The 4 Biggest Blunders Equity Partners Make
By Andrew McIntyre
Law360, Los Angeles (September 15, 2015, 7:48 PM ET) — Law firm equity partnership, a coveted position that can take a decade or longer and tens of thousands of hours to achieve, comes with its share of perks, but experts say it’s not always smooth sailing once a lawyer achieves that status.
There are many mistakes equity partners can make, whether that be focusing too narrowly on practicing law, not being aggressive enough in bringing on new clients or not being sufficiently involved on the management side of the coin.
Here, Law360 looks at mistakes equity partners should try to avoid.
Failing to Build a Bigger Client Base
Just as associates making their way toward partner are often expected to help bring in business to the law firm by growing a book of business, so too are equity partners also expected to maintain — and in some instances grow — a steady book of business.
“Equity partners should think like equity partners. They’re an owner of their firm, and in this increasingly bottom-line environment, even owners are vulnerable to the vicissitudes of the market,” said Sandy Lechtick of Esquire Inc. “If they don’t produce, do the things that owners should be doing like develop new client relationships … unless they’re tied closely to the fabric of their firm, they can be asked to leave.”
That prospect of finding additional clients can be particularly tricky for new equity partners, who for years have been given plenty of work by the partners under whom they’ve been working.
“Equity partners who had been relying on the work they had been given may find themselves not so busy,” said Stephen A. Cowan of DLA Piper. “It’s up to them to find new sources of business, new client responsibilities. Hopefully they’ve been doing that as they moved up the path. A lot haven’t.”
Failing to Look Beyond Book-Building
While equity partners may feel pressure to bring in more clients to the firm, lawyers new to that role would be wise to not forget that their firms are interested in much more than book-building.
“Don’t make the mistake of thinking it’s all about book of business. Every dollar of revenue is not the same,” said Peter Zeughauser of Zeughauser Group LLC. “Some work is for more important clients. Some work is more profitable. Don’t just chase work just because it’s there. Chase it because it’s good work for the firm.”
New equity partners, Zeughauser said, sometimes place too much focus on their individual efforts, and forget that when it comes to client work at the firm, team representation is paramount.
“When you have the opportunity to involve another partner in work, it’s not about repaying favors. It’s about putting the best team on the field for the client,” Zeughauser said. “Just put the best team on the field.”
Forgetting to Read the Partner Agreement
Lawyers who have gone up through the associate ranks at a law firm to make equity partner are likely to know well the partner agreement prior to making partner, having talked to colleagues over the years.
But equity partners who are looking to move laterally need to pay particular attention to what that partner agreement says about leaving the law firm.
“If an equity partner is thinking about leaving his firm, he or should really read their partner’s agreement to understand the mechanism of getting their capital contribution back,” Lechtick said. “Some firms can make it difficult, can delay things.”
In the case of equity partner moves to Dewey & LeBoeuf LLP prior to that firm’s collapse, Lechtick said a number of lawyers who moved laterally to Dewey “absolutely did not do their homework.”
“If one is in a potential lateral situation, one should do their homework on the finances of the firm that they’re seriously considering.”
Not Taking a More Active Role in the Firm
While it can seem difficult enough to go out in search of new clients, becoming an equity partner often involves taking on new responsibilities, both in terms of marketing and management — and it’s important not to lose sight of either role.
“The benefit of being an equity partner is first and foremost having an equal say in certain aspects of firm management,” said Lyndon Parker of JD Search Advisors LLC. “But if you have chosen not to participate in any firm-wide role, other than practicing law, you may eventually find yourself relegated to the equivalent of nonequity, and ultimately be asked to leave.”
Just as partners should continue to market the firm, he said, they should also be aware early on of any law firm management duties.
“Take part in some aspect of law firm management so you are clear about what the firm is doing, is planning or initiatives they may consider,” Parker said. “As an equity partner you are indeed an owner of the business, so act like it both externally and internally.”
But just how equity partners fit into the management chain isn’t always clear.
“As law firms are getting bigger and bigger, even equity partners often seem themselves as really employees of a big company,” Lechtick said. “They just assume that the management of the firm is doing the right stuff.”
The bottom line is that equity partners would be wise to be engaged and active in the firm’s management process, even when not directly prompted to do so, Zeughauser said.
“Pay attention to the firm’s business. You get a lot of reports. Probably more information than you need. Figure out a way to zero in on what’s important,” he said. “Don’t assume someone else is doing that, including firm management. That’s a big mistake.”
–Editing by Mark Lebetkin and Sarah Golin.