Partner underperformance hitting many law firms’ profitability

Voting: Most firms look for a 75% majority to expel partners

Partner underperformance remains an issue for most law firms and continues to affect profitability “significantly”, according to new research.

This led to attrition of up to 10% among non-equity partners at many firms, but only small numbers of equity partners.

Nick Jarrett-Kerr and Jonathan Middleburgh of law firm consultancy Edge International surveyed leaders at 100 law firms – mostly with fewer than 50 partners and mainly in the UK, US and Australia.

They found that 62% of firms said partner underperformance had caused an adverse effect on profit – 14% said it hit profits by more than 10% – although others analysed the issue in a different way, such as looking at profitability per team.

Nearly two-thirds of those polled anticipated taking action on underperformance in the next two years; helpfully, 60% of firms have written standards, a mix of financial and other criteria being the most popular, while fewer than 10% judged partners purely by their numbers.

Three-quarters of firms offered coaching, mentoring and/or counselling to underperforming partners; other types of assistance included financial or business development support to help them rebuild their practices (44%) and de-equitisation or redeployment (38%) – but 15% said they did nothing.

There was no great consensus on how long partners would have to improve performance, with just over 40% seeing 12 to 24 months as about right.

Most firms reported that no or only a few equity partners had actually left over the past five years primarily due to underperformance – just 10% said as many as one in ten had left in such circumstances, although more than half of firms reported attrition of up to 10% of non-equity partners.

They generally left on a voluntary basis, although only after “heavy negotiation” in many cases.

Only 9% of firms needed a formal vote – a fifth required unanimity to achieve expulsion, with around half needing 75% of partners to vote for it.

Only a quarter of firms have a formal performance management system that clearly sets out the process and timetable for dealing with issues of underperformance.

The authors said: “It may be speculation, but we conclude that significantly more firms have some form of performance management process than disclosed but that they do not regard it as a ‘formal’ performance management system of the type envisaged by the relevant survey question.”

Asked to rank the relative importance of different performance criteria, financial and economic criteria were the most important by quite some distance – two-thirds said they were ‘extremely important’, followed by client relationship management (48%) and business development and originations (45%).

The authors said partner assessment and scoring was a difficult area, a process still carried out only annually by six in 10 respondents, although nearly 30% now rely on a continuous feedback process.

The research looked also at lateral hires – 64% of firms said that those who joined the firm at least two years ago had either fully or largely met expectations.

“However, a significant minority (23% of firms) report that more than half have failed to meet expectations. We interpret these responses as showing a slight improvement on our 2018 survey which seemed to show a disappointment rate of 36%.”

Three-quarters said that most of the lateral hires who joined between two and five years ago were still with the firm.

Two-thirds of firms said none of their partners had suffered with wellbeing issues, although 28% said up to one in 10 partners had.

“Incidences of alcohol and other substance dependency among partners are definitely present but currently are low,” the survey noted.

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