CFO-COO Forum– Unprofitable Partner? Now What?
The last several years have altered the economic landscape for law firms – some for the better, but many have not been so fortunate. And some firms likely have had to face the difficult decision whether or not to part ways with a partner that is no longer profitable for the firm.
A recent panel during the 14th annual Law Firm COO & CFO Forum – a flagship event from the Thomson Reuters Legal Executive Institute – addressed partner profitability and offered methods to define an unprofitable partner, and once defined, some suggestions to address the situation. The panel, entitled “Good Night, and Good Luck: Managing the Unprofitable Partner & Dwindling Client Practice” was moderated by Amanda Brady, global practice leader, Law Firm Management for Major, Lindsey & Africa, and included panelists: John Donnelly, chief operating officer, Jackson Lewis LLP; Charles O’Donnell, chief operating officer, Duane Morris LLP; Buck Owen, chief practice officer, Dentons US LLP; and Robert Seabolt, partner & chief operating officer, Troutman Sanders LLP.
Following introductions and a general question about unprofitable partners, one panelist began the discussion saying, “Everyone knows who the unprofitable partner is except the unprofitable partner.”
In the age of data, analytics must be relied upon to calculate the profitability of partners and perform evaluations, right? Well, the panel noted that analytics should be used, and in many cases serve a foundational component of the evaluation process. One firm stated they track profitability from the very first day and evaluate partners through long-term trends over a two-year period. Transparency was a key piece for another firm, and their open peer-review system allows each stakeholder an avenue to view and understand the situation of the firm and each partner, as well as where they individually sit in comparison.
And yet another firm noted that the numbers play a vital role, but there are many other pieces to take into consideration. The scenario discussed pertained to bandwidth and whether the firm should outsource or hire contract attorneys for a specific matter that may not be very profitable. They noted the profit from that matter would look a lot better if an alternative service provider was used, but the firm would incur marginal costs. Those costs may not be necessary if the firm’s first-year associates have the bandwidth to handle the matter. So the best choice for the firm may not be the best choice in helping a partner’s profitability.
And once there is clear view that a partner is not profitable, addressing the issue is not easy. The panel agreed that there should be numerous sets of eyes on this process and resources in place to help the situation when there has been a determination that a partner is struggling. Part of that should include evaluations with comparative analytics, but the inquiry should also include a more personal conversation: Are there certain events happening in the partner’s personal life? Did they lose a big client? Investing time to work with the partner, showing an interest in their success and exploring ways to turn around the situation, enables the partner to see that there is concern for them individually and for their work, as well for the firm’s health.
Whatever the process for addressing an unprofitable partner, the panel encouraged each firm to have buy-in on the front end, so the results are accepted and supported. Consider the culture of the firm; many individuals may not want to see their friend and colleague go, but using analytics and working to address the issue can help the partner and members of the firm understand the firm was fair, thoughtful, offered assistance and provided advance warning. And consider the consequences of not making the change, which likely would have an impact on the firm’s culture as well.