Tackling Partner Underperformance in Law Firms

Tackling Partner Underperformance in Law Firms

This is the first of two posts on the issue of partner underperformance in law firms. The second part will suggest a process and procedure which firms can follow.

Partner performance management systems attain their sharpest focus in how they cope with the issues of non-performance and under-performance.

There is hardly a law firm of any substance in the world which has not at some time had to deal with the issue of partner
underperformance.  As I have reviewed best practice in this area I have found many more examples of poor practice than best practice, although it is also becoming clear that some leading firms are learning to deal with these issues more sensibly.  Examples of current and wholly avoidable bad practices include:

  • Failure to set firm standards and manage the firm’s expectations of partner performance generally.

 

  • Criteria based on financial performance alone with all other contributions under-valued or ignored.

 

  • Unacceptable partner behaviour and poor standards tolerated and indulged by the firm’s leaders for long periods of time.  This is often followed by sudden and precipitous over-reaction, with partners finding themselves suddenly out of a job without any warning.

 

  • Underperformance issues not being confronted with any degree of openness and candour. Instead there is often a whispering campaign behind the back of the underperformer.

 

  • Hasty and sudden departures without warning and without the underperformer being given an opportunity to address the underlying issues.

 

  • Partners are over-promoted and should have never been made an equity partner in the first place.

 

Whilst some of these issues derive from poor management skills on the part of the firm’s leaders, there are three essential infrastructure elements which will help firms address this difficult problem area. First, time must be spent on constructing and agreeing a comprehensive performance management system  for partners.  This should address how partners will be monitored and managed on a year to year basis, and how they will be expected to develop over time. Second, the firm must manage the expectation of partners by setting out both the constant standards and the baseline partner criteria which they expect partners to achieve.  Third, the firm should give special consideration to the process by which they not only monitor and support struggling partners, but also, ultimately and in the event of failure, manage partners out.

Clearly there are many financial indicators which can be measured in law firms.  One indicator which is not commonly measured is the true cost of underperformance.  The problem is that, not unlike the assessment of the true cost of replacing a departing partner, some of the issues are hard to quantify. Whilst it is possible, for example, to measure the cost of clients lost due to negligent or inefficient work, it is less easy to measure the cost of lost opportunities, or the effect on staff morale of an underperforming partner who is continually allowed to get away with blue murder.  Equally, the presence of an underperforming partner may cause others to leave, or block promotion and recruitment opportunities.  Here, a “back of the envelope” calculation can be as useful as a long-winded attempt at empirical analysis. But the true cost of underperformance of a single partner almost always can reach six figures and sometimes amount to several millions of pounds.  I spoke to one firm where a partner had been identified as underperforming but the cost of severance was considered too high.  Two years later, the underperforming partner was still there and the cost had, if anything, increased, whilst at the same time, the partner concerned had been paid a profit share far in excess of her contribution.

It is important to ensure that issues of underperformance form a part (but not the whole) of the performance management system. Firms do need to address those parts of the performance management system which manage aspects of behaviour and contribution that are not in keeping with the firm’s objectives.  This part of the overall performance management system must emphasise the importance of providing a positive supporting role.  It would be detrimental to the partnership ethos of the firm if it were regarded as a disciplinary procedure and nothing else.

The framework needs to be responsive and flexible.  The ability to operate the framework rapidly and without delay will be crucial to the firm’s success and its ability as a whole to operate efficiently.

It must also avoid operating with any element of a ‘blame culture’, recognising that there may be partners trying hard to achieve the firm’s standards and objectives but struggling to do so efficiently.  However, there may be situations where the framework needs to allow approaches to be made to partners who have adopted a policy of quiet subversiveness and are therefore undermining the firm’s efforts to achieve its strategic objectives or are in danger of losing trust and credibility within the firm.

The link with the firm’s Governance and Partnership Compensation/Remuneration Scheme

It is important to draw a distinction between conduct and professional ethics on the one hand and partner performance on the other.  Most partnership deeds will make provision for misconduct and will therefore deal with matters such as the contractual duties of partners and the provisions which relate to termination for breach.  These provisions should provide a proper remedy with regard to partner misconduct issues.  The focus of this book is, however, primarily upon performance issues, although it must be acknowledged that ultimately performance issues could form the subject of misconduct allegations within the scope of the misconduct provisions of the partnership deed.  Many partnership deeds make no provision for expulsion for underperformance and, when revising their governance, many firms are seeking to address this issue.  There is trend towards the firm being able to enforce compulsory retirement without cause upon attaining an overwhelming resolution (say 75%) of the equity partners to expel the underperforming partner. Some firms even have put in place more draconian provisions to allow the Board to expel a partner without taking the matter to the equity partners.   In many cases, the provisions will call for more generous notice to be given to the underperforming partner than expulsion for misconduct.

Partner performance also is extremely relevant in the context of the firm’s scheme for partner remuneration or compensation. I have, however, noticed that some partner remuneration schemes avoid focus on negative aspects of Partners performance; there is a widespread but mistaken feeling in these firms that to do so could jeopardise the effectiveness and validity of the remuneration scheme.

However, in setting criteria for admission, promotion and the evaluation of partners, it is important that the firm enunciates some standards which the leaders of the firm are prepared to enforce.  Clearly therefore, the firm needs some recognised means of managing situations of underperformance against
the firm’s standards and criteria.

Setting Criteria and constant standards

 

To confront a partner with an accusation of underperformance often evokes the response, “what is your evidence?”, or “against what standards am I being judged?“.  It helps here to agree performance criteria — in the financial context for chargeable hours, the targets, credit control, and work in progress control — both for the partnership as a whole, but also, and perhaps more importantly, for each individual partner as part of his or her business plan.  If a partner has agreed his or her proper level of performance, then issues of underperformance become easier to monitor.  Financia criteria are easier both to agree and to monitor than other key skills and behaviours.  Selfishness, rudeness, staff intimidation, intolerance and disruptive behaviour all fall within a more difficult area to police.

I observe that some firms draw up specific underperformance criteria whilst others prefer to rely on the criteria for incoming equity partners as a guide to the minimum baseline indicators of acceptable performance.  Where specific ‘elimination criteria’ are preferred, great care must be taken to draw them up across all the Critical Areas of Performance and – as with all performance metrics- to ensure that they are measurable or assessable in a fair and open manner.  Thus, elimination criteria in the area of Financial and Business performance might appear as follows:

  • Consistently records less than the chargeable hours per annum expected at his level of the partnership.
  • Fails to manage engagements to the firm’s standards for engagement profitability.
  • Fails consistently to adhere to firm’s financial disciplines.
  • Fails to manage projects, time or priorities adequately or cost effectively.
  • Fails to leverage work to an agreed level (technology as well as people).