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Partnerships: a future in doubt?

Partnerships: a future in doubt?

THE FUTURE of law firm partnerships may be in doubt as incorporation finds a means for effective succession planning, the value of law firms rises, and other equity-sharing models find…

THE FUTURE of law firm partnerships may be in doubt as incorporation finds a means for effective succession planning, the value of law firms rises, and other equity-sharing models find supporters in generation Y.

Debate over just what might replace the partnership model — if anything at all — generated some heated discussion at the recent Australian Legal Practice Management Association’s (ALPMA) conference in Sydney. Three law firm leaders, with three very different perspectives on what a law firm should look like, shared their experiences.

Damian Paul, managing director at Macpherson + Kelley Lawyers, whose firm incorporated five years ago, said part of the reason for moving to incorporation was about simplifying the firm’s structure. “The more important reason was that at the time we incorporated we had about 20 partners, only four owners, and 16-non equity partners — [so] it was starting to become an issue from an asset protection point of view,” he said. “We lost a few good people we thought we would have got.”

The changing nature of career progression, noted Paul, was an essential reason for adjusting the firm. Instead of waiting — for what a young generational lawyer could perceive as a lifetime — to join the partnership of a law firm, Paul said that lawyers could share equity in the firm from just a couple of years of starting their articles.

According to Dr Peter Ellender, CEO at Carter Newell, the policy is not just about keeping good people — moving away from partnerships may also allow law firms the opportunity to realise the value of their work. “Investors do see value in firms and their ability to not only retain their cash flow, but get a good return also,” he said.

Ellender also suggests performance is a key factor for changing equity models: “How much more powerful is it to have employees working in the building — driving strategies along because they own a part of it?” he asked. “There is real evidence in other industries where people even taking 5 or 2 per cent ownership in a firm, change their attitude in the way they work in that firm.”

Ellender said he looked closely at the proposition of incorporation and did find many positives, but he said there are still many issues — such as tax, additional costs and getting the timing right — that all firms should take into account before considering the change.

Also, noted Ellender, Carter Newell has a corporate structure without actually being a corporate structure. “We run along corporate lines as much as possible, including the differentiation of profits,” he said. “We have already moved to pseudo-shareholder mechanism and can get some benefits of incorporation without actually doing it.”

Steve Sampson, a partner at Hunt & Hunt, is a strong supporter of the partnership model and a critic of incorporation. He noted the speed at which the ideal has been picked up, but warned of the risks of changing models too quickly. “I’m not a fan of incorporation, nor am I an opponent,” he said. “There’s been a lot of debate and firms have run headlong into it without really thinking about it.

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Partnerships: a future in doubt?
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