The Administrator's Role Options

[Editor]

The recent recession forced many law firms into de-equitization andde-facto termination of older partners who may have high billing rates,but who bring in less business than more active, younger partners. Ineffect, the recession has revealed that partnership in a law firm is no longer a tenured position. As law firms become more subject to the corporate world’s competitive dynamics, they must reflect those dynamicsin their operations. Each partner who is severed from a firm – whether by mutual agreement, a nudge out the door or out right termination – was originally added to the partnership for a reason. However, times of crisis are leading firms to make changes rather than hold on to partners who were once valued.

Administrators can find themselves squarely on the spot in dealing withpartner succession dilemmas – and they can, in fact, play strategic rolesin helping to manage and defuse a variety of potential conflicts. Thus,firm administrators must understand the consequences of the processand their roles in it. This goes far beyond making sure law firm assetsare not removed or sabotaged by departing lawyers; it also involves important administrative, staffing, financial, client relations and human
resources concerns.

ADMINISTRATIVE: THE PARTNER AGREEMENT

Too few lawyers understand their partnership agreements. Many lawyers leap at the chance to become partner but don’t think the decision through or even read the agreement that defines it. Administrators can prevent plenty of problems by helping to institute formal review processes of the agreements that inform potential partners about such issues as:

• what they actually pay to join the firm, and what they would have to pay if they left;
• whether they receive severance payments and a share of their receivables if leaving involuntarily; and
• which times of the year (for example, ananniversary date, or the last day of the fiscal year) when they can leave and get their full investments back.

If the administrator ensures that new partners get answers to these questions, including a written affirmation by partners that the information was presented and understood, it can go a long way toward heading off litigation if a partner is asked to leave.

STAFFING: THE CLIENT SERVICE TEAM

For partners in law firms where compensation is based on individual performance only, the business development credo often leads them to refuse to share information about clients or prospects with the next-generation lawyer who might “steal” business before the first attorney is ready to step away from active practice. As rainmakers age, they tend to slow down, but that doesn’t mean they always accept de-equitization or forced retirement. If a firm wants to promote true client
service teams, base compensation must be tied to involving other firm lawyers as part of a team delivering services to clients.

Here is where administrators can play key roles, because they can help to structure the use of one of the most effective tools in a
firmwide team environment: client relationship management (CRM) software. In a law firm, where organizational business development should be the sum total of each lawyer’s personal contacts, online technology can bring consistency and
efficiency to what used to be a haphazard process. Shared CRM databases on computer desktops can make available to all firm members the personal data and contact history of any prospect – the type of information that used to be stashed in individual Rolodexes and address books.

In making CRM work, the firm administrator can be the resource, the go-to person, the guide. To be successful in that role requires official commitment from firm leadership that the administrator is empowered to lead the process. There must be organizational criteria for participation (for example, making partnership draws contingent on providing information), and
it must be clear which ones are considered to be within the administrator’s control – and which ones are not.

There must also be continuing dialogue and evaluation that allows for reinforcement, modification or expansion of CRM implementation and maintenance responsibilities as the firm’s circumstances, performance and expectations evolve. The staff professional – whether responsible for firm administration or the marketing function can take a strategic position as the impartial
facilitator to boost the use of CRM as a tool cross-selling teams to ensure that clients belong the firm and not to a single rainmaker.

FINANCIAL: THE COLLECTIONS DILEMMA

Aside from staff and lawyers, accounts receivable may be the most fluid and important assets that a law firm has. Before a partner is de-equitized or fired, the administrator should help firm leaders to understand what that partner’s amounts in
receivable are, and to know how much they depend on the partner to bring in the money. Ensure there are incentives in the partner’s interest to collect the receivables before he or she leaves for another firm.
To address this issue:

• ensure that time sheets are current;
• send billings to client immediately, even if the totals are off or need adjustments later;
• monitor the client’s payment history and work with the partner to ensure that final invoices are sent out;
• do a peer review of the partner’s files to confirm that there can be no claims of negligence by clients; and
• communicate with clients if payments are not received promptly.

Terminating a partner is not a financial help unless it improves cash flow from the standpoint of cash coming into the firm. That can – or should be – the administrator’s area of concern.

CLIENT RELATIONS: THE COMMUNICATION IMPERATIVE

Clients must hear from the law firm when a partner is de-equitized. It may be appropriate to send a joint letter (firm and partner) to clients indicating the new relationships that are created. If a partner is “taking” clients, the firm and the partner must negotiate how to collect outstanding fees. Whether the partner or the firm is responsible for doing this is also negotiable.

Administrators may not be able to directly undertake the communication function, but they can work to ensure that the communication takes place because of their involvement with and oversight of so many communications channels, from invoices to marketing. They can also ensure that the appropriate lawyers are designated to continue handling a client’s file. Clients should not be left ignorant of who their lawyers will be after terminations. These clients inevitably could engage a second law firm just to make sure they are not left hanging.

HUMAN RESOURCES: THE LITIGATION RISK

Administrators and their firms must prepare for the possibility of litigation from partners who leave involuntarily. One suit already decided involved an older partner in a major firm who refused to accept a downgraded status. The law firm argued
that the lawyer had breached his employment agreement by failing to produce sufficient billable hours. The lawyer argued that he merely had to be available to do work, and that he did not have rainmaking responsibilities. The issues revolved
around interpreting an employment contract, and the arbitrator found that the lawyer did seek billable work and was available. The contract did not otherwise require that he reach the firm’s billables benchmark. A thorough contract review beforehand, as suggested earlier, could have prevented this problem.

By extension, inconsistency in the benchmarks used to identify groups of older lawyers who are de-equitized when past certain ages can spur wrongful termination claims. Administrators must ensure that partner agreements and their firms’ HR policies anticipate such causes of action by spelling out explicitly the performance standards and demographic benchmarks used
in termination decisions.

ADMINISTRATORS AND THE HUMAN EQUATION

A study done several years ago by the Altman Weil consulting firm showed that the closer to retirement lawyers get, the more likely they are to oppose a mandatory retirement age. This seems particularly true for lawyers who have been
leaders and rainmakers. Most firms, however, do not take this emotion into account when making mandatory retirement, de-equitization or similar decisions. Administrators, with their feel for the “human equation” of the firm – personnel and
staffing decisions – can and should bring up the human element in partner succession issues.

Ultimately, law firms must help their senior leaders leave gracefully. Forward-thinking administrators can suggest the creation of alumni clubs of retired partners. Such mechanisms may help lawyers to transition gracefully into their “second
seasons” without facing the perils of de-equitization or termination. Any firm will be the better for it, and the administrator who suggests it will have proven his or her intrinsic value in managing the organization’s valuable human resources.




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