We’ve all been there. A vote is coming up before the partnership that requires individual partners to vote against their own best interest.
- It could be the opening or closing of an office, that you reside in
- The investment in new technology, but you’re about to retire
- The deequitizing of a partner, but you’ve been buddies since you were summer associates
- A change in the partnership agreement; it’s equitable, but not for you
It happens all the time. But should it?
Gina Passarella Cipriani wrote about the issue today in The American Lawyer: The Death of the Law Firm Partnership Vote? With an eye on efficiency, firms are ditching old methods for a more corporate form of governance.
“There’s increasing recognition that partnership agreements, a lot of them, fundamentally are obsolete, in the sense that they were written for a different time and place,” Bruce MacEwen of Adam Smith Esq. says. “Notions that it takes some super-majority … to de-equitize a partner, you can’t run a firm that way.”
It used to be that everything from a lateral hire to new leases to major capital expenditures on new laptops for lawyers would require a vote, says Frank D’Amore of Attorney Career Catalysts, who handles lateral and group moves as well as mergers. But those days are fading.
“You could do it in 1950, but it’s a heck of a lot harder in 2018,” D’Amore says of holding partner votes on most initiatives.
Law firms are big business
Legal is not just a partnership, it can be, and often times is, big business. Our industry just welcomed in our first $3 billion firm (congrats, Latham). But sometimes we’re caught operating no differently than when the doors opened decades (or even a century) ago.
Whether you are operating in 10s or 100s of millions of dollars, or billions, operating as a business should not be held hostage by personal interests.
Boards v. Shareholders
I am a shareholder in a corporation, I am also on the board. We, the seven person board, make the decisions. We seek input. We are transparent. But when it comes time to vote, we all understand our fiduciary duty to place aside our personal interests and vote in the best interest of the corporation as a whole, and to the shareholders. If we’re doing a good job, we are reelected to our terms on the board, and if we’re not, we’ll there is always the next election or recall.
Many of our shareholders cannot see past their personal interests. That’s human nature. Not so shockingly, they either don’t run for the board, or they are not elected. But they have a voice, and they are heard. But they don’t control how we vote or operate as a business.
The “New Economy” is Now
It’s 2018. Ten years since the great recession began. Several years since it officially ended. Yet law firms haven’t, as a whole, changed the business operations model.
Firms continue to try and bridge the gap between being a business and a partnership, and I’m not sure what size by partner, by office, or by dollar amount, that it is no longer good business to do so.
I know in my marketplace, we as an industry have our eyes on several firms that we know never transitioned from a partnership (with what may or may not be a benevolent leader) to a business. On paper, they are all successful, but are they sustainable?
One just merged out. One is showing up in the press with not so good news. And one is just riding the wave.
Can a law firm remain successful as a partnership? Absolutely. I’ve seen it. I’ve been a part of it.
But is this the best business model for our new economy? Or the only model that should be considered? And, if not, can a law firm successfully transition from a LLP to a PC?
I don’t know the answers. I just know that I am asking the questions, and I’m curious.
Thanks, Gina, for raising the topic today. I am enjoying following the conversation on Twitter, Facebook, and LinkedIn.