Insight & Advice

Advice: Advice for equity partners

Market overview
The nature of partnership has changed dramatically in recent years as law firms have evolved into highly commercial enterprises. In the past, partners tended to stay at one firm throughout their careers. Today, however, the partner market is increasingly fluid.

The reasons for these changes include:

Remuneration: In the vast majority of firms, there has been a shift from a lockstep structure (where profits are distributed strictly according to seniority) to a merit-based system (where profits are divided among partners at the discretion of management/remuneration committees and are performance related). This has led to high-performing partners evaluating their current firms’ levels of profitability and their own levels of remuneration and then moving to other partnerships in the knowledge that they will not have to start again at the bottom of a lockstep structure.

Information: There has been an explosion of information – from firms themselves and from the legal press in the form of in-depth analysis and annual profitability league tables. This has, in turn, led to increased interest in the magic “PEP” (Profits per Equity Partner) figure for each firm, a number that enables partners to see with greater transparency than ever before just how profitable a firm really is and who its clients are. Partners can, as a result, evaluate whether their current firm is the best platform to service their current clients and whether there may be more synergy and support elsewhere.

Choice: There is greater choice than ever before, with market share now distributed between top City firms, mid-tier firms and US firms, and a growing band of upcoming firms challenging the established hierarchy. The merger and dissolution of law firms also produce a huge range of opportunities for partners in the changing legal landscape.

Opportunities
Some firms will be actively looking to recruit in certain areas. They may be hoping to find a new partner to replace someone who has left or retired from the firm or they may have taken a strategic decision to grow or supplement particular specialisms. Whatever the reason, most law firms are keen to talk to strong partners on an opportunistic basis.

Following
Most firms will not give you an equity partnership unless you are able to bring a client following with you. This needs to be set out in a business plan that provides details of your clients, historic billings and future strategy for your practice.

The required level of following will in part depend on the firm’s requirements. (Certain firms set a minimum level of following for equity entry.) It may also be shaped by your remuneration demands. As a general rule, you can expect to a third of the revenue generated by your client following.

Determining your following is not simply a matter of considering your historical billings and clients. Moving, for example, to a bigger firm or a firm with a stronger brand may mean that your current clients will instruct you on larger transactions. Alternatively, if you join a full-service firm, you may be able to start asking your clients for work in areas in which you were not previously instructed. This is all part of the discussion process and will be reflected in both previous billings and current confidence of portability of practice as well as (and perhaps most importantly) potential. Into this equation must also be added the firm’s strategy and ambitions for your practice area.

There are situations where a following is not essential. These include niche support areas, such as tax, where the skill set is valuable to the corporate department, and certain areas where, by the nature of the work, a following is unlikely. Nor will you need a following if you have a skill set that a firm really needs.

Joining a firm as an equity partner means that you should have a clear understanding of how profitable a firm is and what contribution you will need to make.

We have experience in helping equity partners and teams move to every kind of firm – from large US and international law firms through to smaller London partnerships. We will work with you at the outset to help you assess the opportunities available to you in the market and the information that you require to make sure that your decision to join a firm as an equity partner is the right one. We will then guide you through the moving process.