Dan Roe of law.com recently reported on a study by Edge International on the problem of underperforming partners. I have written on this issue before.
Identifying and defining underperforming and underproductive partners will prove more and more challenging given the changing dynamics in the profession. Those firms that evaluate partners’ performance and productivity only on current financial metrics may face problems in the future.
The Survey
According to the Survey, more than half of the responding firms believe underproductive partners hurt firm profitability. And two-thirds say they intend to act on the problem within the next two years.
Almost 80% of firm leaders use financial measures like billable and collected time and origination in determining partner performance
But here’s the problem: almost 80% of firm leaders use financial measures like billable and collected time and origination in determining partner performance. Once upon a time, that singular focus may have worked. But as the profession grapples with the impact of AI on the practice and changing client expectations, that approach may be shortsighted.
For example, as Jordan Furlong recently and perceptively wrote, ignoring the nonbillable contributions of partners leads to a singular focus on billable work. This focus is often to the detriment of things like training, client service, and development. The myopic focus on billable hours and short-term profits v. long-term sustainability has always been a characteristic of law firm management.
Three Scenarios
Unfortunately, the fixation of law firms on billable hours and financial performance for identifying underproductive partners typically reflects a firm’s priority on short term profit making. This priority comes at the expense of client service and investment in the future. Three (mostly) hypothetical vignettes demonstrate this.
Scenario One
Joe is a 50ish partner with the Billable & Behold law firm. He has a significant book of litigation business. He works long hours, and his collections are good. But Max Invoice, the managing partner of Billable & Behold, calls him in and tells him he is underproductive because his work does not meet the firm’s profitability goals. Max tells Joe he needs to raise his rates significantly to move out of the underproductive category.
Joe responds that he brought in over $4 million in fees last year and expects to do the same, if not more, this year. But his clients will not accept higher rates. “Not good enough,” says Max. “You are underperforming.” After trying to get his rates up with little success, Joe determines he would start his own firm, which he does, depriving his old firm of revenues and opportunities. Joe now makes more money than ever using alternative fee structures, technology, and AI.
Scenario Two
Susan is a young equity partner with a growing book of business. In the past, she easily avoided Billable & Behold’s underproductive tag. At least until she was asked to head up the firm’s DEI initiative. She was also asked to determine how the firm could best use Gen AI and alternative billing. And develop the criteria for doing so. Because she was good at what she was doing, she was then placed on the firm’s strategic planning committee. But no good deed goes unrewarded.
Susan was recently labeled underproductive because she did not meet Billable & Behold’s billable hour quota. Her compensation was reduced, and she was told if her billable hours didn’t improve, she would be relegated to nonequity status. Susan responded that her nonbillable work was an investment in the future and would result in the firm being on a better financial footing in the long run. “Not good enough,” says Max Invoice. Six months later, Susan leaves the firm and joins Joe’s new firm to help him use GenAI and develop alternative fee structures, among other things.
Scenario Three
Sam is an enterprising mid-30s partner at Billable & Behold. He has long been an avid user of technology and advocates using it to automate work that doesn’t need to be done by a lawyer. He primarily works for the firm’s largest client. The client loves him mainly because he focuses on client service. The client appreciates that Sam works hard at getting the best solution for the client instead of billing as much as possible. But Sam’s hours suffer.
“Not good enough,” says Max.
He, too, is called in by Max for a discussion about productivity. He is told he is not meeting the firm’s billable hour quota and is now officially underproductive. Sam responds that his hours are what they are because he uses technology and automation, so the client is not billed for work that Sam does not need to do. “Not good enough,” says Max.
One year later, Sam goes in-house for the client for which he was primarily working. His first act is to fire Billable & Behold because he believes it is overcharging and not providing good service. He hires Joe and Susan’s firm because he sees the partners there as being more interested in service than billing hours.
Three years later, Joe and Susan’s firm has opened three new offices and grown to over 40 attorneys. Business is good. Billable & Behold announces it is closing its doors.
What constitutes an underproductive partner today needs to be based on more than how many hours the partner bills
A Sea Change?
Certainly, the scenarios may be a little far-fetched but not by much. What constitutes an underproductive partner today needs to be based on more than how many hours the partner bills. This is especially true now that the profession and client expectations may be changing.
Yet according to Edge, almost 80% of law firms still focus primarily on billable hours, which demonstrates a continued emphasis on the short term. That focus has historically worked, but that may be about to change.
Photo Attribution: Photo by Lena Taranenko on Unsplash