Chris Fox: The focus is on making partner, and waiting until later to figure out what that means. (John Disney/Daily Report)
As senior associates, they may work on multimillion-dollar deals or complex litigation issues without breaking a sweat. But when they finally make partner, they are faced with new challenges that they may not be completely prepared for or understand—such as why their paychecks don’t come every two weeks.
And that’s not the only area of ambiguity for ambitious young lawyers who have finally caught that brass ring of being named a partner, and eventually, maybe an equity partner.
“When you start working at a firm, your focus is doing your job well and making partner,” says Chris Fox, newly named partner at Thompson Hine. “Your focus is on making partner as opposed to what else does that mean. It’s like, don’t get ahead of yourself. Make partner first and then figure out everything else. Short-sighted? Yes.”
As Fox said, associates are so focused on the end-goal that they not only don’t think about the “what’s next,” but they don’t even think about whether the partnership is right for them.
Accepting a partnership shouldn’t be a given, says Gerry Riskin, founder of Edge International, a law firm management consulting firm. “Being invited into a partnership is similar to a proposal of marriage. Most do no due diligence and they let their hearts lead them—sometimes into bliss.”
Taking a partnership at a law firm should be no different from investigating a business before buying it. There’s no negotiation, however, with a partnership offer. “It’s about the only thing a lawyer won’t negotiate,” says Riskin. So, he says, it is good to begin with financials going back several years. “You want to see a trend; where is the firm going financially,” he says.
Scrutinize the leadership and assess whether you believe it is strong and capable. “The quality of leadership is becoming more and more important. Look to see if a significant proportion of the leadership is actually doing the work themselves,” he says.
Look deeply at the firm’s stated strategy. Even if the most recent strategic plan is only a few years old, be satisfied that leadership can verbalize where it sees the firm going and that the plan contains some specificity. “Hoping to continue on the path the firm has been on for decades is not a plan,” he says.
The devil, Riskin says, is in the details. “It’s back to the marriage proposal. You have a nice meeting in the boardroom where the partners say they love you and they want you to stay so they’ll elevate you to this new position. It’s very seductive. Most run home and tell their spouse and parents and they don’t ask any of these questions.”
Asking the tough questions
Some firms welcome such associate investigation and introspection. Several months before Chris Freeman was up for a partnership vote, his firm Carlton Fields (now Carlton Fields Jorden Burt) gave him a long questionnaire. Freeman was asked to describe his practice and where he wanted to take it, what he considered his career achievements and how that reflected on his capabilities.
“It required a tremendous amount of self-reflection,” he says. “It required you to think and forced you to look at your practice and decide if that’s where you want to go. It forces you to say, ‘Do I want this? Do I want this practice and to spend my career with these people? Or have I done this because this is the next step in a process?’”
Even when all other details line up, it’s not uncommon for a new partner’s first shock to be related to money: leaving the comfort of a regular paycheck and ponying up the capital investment—a dowry of sorts—to buy into the firm. A few years down the road, another contribution might be required to buy an equity seat.
“I never gave a thought to any of that,” says Jeff Gordon, a new partner at Parker Hudson Rainer & Dobbs. “I didn’t know how to put money away for taxes. Before I had a stipend for my cell and data service. Now, I pay for it as a business expense and I’m getting into the habit of writing things down as a business expense. It’s all weird.”
Melissa Segel, newly named partner at Swift Currie McGhee & Hiers, says simply, “It all baffles me—the whole draw system—it shouldn’t but it does. I know I have to pay my own taxes, but beyond that, I’m wading into the waters. I’m flying blind.”
“Intellectually, they get it,” says Steve Allen, managing director at SunTrust Private Wealth Management. “But they need help learning how to budget and how to live on a line of credit.”
Many firms introduce associates to their bank as a financial resource. Banks such as SunTrust, CitiBank and Wells Fargo have departments dedicated to serving lawyers and their unique needs.
“We speak to these young associates who are suddenly making more money than they’ve ever seen. Many still have student loans, they’ve sold the old BMW and bought a new BMW, they’ve bought a house and they have a pile of debt. They need help in planning,” says Allen. “It’s great to be invited to be a partner, and down the road it should lead to great rewards, but at first, they can’t figure out how they’re going to pay their mortgage. It’s also not a bad time to starting planning for the day when you have to write the big check.”
The big one
Oh yes, “the big check.”
And a big check it is.
“I’ve heard about numbers at different firms,” says Joshua Bosin of Holland & Knight. “The whole financial thing is a little baffling. I look at some of those numbers I’ve heard and I’m like, ‘Are you kidding me?’ It’s a little overwhelming but I’m going step by step. I still have [student] loans so I want to get rid of those and then hopefully be able to make a significant [equity] contribution to the firm.”
Exactly how much it costs to become an equity partner and how the firm comes up with the figure are the stuff of urban legends. Insiders say the capital investment can be as low as $20,000 and as high as $500,000. Generally it’s a percentage of one’s compensation [from the prior position], with 30 percent being a good average, says Stanley Kolodziejczak, co-chairman of law firm services at Price­Waterhouse­Coopers. However, it might be as low as 20 percent or as high as 80 percent, depending on such things as the level of capital in the firm or debt.
“There can be pretty dramatic differences among firms and it goes back to how the firm handles the finances,” says Debbie Tyson, senior vice president of the Legal Specialty Group at Wells Fargo. “Some firms are self-funding, so they have control. They basically take the payment out of the partner’s draw. Or the partner works with the firm’s bank for a loan.”
The loan’s range can be quite broad, with high performing firms in major markets collecting average paid in capital per equity partner of more than $400,000 or roughly 30 percent to 35 percent of budgeted compensation, and that number can range up to 50 percent of target annual compensation, says Mike McKenney, head of credit origination at Citibank Private Bank Law Firm Group. “Loans are generally priced off LIBOR [London Interbank Offered Rate] and can range from 2.25 percent to 4.25 percent. … with interest schedules and amortization tailored to the firm,” McKenney says.
Another advantage is that banks with law firm experience often tailor the loan’s payments to financial eccentricities of law firms. “We are very cognizant that some firms want the check as soon as the partnership papers are signed; some give 30 days and other firms will extend it to five years,” says Tyson. So banks might collect interest for the first three years of a five-year loan. “We don’t look so much at the debt ratio like we typically do. Usually the firm guarantees the loan or they’ll provide a letter saying they’ll be responsible if the partner defaults. These are very specialized loans.”
Once the financials are settled, a newly minted partner still faces unknown challenges.
“The biggest difference I can tell is creating a self-sustaining book of business and marketing myself,” says Fox.
It can be hard for partners to understand they will be judged differently from when they were associates, says Lisa Smith, a partner at Fairfax Associates, a consulting firm. “The ability to develop business becomes much more of a significant factor than in the past. Billable hours [are] important but the ability to develop work and delegate work, meaning building a team around you, becomes a higher priority.”
Tom Ward, a partner with Swift Currie, says he is “working more and billing less. I’m being measured differently and there’s not a huge incentive to bill like crazy. The incentive is to bring in more work and do well. I also have a lot more responsibility, administrative work that comes with being a partner. Lots of committee meetings.”
Bosin says he was amazed by the amount of administrative duties. “I didn’t know so many emails can fly around the office all day,” he says. “Now I see why the expectation of billing hours is a little lower.”
PWC’s Kolodziejczak says firms need to do a better job training and preparing attorneys to develop the skills necessary to market and build relationships. “Oftentimes attorneys understand the law and its intricacies but don’t have the soft skills— emotional intelligence,” he says.
There is also a whole set of skills a partner must master beyond the law, he says. “You have to get in the game, do project management, understand the financial aspects of your business. How do you bill clients’ profitability? These skills are not taught in law school and may not be taught in the firm but they are essential.”
Even after maneuvering through the financials and the new business development mazes, there still are surprises lurking about for new partners.
“What surprised me the most about making partner,” says Freeman, “is that the joke about winning the pie-eating contest wasn’t one.”
This story has been changed to reflect the following correction. An article in the March 10 New Partners section incorrectly stated that Tom Ward is a partner at Smith Currie. The name of the firm is Swift Currie.