Asked and Answered

By John W. Olmstead, MBA, Ph.D, CMC

Q. Our law firm is located in San Antonio, Texas. We have a total of 18 attorneys which includes me and two other equity owners that founded the firm and contributed capital, three equity partners that were made partner that did not contribute any capital, two non-equity partners, and 10 associates. The original three partners control the firm and make all of the decisions with little involvement or input from the others. They are not provided with financial statements or reports. The original three partners bring in virtually all of the business. We are faced with some hard decisions concerning partnership admission - non-equity to equity, associates to non equity, etc. Our compensation cost for attorneys is eating away at our earnings for attorneys that are worker bees and don't bring in any business. Your thoughts?

A. You may want to ask yourselves whether you want employees or partners. It sounds like the other three equity partners are not part of the inner circle and are not really functioning as part of the partnership. What are the criteria for becoming an equity partner? Is client development part of those criteria? Should they contribute capital? If they are not adding value to the firm - growth - you are diluting the earnings pool and reducing the size of the pie for yourselves. Personally, I think in a firm your size criteria for becoming an equity partner should, among other things, include client development and a capital contribution. They should have some skin in the game, contribute capital, and signup for their share of the liabilities. I also believe they should then be included in the inner circle.

I would start here by addressing these issues with the three equity partners. They I would develop non-equity and associate career progression plans - associate to non-equity partner and non-equity partner to equity partner - outlining timeline for consideration, the consideration process, the criteria, and the respective and expectations for each. (What it means)

Make the criteria tough and resist the temptation to make everyone a partner.

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John W. Olmstead, MBA, Ph.D, CMC,(www.olmsteadassoc.com) is a past chair and member of the ISBA Standing Committee on Law Office Management and Economics. For more information on law office management please direct questions to the ISBA listserver, which John and other committee members review, or view archived copies of The Bottom Line Newsletters. Contact John at jolmstead@olmsteadassoc.com.