Partnership Shell Game

After two years of advocacy by various organizations, the National Association for Law Placement (NALP) agreed last November to collect data on law firm partnership structures. Instead of just providing a partner headcount, firms would disclose the number of equity and non-equity partners. Equity partners have an actual ownership stake in the firm and get a slice of the profit pie, whereas non-equity partners are essentially still rank-and-file associates (albeit the highest paid ones) since they still draw a fixed salary.

Simply by getting partnership information that reflects a two-tiered structure, laterals, law firm associates, law students, and clients would have a much clearer sense of how power is actually distributed. In past years, firms have taken advantage of the partnership ambiguity to game the rankings of legal publications. In response to similar (or even identical) questions, firms have counted non-equity partners in their partnership figures when it will boost diversity numbers for Vault, but have excluded non-equity partners from the count for American Lawyer  (AmLaw) since having a lower partnership count boosts the profits per partner figure. If that is, in fact, what firms are doing, it is likely that a disproportionately high number of women and minority partners are non-equity. This is especially troubling because it would indicate that minority and female attorneys are being channeled into non-equity partnership, while equity partnership is still kept out of reach.

For example, in 2007, one major law firm told NALP that it had only one tier of partners, told AmLaw it had more than one tier and around 250 equity partners, turned around and told the National Law Journal (NLJ) they had around 250 equity and 250 non-equity partners and then finished off by telling the Vault Diversity Guide that they had about 500 equity and 50 non-equity partners. Similarly, another firm told NALP and AmLaw that it had more than one tier of partner, while also telling Working Mother it had around 250 equity and no non-equity partners. Discrepancies of this magnitude can't be explained away by careless error. Even knowing that these numbers can be easily compared upon publication, firms actively misrepresent themselves to secure higher diversity or profit figures.

One Step Forward, One Step Back

Less than a month after it began data collection, NALP has been forced to abandon this effort for greater transparency. Citing privacy concerns, a majority of the firms simply refused to provide this information. The argument is that the partnership distinction is an internal business affair and that especially at smaller firms, the non-equity partners could be easily singled out. But how credible is this defense? Since non-equity partnership has become the obligatory stepping-stone to full equity partnership at many firms, it seems unlikely that non-equity partners would be stigmatized. It is also entirely possible that people within a firm, particularly within one office, will figure out on their own who has power, who goes to certain meetings, who gets a piece of the profits, and who seems to actually be an owner of the firm; in other words, who the equity partners are.

The groups that are probably most adversely affected by rampant misinformation regarding firm partnership are the women and minorities who can't get an accurate picture of the job market. This information gap exists for people about to enter the job market and veterans. Equivocating firms may draw women and minorities with the appearance of diversity-friendliness, then continue to relegate them to second-class, non-owner status. A clearer understanding of the real lay of the land would undoubtedly affect job choice decisions.

Clients also lose out as a result of non-information and misinformation. Billing rates would take a hit if clients could scrutinize bills to see whether they were being charged top dollar for a non-equity partner. So while the firms claimed to be protecting their non-equity partners from internal stigmatization, it was more likely that they wanted to keep clients from wising up. For example, if the numbers show one Asian woman partner in a firm's Boston office, and she is non-equity, and a client has an Asian woman partner on their case, the client may well balk at her $700 partner billing rate since the other partners at the firm don't even trust her to share in owning the firm itself.

Enhanced transparency would have also have made the rankings fairer for firms like Wachtell, Lipton, Rosen & Katz and Sullivan & Cromwell that actually have one-tier partnerships. When firms with multiple partnership tiers are allowed to lump in non-equity partners and report this inflated partnership number, rankings get distorted, and single-track firms look like much worse diversity offenders. The NALP requirement to report non-equity and equity numbers would have allowed an equitable comparison.

 

Kevin Lo is a Stanford University Law Student and member of  Building a Better Legal Profession (BBLP).   BBLP is a national grassroots movement that seeks market-based workplace reforms in large private law firms. For more information, visit BBLP's Web site at www.betterlegalprofession.org.