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Gibson, Dunn & Crutcher is creating a nonequity partner tier, removing its status as one of the few national firms with a single partnership model. “We have under development some sort of nonequity partner track,” said Peter Ziegler, partner in charge of the Los Angeles offices. “The plans are in the process of being thought through.” The creation would likely apply to lawyers admitted to the partnership going forward, either through a lateral hire or the associate ranks, said Charles Woodhouse, the firm’s executive director. The level will be useful if the 800-lawyer firm wants to bring in a lateral partner who may offer strong expertise but not yet the business to warrant an equity partner role, he said. Associates would likely go through a review process when they are approaching partner level, now on a track of about 8 1/2 years. It’s anticipated that some may go straight to equity partnership, Woodhouse said. The details will be ironed out over the next several months. “It’s a matter of providing for the possibility of having someone stay rather than the up-or-out philosophy,” Woodhouse said. One Gibson partner contacted about the plans is taking a wait-and-see approach. “So far, not a lot of people are talking about it or worrying,” said this partner, who requested anonymity. “In recent years, it’s been brought up a lot — everyone else seems to have it so why don’t we? But, now that we have it, we don’t know what it means.” This partner indicated that adding a nonequity tier might address the difficulty of recruiting nonequity partners from another firm. Returning such partners to associate status is unworkable. Recruiter Larry Watanabe agreed that the change will make Gibson Dunn more enticing to lateral recruits. The single-tier structure has made entering the firm difficult, especially given Gibson Dunn’s high profit-per-partner levels. “The equity base is so strong that it has been a difficult gate to pass,” Watanabe said. Now, the firm can attract people who are highly productive and whom clients like, but who don’t have the book of business to warrant equity partnership, said consultant Peter Zeughauser. “By having that place to put people you can keep equity partner numbers down, and that improves numbers — leverage and profitability,” he said. Gibson Dunn is one of the most profitable big firms in California. It had profits per partner of $1.375 million in 2004, according to The American Lawyer magazine’s Am Law 100, despite relatively low leverage of about two associates for every partner. The two-tiered structure does present challenges in maintaining the integrity and quality of the partnership, Zeughauser said. With just one tier, the firm’s leadership is forced to make tough decisions, and there isn’t as much risk of diluting the partnership. Gibson Dunn’s move is in line with the majority of Am Law 100 firms that have moved to the dual system, Zeughauser said. “They’re joining the mainstream.”

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