What is an equity partner in a law firm, and why should anyone care how it is defined? The fact is, law firms matter to a democratic society. The influence of the profession extends far beyond its office towers, and the size of many firms now qualify as major businesses. Law firms also serve as significant training grounds for important roles — particularly in the judiciary, politics and government.
For the nation’s leading law firms, defining the term “equity partner” should not be an esoteric exercise. Understanding the way this term is used — even manipulated — and developing a consistent definition that means the same across all firms, is critical to the profession and all organizations that collect and report data for a variety of purposes.
National firms, for example, are asked to respond to surveys seeking partnership data linked to profits per partner, the sine qua non by which firms measure their success. Attraction of lateral hires, prevention of partner defections and law firm mergers depend upon increased profits per partner.
Over time, firms have engaged in a variety of efforts to improve their competitive position. One way to increase equity partner profits has been to decrease the number of equity partners. This has resulted in de-equitizing partners at the lower end of the compensation scale, while concomitantly raising the bar for entry into the equity partnership ranks.
The definition of equity party is key, however, when the data is sought for other purposes, such as determining how diverse the firm is. Law students and many clients are looking at metrics to determine how women and minorities are succeeding into the partnership ranks.
To appear more diverse, it is in a firm’s best interest to have a more inclusive pool of partners upon which to draw its data. Studies demonstrate, however, that women and lawyers of color are generally lower in the compensation scale. This means that the wider pool of partners that firms want to count for purposes of reporting profits may not look as good for purposes of measuring the partnership’s diversity.
As a result, significant inconsistencies have evolved in the collection and reporting of data, making it extraordinarily difficult to determine how women and lawyers of color are, in fact, succeeding. Professor Michele Dauber and her students at Stanford Law School have analyzed all reported data for the past four years. The results show startling inconsistencies: In 2007, more than half of the New York City offices and more than a third of the Washington offices of major law firms reported different partnership numbers to the six major entities that collect the information.
This issue recently exploded into public view when the National Association of Law Placement backed away from its previous commitment to require firms to distinguish between equity and nonequity partners in its annual survey. Historically, firms have been able to report to NALP their total number of partners without distinguishing between tiers, or providing office-by-office breakdowns.
NALP’s decision to collect equity partner data was a tremendous step forward — until it became a step backward. Its decision deprives the profession of needed comparative data. Even among organizations that currently collect partnership information by equity/nonequity categories, different definitions provide significant opportunities for firms to appear more diverse in one setting than they are in another, namely, when they use less inclusive definitions to look more profitable.
The ability to understand data is a critical management tool. It is impossible to speak of diversity or partner profits or professional opportunities without collecting the information that indicates whether these words are backed by real numbers. How many equity partners does a firm truly have? What is the ratio of men to women, in both equity and nonequity ranks? How many partners are lawyers of color?
Not everyone chooses to become an equity partner. For all kinds of valid reasons, lawyers may choose to step off the partnership track. But it is critical that, even as firms offer multiple career paths, they be transparent in reporting their data.
Without this information, law students and lateral recruits cannot make educated judgments about their future prospects. Moreover, clients cannot accurately measure whether their outside firms are places where diverse lawyers can succeed.
Which brings us back to the question: What is an equity partner? It is time to develop a uniform definition, to ensure that all entities and publications are collecting consistent data. As law firms grow in size and complexity, the need for accurate metrics becomes more acute.
By demanding consistent definitions, entities that collect such data can ensure that their report cards contain grades that really matter.
Lauren Stiller Rikleen is executive director of Bowditch Institute for Women’s Success. Fernande Duffly is a justice of the Massachusetts Appeals Court. She is past president of the National Association of Women Judges. Nancy Gertner is a judge of the U.S. District Court for the District of Massachusetts.
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