Law Practice Management Asked and Answered Blog

Category: Partnership

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Feb 25, 2026

Law Firm Owner’s Transition and Exit Strategies – Clients and Management Roles

Question:

I am the sole owner of a 20 lawyer litigation firm in Chicago. There are five seasoned non-equity partners and fourteen associates in the firm. I am 63 and trying to figure out what to do with the practice. While I am not ready to retire in the next several years I do want to slow down and be retired in five to seven years. How should I approach my transition and exit from the firm? You feedback would be appreciated.

Response:

You have a valid concern that is shared by many.

The pending retirement of the baby boomer generation and the unrelenting challenge of finding and keeping talented staff can have grave consequences for law firms that fail to develop a succession strategy. Steps that you take or do not take five years or earlier prior to your actual retirement will determine whether your practice, clients, employees, and your legacy transitions to another generation. For a small or solo practice, these steps may determine whether your practice has any terminal value at all.

Many are asking, “What do I do with this Practice?” “Is there value or goodwill? “Where and how should I start?

Early planning will pay dividends. Many firms are in “reactionary mode” and are not adequately prepared to transition firm leadership and client relationships.  A firm’s very survival may very well depend upon the steps you begin taking in the next few years.

How well you transition clients and managerial roles will determine the ultimate success of any succession/exit plan. Transition of clients and managerial roles are the two critical components of any succession/exit plan.

Bring Deserving and Qualified Non-Equity Partners into Equity 

Personally, I believe your best strategy will be to bring some of your non-equity partners into equity sooner than later – either with initial buy-ins or no buy-ins for initial ownership minority shares but agreed to buyouts for your remaining equity upon your requirement. We are finding a lot of non-takers today when it comes to equity and you need to find out sooner than later if you have anyone interested in equity. This will determine whether your strategy will be an internal exit strategy or external strategy.

Client Transition

Transitioning client relationships is difficult, it takes time, and it takes more than one simple introduction. It is a lot like cross selling that attorneys talk about but often fail to put into practice.

In a recent BTI Consulting Group report on Benchmarking Law Firm Marketing and Business Development Strategies, the section on cross-selling was titled, “Achilles Heel for Law Firms.” When BTI interviewed 120 Chief Marketing Officers and Directors of Business Development at leading law firms, they found that only 4 percent of law firms rated themselves as highly effective in cross-selling, and 77 percent thought they were ineffective.

My experience and our surveys of our clients and their clients have shown similar results. Cross-selling is talked about a lot and seldom implemented.

Cross-selling can be an effective strategy – but it is not easy and it requires trust, commitment, communication, hard work, dedication, and organizational alignment.

Challenges and Hurdles

Transitioning clients to another responsible attorney(s) within your law firm or to another attorney in another law firm involves numerous challenges that have to be overcome.  Consider the following challenges and hurdles:

  1. Relationships take an investment of time and must be nurtured on behalf of the parties making the introductions and connections as well as the parties trying to form the new relationship. Attorneys often want immediate gratification and the “quick fix” and are unwilling to invest time needed for longer-term results. More than a “one-shot” simple introduction is required.
  2. Clients hire lawyers not law firms.
  3. Client transition requires trust on the part the client, the relationship attorney, and the future responsible attorney. A high level of trust must exist between the attorneys involved and with the client.
  4. There is potential risk of embarrassment for all concerned. The relationship attorney could risk losing the client if the other attorney does poor work for the client. Another issue is the loss of control over the client. The individuals in the client organization could also risk criticism (or even their jobs) if the new relationship does not pan out.
  5. Many law firms are “lone ranger” rather than “firm first” or “team based” firms. As a result, there is no inclination or incentive to either invest the time and effort or take the risk to refer work to others in the firm.
  6. Lack of knowledge regarding other partners’ practices.
  7. Fear of losing clients.
  8. Fear of losing client control.
  9. Compensation systems in many law firms encourage hoarding of work and discourage the referring of work to others.
  10. Communication systems in some law firms do not facilitate relationship building among attorneys. Effective client transition is simply not possible without strong relationships and high levels of trust among attorneys in the law firm.

Client Transition

Successful client transition – moving clients from one generation to the next – is a major challenge for all law firms. Shifting clients is not an individual responsibility but a firm responsibility. To effectively transition clients the individual lawyer, with clients, must work together with the firm to insure the clients receive quality legal services throughout the transition process. Both the individual lawyer and the firm must be committed to keeping clients in the firm when the senior attorneys retire. Potential obstacles include:

Transitioning institutional client relationships effectively can and where possible should take a number of years – preferably five years – typically not less than three years.

The following client transition plan might be an approach you could take to transition clients over a three to five year period:

  1. Review your Top Client List and develop and implement a detailed action and milestone plan for each significant client.
  2. Designate one or more Co-Responsible Attorney(s) for each existing client, and each new client as to which you are the Responsible (Primary) Attorney.  The stated goal in designating one or more Co-Responsible Attorneys for each client is to facilitate the transition and retention of your clients upon your retirement and phase-out from the practice of law. You will agree to introduce the Co-Responsible Attorney(s) to the client when you are reasonably available, and work with the Co-Responsible Attorney(s) to transition the client and client matters to the Co-Responsible Attorney(s). You and the Co-Responsible Attorney(s) shall meet to discuss and evaluate the timing for the transition of each client. However, notice to clients shall be solely at your discretion. The Co-Responsible Attorney(s) may, at your discretion, prepare all invoices for legal services rendered. You will review and approve all invoices unless you agree to the contrary in writing. The client’s wishes shall be paramount in the designation or selection of any Co-Responsible Attorney(s) and client satisfaction shall allow for change of the designation.
  3. You will perform such duties from time to time that you determine are in the best interest of the Firm and which are agreeable to you.
  4. Of Counsel. After the conclusion of the final transition year, the firm may enter into an “Of Counsel” relationship with you. In that event, you would be listed as “Of Counsel”. The relationship would be subject to both parties agreeing on the terms and conditions of the “Of Counsel” relationship.

Effective client transition takes time so start early. Clients hire lawyers not law firms.

Management Transition

Successful management transition – moving management and leadership from one generation to the next – can also be a major challenge.

Consider undertaking the following, as well as other, management and leadership activities, which may assist you and the firm transition management and leadership roles over the next three to five years.

  1. Invite new equity partners to serve as members on a executive committee, Chair of the Executive Committee, other committees, or assigned direct responsibility and oversight for a specific management function such as:
    1. Client development/marketing
    2. Human resources/personnel
    3. Financial management
    4. A specific project
  2. Allow new equity partners to participate in the development of the firm annual budget and financial plan.
  3. Allow new equity partners to participate in performance reviews of non-equity partners, associates, and staff.
  4. Provide new equity partners with access to all firm financial records and reports.
  5. Allow new equity partners to attend all partner meetings.
  6. Invite new equity partners to meetings with the firm’s accountants and other advisors.
  7. Have new equity partners participate in the recruitment and hiring of attorneys and staff.
  8. Rotate new equity partners in a variety of management and leadership roles over the three-five year transition period.

An effective succession and transition strategy involves coming to terms with aging and retirement, developing a timeline, and identifying transition candidates either internally or externally. An old saying at IBM when I was a business partner with IBM – what gets planned and what get measured is what gets done. You have worked hard to build your practice. Your practice may or may not have value depending upon the steps you take and when you take them. Start early.

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John W. Olmstead, MBA, Ph.D, CMC

Jan 20, 2026

Law Firm Partnership – Bringing in a Partner – Issues to Consider

Question: 

I am the founder and owner of a business law firm in San Diego, California. There are 9 associates, four paralegals, and three administrative staff members working in the firm. I founded the practice 20 years ago and I have never had a partner in this firm. I was involved in a partnership in another firm prior to forming this firm. There were partnership issues which is the reason why I left and started my own firm. I have enjoyed the freedom of sole ownership but I now believe that in order to get to the next level, retain quality attorneys, and have a succession plan for myself when I get closer to retirement I need to consider bringing in partners. However, based on my prior firm experience I am fearful. I would appreciate your thoughts and advice.

Response: 

Do You Really Want Partners

You may want to ask yourself whether you want employees or partners. What is the criteria for becoming an equity partner? Is client development part of that criteria? Should they contribute capital? If they are not adding value to the firm – growth – you may be diluting the earnings pool and reducing the size of the pie for yourself. Personally, I think in small firms criteria for becoming an equity partner should, among other things, include client development and a capital contribution. They should have some skin in the game, contribute capital, and signup for their share of the liabilities. I also believe they should then be included in the inner circle.

Then, depending upon whether you are considering equity and non-equity partner tiers,  you should develop non-equity and associate career progression plans – associate to non-equity partner and non-equity partner to equity partner – outlining timeline for consideration, the consideration process, the criteria, and the responsibilities and expectations for each. (What partnership means)

You may believe that you have identified the right person or persons whom you believe is the right person or persons for partnership. However, just because the associate has been a good associate does not mean that the associate will be a good partner – the relationship will be different. But at least the associate is somewhat of a known quantity since you know the associate and have worked with the associate for several years.

Here are a few ideas you might consider:

  1. Outline you goals and expectations for the relationship.
  2. Meet with your associate and identify his/her goals and expectations for the relationship.
  3. Determine how much control over the practice and decision-making are you willing to give up? Share?
  4. Determine how much and for how long you are willing to make less?
  5. Determine if the associate will be expected to bring in business? When/Timeline?
  6. Think about the firm you want to build – firm-first or lone ranger (team based or individual practices)?
  7. Decide on firm name – will it change? Should it? Impact on image, clients, etc.
  8. Decision as to capital contribution or buy-in? Yes or No? How much? Timeline for payment?
  9. Ownership percentages
  10. Voting
  11. Compensation
  12. Withdrawal arrangements

Hiring Associates That Can Be Effectively Groomed for Partnership

Years ago it seemed that all the associates working in law firms wanted to eventually become a partner in the law firm. This has changed as a result of the new mix of women and men graduating from law schools and entering the legal profession, changing attitudes toward work life balance, other opportunities outside law firms, and other variables. While partnership/ownership is still important to many – don’t assume that all the associates that you hire will even want to be equity partners – especially if it means a hefty capital contribution and signing personal guarantees for a large amount of firm debt.

A question that I would ask – have you really discussed with your associates their interests in equity ownership? As a group? Recently an associate, whom the firm had written off, advised me that while he was not interested now due to his present situation in life, he would be in maybe five years – especially if others also were brought in as well – in other words he did not want to have the responsibility alone and be an equity owner by himself.

I suggest that you talk with your people and see where they really stand. Help them to begin developing client development skills. Depending on your retirement timeline – and if you have “no takers” you may have to consider other options such as laterals or merging with another firm.

A key suggestion is to look for entrepreneurial associates when you hire. The desire for ownership of a business if often in a person’s blood. Don’t start the interview with a discussion from law school until the present. Dig deeper into hobbies, general interests, etc. that will provide clues as to whether you may be hiring someone that just wants a law job or someone that eventually wants to own or be a partner in a law firm.

Typically a buy-in or capital contribution is not required for non-equity partners nor do I recommend such. Typically non-equity partners are salaried and may participate in some form of an incentive bonus system tied to individual, team, or firm financial performance. They are also not required to assume any responsibility for any of the firm’s financial liabilities or debts.

If you intend on bringing in the associates as equity partners that is another matter. I believe that all new partners should be expected to contribute capital and have some “skin in the game.” Whenever a firm admits a new partner, the firm should require the new partner to contribute capital. Increasingly, a partner’s capital requirement should bear a relationship to the partner’s share of profits. You may want to allow new partners a reasonable period of time to fund their capital accounts – say five years or help them arrange favorable terms at your bank to finance their capital accounts.

Some firms have a buy-in tied to either the cash-based book value of the firm or the accrual-based book value (includes accounts receivable and work in process). This is not the typical practice although I do run into it. Usually capital accounts are tied to working capital needed to operate the firm and the percentage of ownership/income that each partner will have.

There are only three ways to increase a firm’s working capital to cover cash flow requirements and fund growth:

1. Have partners put more money in
2. Have partners take less money out
3. Borrow

Many firms use bank credit lines instead of capital contributions to pay routine firm expenses and partner draws during periods when cash flow is tight. It has been my experience that firms that follow this practice have ongoing financial challenges and problems.

The reality is that many firms are under-capitalized – don’t become one of them!

Make the criteria tough and resist the temptation to make everyone a partner.

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John W. Olmstead, MBA, Ph.D, CMC

Jan 31, 2024

Law Firm Equity Partnership – Buy-Ins and Buyouts

Question:

I am the sole owner of a personal injury practice in Orlando, Florida. I am in my mid-sixties and am looking to transition out of the firm and retire in the next five to seven years. I have three associates in the firm. I would like to sell my equity to one of the associates that has expressed an interest and has been with me for many years. I would like to receive some value for founding the firm and my contributions over the past thirty years. I would like to see him a twenty percent interest initially and more over the next few years. I am trying to determine a firm value for calculating his buy-in. I would appreciate any thoughts that you may have regarding how buy-ins for partners are determined.

Response: 

Approaches to buy-ins and buyouts are all over the place in law firms. Here are a few of the common approaches:

  1. Naked in and naked out – given shares or percentage interest.
    No buy-in at all. A new equity partner is given a percentage interest or shares with no buy-in whatsoever. When the partner leaves the firm
    for whatever reason he or she is paid their share of earnings to date and that is it. No buyout for their interest.
  2. Naked in and naked out with cash-based capital contribution.
    A new equity partner is given a percentage interest or shares with a capital contribution in alignment with their percentage interest.
    When the partner leaves the firm for whatever reason he or she is paid their share of earnings to date and their capital account.
  3. Naked in and naked out with cash-based plus WIP and AR buy-in.A new equity partner is given a percentage interest or shares with a capital contribution and a buy-in the unbilled work in process and accounts
    receivable in alignment with their percentage interest. When the partner leaves the firm for whatever reason he or she is paid their share of earnings
    to date and their cash-based capital account plus their interest in accounts receivable and unbilled work in process.
  4. Purchased shares based on a valuation at the time the shares are purchased and sold.
    A new equity partner is sold a percentage interest or shares based on a valuation at the time of purchase. When a partner or shareholder leaves the firm for whatever reason he or she is paid their share of earnings to date and their shares are purchased based upon a valuation of the firm at that time. These valuations often include a goodwill value. Sometimes the purchase price is discounted for sweat equity – time that an equity partner candidate has been with the firm, etc.
  5. Founder Benefit.
    New equity partners are given a percentage interest or shares with no buy-in or a cash-based capital contribution in alignment with their percentage interest and paid their share of earnings to date and their cash-based capital account, if any, when they leave the firm. However, original founders, in addition to being paid their share of earnings to date and their capital account, are also paid a founder benefit often in the form of a multiple of their average individual earnings (compensation) for the past three years.
  6. Buyout based on firm cash-based valuation, plus accounts receivable and work in progress plus percentage of future collections from new business after the termination date for three to five years. This approach used in practice sale situations, particularly contingency fee firms, when a goodwill value is difficult to ascertain. The percentage of future revenue on future business after the termination date serves as a proxy for the goodwill value. This approach is seldom used in multi-partner/shareholder firms. In fact, many multi-partner/shareholder firms specifically exclude goodwill from any valuation.
  7. Buyout based on mandatory retirement and winddown.
    An approach used by some second-generation firms is a mandatory retirement program that can begin as early as age 60 and no later than 65. The program requires a five-year winddown program in which a retiring equity partner reduces his or her work schedule twenty percent per year and compensation draw, distribution, or salary. During this period the partner is paid their cash-based capital account and their ownership percentage times the collectable accounts receivable and billable and collectable unbilled work in process as of the date the winddown program commences. During the winddown the retiring partner is expected to transition clients and management responsibilities.

In the final analysis the value of the practice is what an outside buyer or an attorney working for the firm will pay for (or invest) the practice. A balance often has to be struck between valuation, affordability, and willingness to pay. The valuation process is simply a tool to use to help you begin discussions and get to this point.

Click here for our blog on succession

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John W. Olmstead, MBA, Ph.D, CMC

Oct 25, 2023

Equity Partners – Valuation of Shares and Affordability

Question:

I am one of three founding partners in a 12 lawyer general litigation firm in San Francisco. All three of us are in are sixties and are looking to begin admitting others as equity partners. We have three non-equity partners and five associates in the firm. The three of believe that we should receive some value for founding the firm and our contributions over the past twenty years. We would like to sell each of them a ten percent interest and we are trying to determine a firm value for calculating their buy-ins.

Response: 

In the final analysis the value of the practice is what an outside buyer or an attorney working for the firm will pay for (or invest) the practice. A balance often has to be struck between valuation,  affordability, and willingness to pay. The valuation process is simply a tool to use to help you begin discussions and get to this point.

I believe that firm value has to be balanced with affordability and a prospective equity member’s willingness and ability to pay for the shares. It all comes down to compensation. Generally, I find that a prospective equity member or partner must be able to see a significant compensation increase with a breakeven/payback period of around three years – no more than five. I also believe that when shares are seller financed the period should be no longer than five years. Many firms do not sell shares based on formal valuation – other methods are used.

Questions that equity member candidates usually raise:

  1. Is the breakeven/payback from the investment in say three years as a result of the compensation gap?
  2. How much more will he or she earn as equity shareholder?
  3. Can he or she earn enough more as an equity member to justify the investment?
  4. Can he or she earn more as a partner somewhere else with as an large investment, a smaller investment, or even with no buy-in at all?
  5. Can he or she earn more somewhere else as an associate or non-equity partner?

In many law firms’ compensation is based upon performance and contribution and ownership shares have little or no bearing on member or partner compensation. Their primary goal is to acquire and retain talent.

Use a valuation methodology as a starting point – such as a multiple of firm past five year’s average revenue and adjust for the affordability factor. Keep in mind that many of your competitors are offering equity partnership with no buy-ins at all.

Click here for our blog on succession

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John W. Olmstead, MBA, Ph.D, CMC

Feb 02, 2023

Law Firm Compensation – Compensating New Equity Partners

Question:

Our firm is a seventeen lawyer insurance defense firm in Austin, Texas. The firm was founded by the two existing partners twenty-five years ago. In addition to the three founding equity partners we have five non-equity partners and ten associates. Non-equity partners and associates are paid a salary and a discretionary bonus. The two equity partners are paid their profit share based upon their partnership percentage which is fifty percent each in the form of distributions dependent upon cash flow. The two of us are considering offering partnership to two non-equity partners with a buy-in based on selling both a five percent interest based on a designed price per share. We would to maintain our same method of equity partner compensation based on percentage interest. We would appreciate any ideas that you have.

Response: 

This approach would be fine if the compensation numbers work. I  often find that at the lower end of partnership equity shares the compensation model that you have been using no longer works. The new partner simply does not have enough of an equity share interest to compensate him or her fairly and or be competitive with other law firms. He or she may ending up making less than they were making as non-equity partners. It may be time to at least shift to a compensation model for all of you where each of you are paid a base salary based upon your years of experience, billings, and overall performance and contribution to the firm, a bonus pool for exceptional performance or contribution to the firm, and the remainder distributed based on partnership ownership shares. Take a look at the non-equity partner candidates, their present compensation, what other law firms are paying that you are competing with for talent, and go from there. Also consider the buy-in that you are asking for and whether it is affordable and reasonable and how many years it will take your candidates to breakeven on the investment. Today we are finding that more and more non-equity partners and associates are saying “no thanks” to equity offers.

Of course there are many other approaches that you could take concerning compensation but this recommendation seems the easiest and closest to your present approach.

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John W. Olmstead, MBA, Ph.D, CMC

May 25, 2022

Law Firm Succession – Equity Partnership – Process for Admitting Equity Partners

Question:

I and another partner are the owners of a seven lawyer family law practice in Chicago suburbs. We started the firm twenty years ago after leaving behind a partnership in another firm. Of the other five attorneys there are three non-equity partners and the rest are associates. I am sixty three years old and my other partner is sixty. Both of us are beginning to think about retirement and how we are going to transition out of the practice. Two of the non-equity partners are well seasoned attorneys, have major case responsibility, and bring in client business. We have discussed equity partnership vaguely with two non-equity partners but they have been non-committal. I would appreciate your thoughts and advice on what our next steps should be.

Response:

I believe that you have been two vague in your discussions. Your non-equity partners need to know what the deal is, what financial investment will be required, and what their expected return will be based upon the historical financial performance of the firm. It is hard for non-equity partners or associates to commit to equity and taking on the risk of ownership when they don’t know what the deal is. This is a scary proposition for them and they need detailed information so they can evaluate and make an informed decision. A vague discussion doesn’t cut it. I suggest that you put together an equity partnership proposal that includes:

  1. Profit and loss statements for past the five years.
  2. Balances sheets for the past five years.
  3. A current accounts receivable and unbilled work in process report.
  4. Tax returns for the past five years.
  5. Malpractice insurance application.
  6. Building and other leases.
  7. Proposed Partnership Agreement
  8. Proposed Equity Partner Compensation Plan
  9. Planned date of admission
  10. Governance and management plan
  11. Ownership percentage being offered
  12. Capital contribution or buy-in requirement
Meet and discuss the proposal with your candidates, allow sufficient time for candidates to discuss with their families and advisors, and set a timeline for their decisions. I think you will see a different reaction. If they still are unable to commit your may have to begin thinking about an external strategy and looking around for merger candidates.

Click here for our blog on succession

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John W. Olmstead, MBA, Ph.D, CMC

Jul 14, 2021

Law Firm Succession Planning – Will Your Non-Equity Partners or Associates Simply Wait Your Out?

Question: 

I am one of three founding partners in a fourteen lawyer firm in Cleveland, Ohio. We are an insurance defense firm with three founding partners, five  non-equity partners, and six associates. We have three primary insurance companies that refer a majority of cases to the firm. All three of us founding partners are in our early to mid sixties and contemplating our retirement and departure from the firm in the next five to eight years. Our lease runs out in eight years and none of us want to sign another lease. Three of our non-equity partners are in their mid to late fifties and two are in their forties. All of our associates have less than five years experience. When and how should we begin planning for our retirements and exits from the firm?

Response: 

I suggest that you start now, especially if you are planning on an internal succession strategy. I believe that an internal succession should be your first step if you have the right people in place. When a firm has institutional clients such as you do with many different relationships within each client organization it can take time to transition relationships to the next generation of attorneys in the firm to ensure that clients stay with the firm when you retire. Transition to the next generation of attorneys usually involves legal skill development, management skill development, and client transition. We often recommend five years.

If you are looking for a buy-in for new equity partners you need sufficient time so new equity partners can pay for their initial ownership interests over time and acquire additional interests as they can afford to acquire more. Waiting too long can also create a situation where non-equity partners in the firm feel they can simply wait your out and inherit the clients without paying anything, or very little, for their ownership interests or buy-in/buyouts. Consider making a few folks minority equity partners as soon as you can.

This assume that any of your non-equity partners even want to be equity partners in the firm which is often the case these days. Three of your non-equity partners may also be close to retirement themselves and have no interest in stepping up to equity. If this is the case you will have to focus on the other two non-equity partners. I would begin a dialog with all of your non-equity partners to determine their interest level. At some point you will not really know until you present them will a proposal and appropriate financial information – initial buy-in if there is to be one and founding buy-outs if there is to be such.

If it looks like the interest or commitment level is not there in your non-equity partners you may have to consider an external option such as a merger. The timeline often can be much shorter in such situations.

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John W. Olmstead, MBA, Ph.D, CMC

 

Jun 16, 2021

Implementing a Non-Equity or Income Partner Tier in a Small Law Firm

Question:

I am the sole owner of a five lawyer firm in Indianapolis, Indiana. The other lawyers are associates. Our firm focuses entirely on estate planning and probate and trust administration as well as elder law. I am 60 and do not plan on retiring for another ten years. Two of my associates have been with me for 8-10 years and are vital to my practice as well as my eventual succession and exit strategy. I do not want to lose them so I am considering making them non-equity partners and giving them the title of partner. I am not ready to have any equity partners at this time. I have a production bonus system in place for the associates so I don’t plan on changing their compensation or the system under which they are compensated. How can I make their promotion to partner meaningful?

Response: 

Here are some things you might consider:

  1. Really build up their promotion to partner.
    1. Press releases announcing their promotion to partner to the local media.
    2. Mail out announcements announcing their promotion to partner to clients, past clients, other lawyers and law firms, judges, referral sources, and family and friends of the new partners.
    3. List them as partners on the firm’s website, letterhead, and other promotional materials. (Some firms have even listed them in the firm name – I don’t agree with this)
  2. Include them in firm management and at least begin sharing some, even if limited, financial information with them.
  3. Consider providing them with additional perks.
    1. If your present bonus system is based on working attorney collections, provide a delegation component for fee collections/receipts from other attorneys or paralegals on matters that the partner is responsible for and is managing.
    2. Additional life insurance.
    3. Country or other club membership.
    4. Firm paid automobile.
    5. Gas card.
    6. Firm credit card.

The title of partner in itself is more important than you might think but it requires that a big a buildup. If you only do one thing – do the buildup announcement and secondly include them more in firm management.

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John W. Olmstead, MBA, Ph.D, CMC

 

May 26, 2021

How/When to Admit a New Law Firm Partner

Question: 

Our firm is a six lawyer family law firm located in the Chicago suburbs. There are two equity partners and four associates in the firm. Approximately five years ago the founder of the firm decided to retire and he sold the practice to myself and another associate in the firm. We just finished making our last payment the end of last year. We have an associate that we do not want to lose and he has inquired about his future with the firm and partnership. He has been with the firm for two years. My partner and I are considering offering him a partnership interest but do not know where to start. Any suggestions that you have would be appreciated.

Response: 

The two of you should start by asking yourselves the following questions:

The majority of firms that I work with regardless of size have a non-equity/income partner tier that an associate advances to prior to being considered for equity partnership. This gives associates the feeling of career progression, the title of partner which helps with client and peer recognition, additional responsibility in the firm, and additional compensation. Your associate may not even be expecting or be ready to become an equity partner – they simply want to know what the next step is in their career advancement and whether equity partnership is even possible in your firm down the road. Last week I interviews ten associates in a firm and six out of ten advised me that they had no interest at all in equity partnership. So, don’t assume that your associate is even interest in equity partnership.

I suggest that you give these issues serious thought before jumping off the cliff and prematurely admitting another partner. Adding another equity partner is a serious step and should be give appropriate due diligence.

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John W. Olmstead, MBA, Ph.D, CMC

Feb 10, 2021

Law Firm Partnership – Non Performing Partners

Question: 

Our firm is a litigation defense firm in the Chicago suburbs.  Four of us started the firm twenty years ago and we have since grown to a sixteen attorney firm consisting of eight equity partners and eight associates. The other four partners were initially associates and later admitted after they had been here for five to seven years. The other four partners bring in very little business and their production is dismal compared to the four founders. Our associates working attorney receipts are larger than a couple of our equity partners. Our compensation is a equal salary for all partners with remaining profits allocated to each partner based upon their ownership percentage which are 15% for each of the four founding equity partners and 10% for each of the other equity partners. They was no buy-in for the newer partners. Profits have been flat for several years and partner compensation as well. We would like to hear any thoughts that you may have.

Response: 

It sounds like partners are left to their own and are not accountable to other partners in the firm. Successful firms your size have performance expectations and guidelines for all attorneys in the firm with consequences for non compliance.

Many firms your size use a compensation committee to determine partner compensation and performance peer reviews – – both written and face to face interviews are conducted with each partner in the firm. Partner performance reviews are often avoided like the plague by many firms. They are time consuming and it is hard to give candid feedback to colleagues. However, without partner performance reviews neither the partners nor the firm will reach full potential. When partner performance reviews are used not only to review performance but to set measurable goals this data can be incorporated into the compensation system and provide additional hard data for providing a true measure of partner contribution and value.

You may have to consider changing your partner compensation system or changing nonperforming partners status to non-equity partners or associates.

You must muster up the courage to confront underperforming partners but before you do that you have to determine what the baseline performance expectations are for the firm, communicate them, and put in place consequences for non-compliance.

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John W. Olmstead, MBA, Ph.D, CMC

 

 

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