The Coming Scandal in Litigation Funding

The rise of litigation funding is by now well-documented.  Hedge funds and a wide variety of other financial players see litigation finance as way to generate returns for their investors that are uncorrelated to their other holdings, such as stocks, bonds, and commodities.  For clients in divorce, business litigation, and class actions, litigation funding can level the playing field when litigating against well-healed adversaries.  A growing number of law firms see litigation funding as increasing their capacity to handle a wider range of cases.  As with many markets that are entering their growth phase, the benefits of litigation funding are becoming more visible and widely accepted.  It seems like a win-win for all involved, and that perception has played a part in fueling the growth of litigation funding.

There are, however, several problematic issues that aren’t garnering the attention that they should.  First, there is some evidence that courts will scrutinize litigation funding arrangements if given the opportunity to do so.   In January 2017, the United States District Court for the Northern District of California proposed a new rule that would have required disclosure of litigation funding arrangements in all cases. After a period of public comment, the final version of  Civil Local Rule 3-15  was scaled back to require such disclosures only in class-action cases. At present, other courts have not gone down the road of requiring mandatory disclosure of litigation funding agreements. And at least two federal courts have split on whether to permit discovery relating to the terms of litigation funding agreements.

It seems probable that some courts will have no choice but to intervene and examine the details of litigation funding agreements.  This is because litigation funding is based on a fundamental contradiction.  On the one hand, legal ethical rules make clear lawyers may not split fees with non-lawyers, and lawyers must maintain control of litigation. On the other hand, how reasonable is to expect that a litigation funding company will provide hundreds of thousands if not millions of dollars without in essence calling the shots in the litigation?

Moreover, as more litigation funding companies enter the market and more law firms and parties to litigation use their services, it is inevitable that some companies will cut corners.  And there are many corners that could be cut.  For example, when enough money is at stake, and when litigation funding companies feel pressure to keep their investors happy, there will be incentives for litigation funding companies to pay undisclosed payments for referrals.  And inevitably some law firms will feel that the litigation company failed to deliver on their promises, and some clients will conclude that they were duped into entering a litigation funding agreement. It doesn’t require a crystal ball to see that, as litigation funding grows, litigation over litigation funding will also become more prevalent.  As a former litigator, I know that litigation isn’t the same as a scandal. Some percentage of all business deals go bad and become the subject of litigation.  That will also happen with litigation funding.

The scandal will come into play when it becomes clear that in some circumstances the lawyers did abdicate their professional responsibilities and let the litigation funding company call the shots to the detriment of the law firm’s client.  Some in the legal profession will profess to be shocked by such conduct and in extreme cases lawyers will be disbarred for their involvement in such arrangements.   We will act surprised, but we shouldn’t be.  The coming scandal in litigation funding is going to happen.

The Most Overlooked Trait in Potential Law Firm Partners

When law firms consider adding a partner, or colleagues consider starting their own firm, they understandably focus on business metrics such hourly rates, billable hours, and portable books of business.  There is no denying that such metrics are critical to the success of any law firm.  But in my experience consulting with lawyers, too many partnerships fail because law firms and attorneys fail to pay enough attention to certain personal qualities of a prospective business partner.

Specifically, law firms fail to give adequate weight to how stable and reliable prospective partners are in their personal lives.  Too often a partner’s personal life bleeds over into how the firm manages money.  For example, a lawyer going through a divorce may convince the firm to forego capital contributions or distribute funds imprudently.  In firms with five or fewer equity partners, some of the pressure firms face to carry a small cash reserve arises because one firm partner needs an unusually large infusion of cash.  Similar cash flow pressures can also arise because partners live beyond their means.  Whatever the cause, too many firms imperil their financial viability by catering to the short-term cash flow needs of a single partner.

That is why well-run firms and strong partnerships will set up mechanisms that will make it harder for them to be held captive by the private life of a single partner.  It can, for example, be wise to strictly enforce provisions in the partnership agreement that deny the payment of bonuses to partners who haven’t submitted their time sheets.  Likewise, firms should generally be skeptical about loaning firm assets or money to a partner whose personal life is in relative disarray.

There are no easy or part answers when a firm partner develops an immediate need for cash.  Firm leaders need to weigh carefully the best interests of the firm with treating a colleague decently.  Human beings are unpredictable and forming law partnerships inherently involves assuming certain uncertainty regarding the personal lives of partners.  Medical and family emergencies impact even the most stable and reliable of people.  It is impossible to eliminate the risks associated with making any significant hire.

Law firms that are considering adding new partners should therefore be more vigilant than they are about identifying high-risk behaviors and traits in those partners.  This is especially important for lateral partners who have little or no previous connection to the firm.  Too often firms have been burned by not performing adequate due diligence on prospective partners.  In today’s dynamic and competitive market place, law firms have much to lose by failing to pay attention to troubling personal qualities of potential business partners.

How to Disclose the Existence of a Malpractice Law Suit to A Potential Lateral Partner

With the rapid increase in the number of law firms that are considering adding lateral partners, many aspects of the negotiating process between firms and laterals have become routine.  Most notably, almost every large firm sends out a Lateral Partner Questionnaire or LPQ.  The LPQ helps firms assess how attractive a potential lateral partner might be by collecting two or three years of information about the lateral’s portable book of business and hourly rates.  If the firm is sufficiently interested in the partner and partner’s feelings of mutual, the lateral partner will be asked to disclose information about potential client conflicts.  The exact timing of the disclosures regarding conflicts vary, but they are routinely made before a partnership decision is finalized.

In general disclosures made by the firm to the prospective lateral partner are handled on a more ad hoc basis than disclosures made by the lateral.  Too often the firm only discloses information about compensation and related policies in response to a specific inquiry by the lateral partner.  The one-sided disclosure of information can have unfortunate consequences down the road.  For example, a firm failed to disclose to a lateral partner that partners are expected to make sizable contributions to certain charitable causes.  The lateral partner was ticked off when she found out about this expectation, and this was one factor she cited for her reason to leave the firm two years later.

In my experience as a consultant to lawyers and law firms, many lateral partners don’t ask about the existence of malpractice actions facing the firm, and many firms don’t have an established procedure for making disclosures about malpractice actions.  All lateral partner candidates should find out if the firm is facing malpractice claims and what their exposure might be should they join the firm.  This is particularly important to laterals who are seeking to join a firm as an equity partner.

Lateral partners should at a minimum ask to review any public filings regarding malpractice claims filed against the firm.  And if the nature of the claims are particularly series or create substantial exposure for the firm, it is generally appropriate for the lateral partner to ask to speak to the lawyer who is representing the firm in the action.  If that lawyer works for the firm, then the lateral partner is probably best off discussing the case with a lawyer who specializes in handling legal malpractice actions.  While it is theoretically possible that the firm will be willing to share in the costs of having the lateral partner obtain a second opinion, the better practice is for the lateral partner to pay for the second opinion out of their own pocket.

The above scenario presupposed that the lateral partner asks the firm about the existence of malpractice actions as part of the partner’s due diligence process.  If the partner doesn’t raise the issue, the firm should make appropriate disclosures that are increasingly detailed.

The firm’s disclosures should generally mirror the details provided by the lateral partner.  Thus, for example, if the firm concludes after reviewing the LPQ that this candidate isn’t worth pursuing, the firm need not make any disclosures regarding actual or threatened malpractice actions.  When the firm concludes that there is a good probability that they will make an offer, they can disclose the existence of the malpractice action(s) in general terms.  This initial disclosure might not include the names of the parties to the malpractice actions or details about the underlying allegations.  If it appears that partner is seriously considering agreeing to terms, the firm should offer to disclose more detailed information about the underlying malpractice claims and their merits.

Firms may resist making such detailed disclosures for fear that the lateral partner may back off or that they will need to address the issue of whether and under what circumstances to indemnify the new partner.  A firm can of course offer to defend incoming lateral partners should they be named to existing malpractice actions.  Such agreements don’t, however, bind the plaintiffs in the malpractice actions.  Thus, lateral partners can’t eliminate the risk that they will be added as a party to the malpractice actions.

If discussing the scope of indemnification causes sounds like it could be stressful and tedious, it can be.  But if the firm and lateral partner aren’t willing to discuss malpractice actions openly, this may be a sign that they aren’t destined to be successful business partners.

Why Law Firms Can Afford to Hire More Than They Do

Law firm leaders tend to assume that they can’t afford to hire a new lawyer or staff member. In my experience as a consultant to law firms, I’ve learned that you can’t take the phrase “can’t afford” literally. “Can’t afford’ doesn’t mean the same thing as “too expensive.”

Here are three recent examples that illustrate the variety of meaning behind the phrase “can’t afford”:

  • The transactional practice that assumed it couldn’t afford to hire a new corporate paralegal.
  • The IP firm that assumed it couldn’t afford to hire a new patent paralegal.
  • The contingency fee plaintiffs’ firm that assumed that it couldn’t afford a new litigation associate.

Sometimes “can’t afford” has to do with time more than it does with money. The first example above illustrates this point. The managing partner of the transactional practice was concerned that she didn’t have the bandwidth to train a new paralegal.

Sometimes “can’t afford” means that “I can’t afford to repeat the bad hire that I had a few years ago.” This is what the IP firm in the second example assumed. When discussing their current hiring needs, the firm’s brain trust had flashbacks of poor hiring experiences from the past. To be sure, bad hires are expensive, but that doesn’t mean that you should categorically dismiss considering a new hire on the assumption that they too will be a bad performer.

“Can’t afford” can also mean “can’t afford to hire on a full-time basis.” This statement does implicitly relate to cash flow, but it is based on a faulty assumption. This is not 1985, when lawyer hiring came essentially in one flavor. You can now select from contract lawyers, project based hires, and temp positions. You aren’t trapped into hiring someone full time or not at all.

On a related note, when managing partners have said that they can’t afford to hire a lawyer or paralegal, they often neglect to include the potential revenues that such hires can help generate. This came up in my discussions with the contingency firm in the third example above. It can be tricky to calculate the revenues associated with hiring a paralegal when that paralegal doesn’t directly bill for their time. But contingency firms don’t generate revenues without advancing certain cases to certain stages. Contingency cases don’t settle or reach trial without work being done to move the cases forward. Thus, there is implicit value and a range of associated revenues with having additional staff work on a contingency case. Consequently, when you assume that a new hire will generate no revenues, you tend to overstate the true costs of hiring. It is, of course, reckless to assume that every paralegal assigned to a contingency fee matter will be profitable, which is why the prudent approach is to hire additional staff for those cases where their efforts are most likely to help the firm generate increased revenues.

The above examples suggest that hiring decisions often create anxiety for law firms, and this is understandable. Payroll is almost every law firm’s single biggest expense, and it can be ruinous for a firm to spend too much on its people. But the expenses associated with hiring don’t justify taking a simplistic approach and assuming that a firm “can’t afford” to hire a new lawyer or paralegal.

Law Firms Should Study Why Good Clients Leave

Many service-oriented businesses, including law firms, thrive when they have a steady stream of repeat business. Given that it is generally much more expensive and time consuming to attract a new client than to keep an existing one, it is critical to understand what causes a long-term client to leave for a competitor. In my experience consulting with lawyers, I have rarely come across a law firm that tracks or systematically studies why it lost good clients.

Too often lawyers believe that clients leave for simplistic or unavoidable reasons. The former includes situations in which the partner with the closest connection to the client moves to another firm. The latter includes situations in which the law firm is fired because it achieved a bad result for the client. Since law firms can’t guarantee good results, they view bad results as unavoidable in the long run.

The fact that a certain level of client departures is unavoidable doesn’t justify failing to try to minimize such departures. In fact law firms should study why they lose clients precisely so that they can avoid such departures in the future.

Moreover, studying why good clients leave often shows that a handful of patterns are common but avoidable. For example, when a law firm achieves a bad result for a client, its risk of being fired increases, but plenty of lawyers and law firms have survived a bad client result. Whether the law firm is fired depends on the strength of the pre-existing relationship and how the law firms acts after the bad client result takes place. The better the existing relating the more the firm is inoculated from being fired.

Likewise, the departure of a single lawyer dooms a client relationship only if the law firm has done nothing to establish its own relationship with the client. This is why it is important for the law firm to know more than one person at the client and for more than one lawyer at the law firm to have a relationship with the client.

And some client departures are almost entirely avoidable. Most commonly, these situations involve a lack of responsiveness or attention to detail. For example, it’s the firm that repeatedly fails to comply with a minor client request even when the client repeats it more than once. I’ve seen clients begin to look for the nearest exit when the law firm repeatedly ignored an in-house attorney’s request to avoid morning meetings or repeatedly sent her documents to review at the last minute.

These kinds of errors suggest that the law firm isn’t listening or doesn’t care, and that perception can fester and grow if it’s not addressed immediately. When I was a business litigator at Skadden Arps, I was part of a team that represented a large player in the food services industry. During a client meeting in our offices, we offered some snacks and refreshments that included products made by our client’s competitor. Our client didn’t say anything during the meeting, but we knew that this kind of faux pas could jeopardize a multi-million dollar engagement. To his credit the senior partner in charge of the client relationship apologized profusely and promised it would never happen again. This is the kind of attention to detail that preserves client relationships.

Too many lawyers act as if their job solely involves doing good legal work, but that is only part of what the best lawyers and law firms do. Law is about maintaining strengthening relationships. If you want to maximize the chances of keeping your best clients, study why you lost good clients, and apply those lessons to new and existing client relationships.

What’s the Scariest Issue Confronting Your Law Firm?

A wise and accomplished financial advisor recently told me that her clients will happily talk about most aspects of their financial reality and goals except for one–cash flow. They will share their dreams of retiring in an exotic locale, funding college for their children and grandchildren, but won’t without prompting mention that they have less than $5,000 in savings. For many individuals, poor cash flow is the problem that is so scary that it often can’t be mentioned by name.

As a consultant to lawyers and law firms I have come across a similar set of behaviors. For some the scary issue is depression. I advised a brilliant lawyer who occasionally became so overwhelmed with running his practice that he couldn’t bring himself to open his mail for weeks at a time. For others it’s the fear that one or more law firm partners will never pull their weight or will otherwise prevent the firm from growing as it should. And like many individual investors, the scary unspoken issue at too many law firms is cash flow. Most commonly, the firm’s payroll is eating a lion’s share of revenues and the senior partners either don’t want to take a pay cut, make a capital contribution, or let some folks go.

The all-too-human response to facing scary issues is to minimize or avoid them until they create an emergency that can’t be avoided. We have all seen it. It’s the person who doesn’t change their diet or lifestyle until after they suffer a heart attack. It’s the difficult matter or client file that is avoided until the client files a malpractice action or a complaint with the state bar. There is a better way.

One way to address the scary issue that can’t be mentioned is to realize just how common it is. When we are in the throes of the scary problem it seems unique. It’s easy to convince ourselves that the partner who needs to be confronted about their unacceptable conduct towards coworkers will react in some unique way. In my experience that does not happen. There are plenty of difficult and argumentative law firm partners. And yes they may even yell and scream and carry on for a bit when you tell them that the firm can no longer afford to finance a contingency fee case that had racked up $400k in fees (or whatever your scary issue happens to be). But ultimately they calm down or leave the firm. I’ve seen both scenarios play themselves out. Either way the issue got resolved in a way that was a lot less scary than was initially anticipated.

Genuinely new scary issues are exceedingly rare. For a vast majority of seemingly scary law firm problems, strategies and techniques exist to help identify and improve the situation. And folks like me who are experienced in dealing with scary law firm issues can help you address them more quickly and less painfully.

You know that client file that you dread and that you have been avoiding? It’s probably located behind you on a credenza or out of sight in a filing cabinet. I learned this tidbit from an investigator for a disciplinary authority. Even the physical location of the trouble making file is fairly predictable.

I hate to break it to you but your scary issue isn’t likely to be unique. Moreover there are almost certainly things that can be done to make the problem go away or at least much less of a problem.

So as we enter a new year, isn’t this the time to take control and confront your scary issue once and for all?

Increasing Retention of New Hires at Law Firms

Too many law firm leaders subscribe to a plug-and-play mentality when it comes to hiring. They believe that you can take someone who has certain skills and essentially get them to produce effectively in a short period of time. Firms recognize that the new hire needs to learn about the firm’s time entry, billing, and other computer-based systems. But other than that, it’s assumed, for example, that litigation associates who have experience writing certain kinds of briefs will start being productive beginning on their second day on the job.

The problem with this mentality is that humans aren’t plug-and-play creatures. Hiring legal talent is not like moving a computer from one room to the next. To the contrary, we are very sensitive to even small changes in routine and environment. Internally, we feel lousy when our internal body temperature changes by as little as one degree. And to name just one example, I’ve seen lawyers get thrown off by the fact that the coffee at their new job doesn’t measure up to the morning coffee that they are used to.

The plug-and-play mentality also fails to recognize how long it takes for lawyers to feel really comfortable at their new employer. In my role as a business consultant to law firms, I have encountered numerous managing partners and law firm leaders who are surprised to learn that it commonly takes up to two years for a lawyer to make a complete transition to a new firm. This is partly because lawyers are probably more resistant to change than most humans, but mostly it’s just a reflection that lawyers are human.

Does this mean that you can’t expect a new litigator or transactional lawyer to bill sizable numbers of hours right away? You can, and many experienced lawyers do manage to be productive billers fairly quickly. This is especially true if they are working on projects or clients that followed them to their new firm. But there is more to feeling comfortable at a new firm than billing hours.

A better approach would be to view the process of hiring someone as akin to adding a new roommate to an already full house. The new person will figure out the basics quickly. They will park in the correct spot, they will figure out how the new shower works and, if it’s important to them, they will figure out where the closest good coffee can be had. But working out the interpersonal dynamics between the new person and the existing residents will take time. In fact, some problems between roommates won’t even surface for months or years. That’s why scenarios involving roommates make for good reality TV shows. The potential for conflict and drama is ever present.

This same dynamic applies to that new lawyer or paralegal who bills a large number of hours every month. It’s not unusual for the person changing firms to be surprised about how long it takes them to fully adjust to their new surroundings. After all, they too might buy into the plug-and-play myth.

If you are the assigning partner, managing partner, in the HR department or otherwise have a responsibility for staff retention, stop being surprised that the care and feeding of lawyers is a never ending process. And since law firms don’t have much to sell other than the abilities of their employees, the sooner you stop expecting that new hires will “hit the ground running,” the more successful you will likely be in attracting and retaining the best people. And if you really want to have a competitive advantage vis-à-vis other law firms, establish a mindset that accepts and even celebrates the complexity of the human beings that you are bringing onboard.

The Truth About Compensation For Law Firm Associates

Many law firms mismanage how they compensate associates.  Consider the following real-life examples:

A law firm that represents consumers in litigation has to scramble because a key associate gives notice and the firm ends up increasing the associate’s pay by more than 30 percent to keep her.

Some associates at a corporate transactional firm are paid by the hour while others receive a salary.  Both groups of attorneys express dissatisfaction and the firm’s leadership has to scramble to determine how to respond.

An associate at a business litigation firm mishandles the discovery aspects of an ongoing case.  When the senior partner asks what happened, the associate surprises the partner by expressing dissatisfaction about how he is compensated.

These examples reflect a troubling truth about associate compensation:  Firms are much more likely to have an unreliable process for determining associate pay than a solid compensation strategy.  Too often law firms change associate compensation only after they receive a critical mass of complaints.  This is a strange and shortsighted way to manage some of the most profitable contributors to the firm.

Moreover, some law firm leaders are surprised that associates didn’t express their dissatisfaction about compensation more openly.  Partners are acting as if they have never realized than many lawyers are passive aggressive.  And the hallmark of that trait is that you can’t infer happiness or contentment from silence.  Passive aggressive people may not complain about their pay, but that doesn’t mean that you can infer that they are happy about it or that they don’t resent or object to it in whole or in part.

In today’s dynamic and fluid market for associate talent, law firms need to take the initiative and establish and communicate a compensation system that is based on a specific compensation strategy.  And that system begins by identifying what kind of behavior the firm wants to encourage in its associates.  For example, Rainmaking For Lawyers was recently retained by a firm that wanted to redesign its compensation so that it would maximize the chance that certain associates would make partner.  The consulting process included detailed meetings with the associates about what they wanted.  This in turn led the firm’s managing partner to increase the marketing budget for two key associates as well as increasing how much business development training they received.  Different law firms need different compensation strategies and it’s not hard to imagine that some firms might reasonably conclude that it doesn’t make financial or strategic sense to invest more heavily to increase the number of associates who join the partnership.  But the decision whether to encourage or discourage associates from becoming partners should be a conscious decision of the firm’s leaders, and not the byproduct of neglect or mismanagement.

Law firms also err when they tell associates that they have to everything—bills lots of hours, develop new skills, learn to manage clients and cases, serve on firm-wide committees, and bring in new matters and clients.  “Do everything” is not a strategy.  Likewise, too many firm leaders are entirely ignorant of the fact that offering more money will not motivate everyone equally or at all.

Creating and implementing an effective associate compensation system takes time and a strategic focus.  But if done correctly, associate compensation can provide law firms with an enormous competitive advantage.  Let other firms scramble to respond to dissatisfied associates.  You can and should be the firm that aligns your associate compensation system with your broader business goals and objectives.

To Grow Your Law Firm, Hire A Professional Administrator

Law firms chronically under invest in training and developing their people.  One manifestation of this is the curious persistence of the part-time, combo secretary/paralegal/office manager role in many firms with more than five attorneys.

For a variety of reasons, too many law firm managing partners and executive committees are reluctant to hire professional, full-time office administrators.  For example, I recently came across a 20 attorney office that for the past several years had relied on one of its secretaries to manage the office.  This might not seem strange to lawyers, but it should.  How often do you come across a company that generates annual revenues of between $10 and 20 million that doesn’t have a chief operating officer or some other chief administrator officer?  Not very often.

Yet law firms persist in acting as if managing an office of 20 -40 employees isn’t a skill worthy of their attention or resources.  They act as if human resources, accounting, finance, IT and related functions can be managed by pretty much anyone.  Sometimes it’s a question of money.  Some law firms resist paying substantial and competitive salaries to highly qualified administrators because of a misguided reluctance to pay a higher salary to a non-lawyer than is paid to some of the lawyers in the office.

More commonly, however, law firm leaders just don’t have the experience of working with a top-flight manager, and aren’t aware of the extent to which that a person with the right skill set and personality can spur the growth of the law firm.  An experienced law firm administrator can free up the law firm partners to focus on serving clients, business development, and charting the future course of the firm.  Moreover, in today’s dynamic market for legal services, implementing a growth strategy almost always requires changing and enhancing a firm’s administrative capabilities.  To site just one example, a strategic decision to open up a new office requires the firm to engage in a whole host of administrative activities ranging from locating office space, negotiating a lease, creating marketing materials, hiring new personnel, and integrating a new location into the IT system.

This is somewhat of a chicken and egg problem.  A high percentage of law firm partners lack the experience and expertise to manage administrative functions.  Thus, law firms don’t spend enough time on strategic expansion goals in part because they lack the desire or aptitude to take on larger administrative burdens.  As one managing partner told me a few years ago, “managing two offices is a pain.”

It is. That is why law firm administrators can be so helpful.  Law firm leaders often complain that they spend too much time on managing inter office personality disputes or what they see as tedious administrative tasks.  They complain that they struggle just to do the legal work of serving clients, coupled with submitting their time, and attending some partnership meetings.  Very few partners focus on where the firm should be 12-24 months down the road.

A skilled law firm administrator isn’t a panacea.  Skilled administrators usually have strong opinions and require partnerships to adjust.  Thus, don’t hire an administrator if you think they will automatically rubberstamp every decision made by the partnership. A good law firm administrator will help manage change, and that by definition involves causing some partners and staff members to be pushed out of their comfort zone.

But if you are serious about running a law firm like a true business and want to speed up the process of growing a firm, hire a skilled officer and manager and support them in their efforts.

How Law Firms Select The Wrong People To Become Partners

Many law firms could do a much better job of selecting partners.  Law firms routinely create a process for evaluating partners, but too often that process is critically flawed.  Here are five recurring problems I have observed over the years in my role as a consultant to law firms:

  • Failing to set clear criteria in advance of what is required to make partner.
  • Relying on too narrow a set of selection criteria.  Most commonly this involves equating being a very good or exceptional lawyer with being a good business partner.  Being a partner involves much more than the ability to write briefs, negotiate contracts, or demonstrate other lawyerly skills.
  • Failing to give enough weight to a potential partner’s business development accomplishments, managerial ability, or issues related to temperament.
  • Giving too much weight to the fact that a lawyer has a big book of business and ignoring evidence that the potential partner is seriously lacking in other ways.
  • Relying too heavily on credentials or social indicators as opposed to demonstrated ability and results.  One common example is when firms give a lot of weight to the law school from which someone graduates rather than looking at what they have actually accomplished.

Law firms don’t make unfortunate partnership decisions by accident.  Too often the bad decisions are a function of a flawed selection process.  Below is a list of some of these procedural shortcomings:

  • Failing to collect and share relevant information.  Law firms tend to spend a lot of time reviewing the writing samples of internal partnership candidates as well as their past performance reviews.  But how often do they talk to staff members, more junior lawyers, and clients about their interactions with the people they are considering making partner?  Not often enough.
  • Failing to create a culture that encourages many lawyers and staff members to weigh in on the potential partner’s candidacy.  At many firms, the decision to make partner is dominated by the firm’s “heavy hitters.”  That is why young lawyers are encouraged to fund a mentor or “rabbi” who can advocate on their behalf when the partnership meets to make partnership decisions.  The reliance on a limited number of influential partners can become problematic when it causes others to withhold information or not share their views because they feel it would be futile or even damaging to their careers to do so.
  • Being oblivious to confirmation bias.  Too many law firm partners adopt favorites.  Critical decision makers at the firm see these folks as stars and the firm stops looking for evidence that this conclusion was wrong or premature.  This is especially problematic when the favored candidate looks like or has a similar background to the people making the partnership decisions.
  • Falling victim to recency bias.  Law firms give too much weight to a strong recent result such as landing a big client at the expense of examining someone’s pattern of conduct and results over time.
  • Failing to examine or give adequate weight to issues outside the office that relate to a person’s long-term stability and availability.  It’s no secret that lawyers suffer from an unusually high incidence of depression and substance abuse.  There are important legal limitations on employers’ ability to collect or even inquire about such issues.  And the last thing we need is law firms that stigmatize employees or make it more difficult for employees to get the assistance they need.  Some firms have, however, gone too far in the other direction.  For example, they make someone partner without ever taking that person and their significant partner out to dinner.

Many factors go into deciding whether to make someone a partner.  Predicting human behavior and future performance is an inherently speculative exercise.  If a firm makes enough partnership decisions, it will come to regret at least some of them.  But law firms can and need to do much better at avoiding systematic biases and flaws in the process of selecting partners.  Examining their selection process and past partnership decisions in light of the factors listed above would be a good first step.

How about you? What factors have you observed that have led to law firms making bad partnership decisions?