The Associate, the Equity Partner, and the Managing Partner

Lawyers, more than other professionals, are a skeptical bunch. Law firms can be Machiavellian. There is a low level of trust between lawyers, even between law partners. Larry Richard, J.D., Ph.D., says the average lawyer is more skeptical than 90% of professionals. That same study found that 80% of lawyers scored in the lower half of the trait of resilience or ego strength, which makes them especially defensive, resistant to feedback, and hypersensitive to criticism.

David Maister, a retired professor from the Harvard Business School, studied the management of professional service firms. Of all professional service firms, Maister, in Strategy and the Fat Smoker, singles out lawyers as especially distrusting. Students should not expect to land jobs with generous souls who long to pass on their knowledge and clients before retiring to be a loving, uncompensated mentor.

The legal world knows two kinds of lawyers: lawyers with clients, that is, a portable book of business, and lawyers without clients, that is, lawyers who work on clients brought to them by other lawyers. Law firms treat these two kinds of lawyers very differently.

To the lawyer with clients and the lawyer without clients, let us add a third sub-category: managing partner. Managing partner is a subset of lawyers with clients, but let us consider it a third role for this analysis. So, consider three types of lawyer roles: associate attorney, equity partner, and managing partner. Think of these as roles, not job titles.

Associate Attorney—In the role of an associate attorney, others bring clients to your desk and handle all the administration. In this role, you can sit at your desk (or go to court) and be a lawyer. You enjoy doing the technical legal work. Examples of the associate role include the following: law clerks for judges; prosecutors; public defenders; government lawyers; most entry-level associates; and many non-equity partners in private practice. The associate’s marketing, if any, is internal to partners within the firm.

The associate role includes, in some sense, in-house counsel. Their market, then, is the organization’s chief legal officer and managers.

Associates should expect the private practice law firm to not invest in their professional development. On the contrary, in some senses, the billable requirement inhibits that development. The private law firm probably has annual billable expectations between 1,600 and 2,200 hours per year, with local, mid-sized firms trending at 1,850. This billable expectation keeps the associate so busy that he does not have time to think about getting clients. The associate does not have time to design and execute a marketing plan. The system keeps the associate at the desk billing clients, not getting new ones.

When the associate has been with a private law firm for six to eight years and has no book of business for himself, the associate may be offered a promotion as a non-equity partner.

“Non-equity partner” is a lawyer trick and an oxymoron. Few lawyers practice in partnerships, which have fiduciary duties and joint liability. Instead, they practice in companies like a PLLC or a P.S. Inc. Those companies, wanting to limit ownership, create new tiers of non-owner employees. An employed attorney who requires feeding and supervision is labeled an associate. Once the associate has enough experience to run cases themselves and convince clients of their worth, the law firm renames them (non-equity) partners. The firm may grant a few perks, like a parking spot or a larger office. The firm benefits from this promotion by raising the lawyer’s hourly rate, making the lawyer responsible for a file, and supervising associates’ work.

If the attorney has a special value to the firm or moves from a non-equity partner to another firm, the lawyer may be referred to as “of counsel.” Of counsel is a way of saying that the lawyer is senior but not a partner. Of counsel probably has enough work to keep herself busy, but not enough to keep an associate busy. Non-equity partners and many of-counsel attorneys are in the role of associate attorney, yet with higher pay and more responsibility. Of counsel attorneys are probably paid on an eat-what-you-kill formula instead of a predictable salary.

The firm will withhold equity partnerships if the lawyer wants to work part-time or does not have enough portable business to become a partner.

Law firms cannot maintain a pyramid scheme without limiting the number of people who survive entry-level jobs to progress to make partner. The more centralized the source of clients, the more fiercely the current owners will fight against their employed attorneys to prevent them from becoming equity partner peers. 

Some firms, instead, drive away senior associates with an up-or-out philosophy. Associate attorneys do not stay at BigLaw firms: 23% leave by their second year; 56.9% by their fifth year; and 73.3% by their 8^th year. Those firms may suddenly criticize the quality of the senior associate’s work. This is an indirect way of showing the associate the door to make room for another associate. The associate might have four months to find a new law firm before the firm offers them either a severance agreement or a performance improvement plan.

Equity Partner—the equity partner has her clients. The equity partner may practice in a law firm or on her own. Having a law practice requires acquiring clients. 

The legal industry thinks of one who has a portable book of business worthy of consideration as an equity partner. A book of business is an expectation of future clients. If you cannot take your book with you to another law firm, it is not portable. If your book is not portable, you are economically dependent on the firm and in an associate attorney (not equity partner) role. In other words, the distinguishing feature between equity and non-equity partners is a portable book of business. A book of business is the difference between being an employee or a part owner.

The equity partner has a marketing plan and acquires clients regularly and reliably. Equity partners might groom and protect associate attorneys. This helps develop the talent to do the legal work of the equity partner’s clients.

The firm owners tell the lawyer under consideration for the equity partner that there is a buy-in to become an owner. This buy-in can be paid over the next few years. It is like granting stock that vests over a few years, which encourages the retention of good employees. This stock, however, is unlike publicly traded stock, which can be sold to any willing buyer. Ownership is likely tied up so that there is a limited market for the stock; it can only be sold to buyers approved by a majority vote of owners (i.e., equity partners). The stock entitles one to see internal numbers, cast votes in exclusive meetings, and share in the profits (relative to the overall share). The inner circle of equity partners has additional control over money. One managing partner of a large, downtown law firm says, “The compensation committee is like watching pirates fight over loot.” This is the prize that many race for, yet they do not understand the prize they are racing for. This is the brass ring. 

Managing Partner—distinguish a law practice, which you can move from firm to firm, from managing a law firm. The managing partner is responsible for the operations of the firm and firmwide aspects of marketing. A law firm’s managing partner may have the formal authority to hire and fire for unimportant positions in the firm, but his or her power is otherwise minimal. Managing partners have limited power and can be compared to a figurehead government for powerful stakeholders. Powerful stakeholders are the equity partners with the largest books of business. A managing partner without a sizable book of business may find themselves far less powerful than the outside observer imagines they are.

Jordan Furlong, in Law Is a Buyer’s Market: Building a Client-First Law Firm, observes, “A law firm partnership isn’t really a commercial entity separate and apart from the people who own it and work inside it,” he says plainly, “It is the people who own and work inside it.”

Law firms have no interest in making the representation more efficient, which would diminish the number of hours they could bill. Furlong explains key pressures on the law firm. Two key pressures are lawyers’ ability to move their practices from one firm to another, and the tax incentives, which encourage law firms to spend or distribute every dollar it makes every year. These pressures prevent firms from investing in research and design. Pressures include billable hours and bonuses to equity partners. Equity partners, who have portable books of business, will leave if they are not running efficiently to pay them competitively. Law firms exist to make money for their current equity partners. The managing partner who does not serve this prime directive will see a coup d’état. Neither Furlong nor I suggest it must be like this. On the contrary, Furlong suggests those law firms are like dinosaurs oblivious to a changing climate. Yet, lawyers at the beginning of their careers should enter the profession with their eyes wide open. You should also compare these three roles with the three hats of the managing partner.