partner?

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