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Beyond the traditional partnership structures

|Written By Jennifer McPhee

In law firms that operate under traditional partnership structures, associates are typically promoted to equity partner after a certain number of years at the firm, and a partner’s profits are based on mixture of a partner’s production and other contributions.

Thomas Corbett says, ‘Just like in politics, one of the ways to aggrandize yourself is to cut down your neighbour. And there’s far too much of that that goes on.

But some Canadian firms use different partnership models designed to elevate associates’ status faster, or, in some cases, create less internal strife.

Davies Ward Phillips & Vineberg LLP creates a shorter track to partner than some other Bay Street firms because of its two-tiered partnership system where an associate is eligible for non-equity partnership just two years after being called to the bar, and could advance to full equity partner after five years of post-call experience.

“We believe it’s important for people to think and act like owners at a really early stage, and so that’s why we have non-equity partnership” says Melanie Koszegi, director of administration in the firm’s Toronto office.

She says non-equity partnership is common in the United States. “But in the U.S., you don’t usually go from one to another, whereas here it’s a stepping stone.”

The firm boasts a high partner-to-associate ratio. About 70 per cent of lawyers at Davies Ward are partners and the majority of them are full-fledged equity partners.

Naturally, some people develop at different rates, so the timelines to making partner varies, says Koszegi, and partners evaluate eligible candidates through a peer-review process, which is based on obvious traits such as intellect, legal expertise, and legal analysis skills. However, the firm also looks for partners who forge strong client relationships, are capable of working independently, and demonstrate a strong commitment to the firm and its values.

“It’s a bit of mixture,” she says. “There’s no magic formula.”

McMillan Binch Mendelsohn LLP operates under a similar two-tiered partnership structure. After five years as an associate, lawyers are eligible for non-equity status and can become full partners within one to three more years.

“Associates were looking for status that showed they had a real interest in the firm and showed they were on the right track to partnership,” says chief professional partner David Elenbaas. “We treat [non-equity partners] in almost all respects as equity partners. At the partnership meetings, they get financial information. The only thing they don’t do is vote on partnership matters.”

Along with legal ability and dedication to the firm’s values, candidates for non-equity partnership must have potential for a sustainable contribution to the firm.

“And the test for equity partnership is, are they making a sustainable contribution?”

Advocates LLP, a small London Ont., litigation law firm consisting of four partners and six seasoned lawyers, chose its partnership structure in order to avoid division created by often-poisonous annual compensation meetings. The firm, which practises commercial, environmental, and tax law, as well as estate litigation, divides profits equally among its partners; just one partner is considered a non-equity partner.

Partner Thomas Corbett says many firms allocate profits based on a formula or a sometimes relatively arbitrary assessment of production and value.

“For example you might have someone coming in at seven or eight years and they might be given an allocation of points that are a third or a half as much as someone who has been practising for 30 years,” he says. “That’s the normal model.”

 It’s a model that he feels creates major problems when it comes to dividing up the partnership pie at the annual compensation meeting. Although the process is less complicated at smaller firms, things usually get nasty as a firm expands, he says.

“Just like in politics, one of the ways to aggrandize yourself is to cut down your neighbour. And there’s far too much of that that goes on.”

Inevitably, some people get a smaller piece than others, which sends the message that those people are not valued as much.

“It’s very divisive and that’s the main reason why we left it. We did not want that divisive debate every year.”

The firm has also done away with any time-based criteria for making partner.

“It could take five years or it could take 15 years to make partnership,” he says. “We have an equal partnership, which is very unusual, and we don’t admit anyone to partnership until they are deemed to make a contribution that equals the people who are already there.”

This decision is based on how much an associate bills and collects, and on secondary considerations such as developing business for the firm, providing infrastructure for the firm, and keeping the firm running.

“The firm is a business like anything else and although we sell time like widgets, there’s a whole slew of business things that make that capable of being done.”

Lockington Lawless Fitzpatrick LLP, a Peterborough Ont.-based firm specializing in civil litigation, estate planning and administration, real estate development and finance, consists of 12 lawyers and six partners, and operates under a more standard structure.

“We are all equal in terms of capital and ownership, but the division of income is based on an allocation process,” says partner William Lockington.

Associates generally make partner between four and six years post-call, and how much of the pie they receive depends on all the usual factors such as billings, collections, and introducing work, but the firm also highly values community involvement and mentoring of associates.

Besides being good lawyers with sound legal skills and judgment, potential partners must be congenial, collaborative, and “prepared to devote time and attention to community and not-for-profit interests.”

Lockington says every firm deals with the annual competition meeting in its own way -- one reason the firm values fair partners with good judgment who can recognize the various contributions of others.

“I think a lot of it is based on the individual personalities, how well they get along, and a real desire to see the process work,” he says. “Everybody may not be completely satisfied, but generally speaking, across the board, there should be a level of general satisfaction. We generally do it at one meeting, and it doesn’t take very long.  

. . . Surprisingly, it works out pretty well.”

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