2024-09-25 18:34:59
Lidia Zommer, managing partner of Mirada 360º. – As the world moves at full speed towards innovation and efficiency, many partners are still caught up in the human mindset ‘it’s always been done this way’.
But the harsh truth is that it is a bad model partnership It could hinder your business plans. It’s time to question everything from how we compensate partners to how we invest in the future. Because what is given is done. And if we don’t review what we reward and face difficult conversations, we’ll never know why we repeat mistakes.
The dilemma of long-term investments
Medium and long-term investment decisions are critical to office sustainability. Investment in technology, training, marketing and expansion can drive growth. But how are these decisions made in an environment where partners expect immediate results?
In a law firm, each partner has their vision. Some see the value of investing in advanced technology automate processes and improve efficiency. Others prefer to allocate resources to signature partners with recognition, equipment and portfolio, or to train and develop new talent. This is where the partnership model could be an obstacle. All investment decisions have to be agreed and this slows down the process.
Compensation policies and their impact
Partner compensation policies are the backbone of the partnership model.
What gets rewarded gets donethey say and they are right.
An organization rewards what it wants to do and, although there are other forms of recognition, reward is a clear and obvious form of incentive.
To choose the compensation model, you need to analyze the culture thoroughly, what the partners value and what makes the business successful.
When you don’t understand why partners say positive in meetings but don’t (cross-selling, prioritizing the training of young people, investment in technology, recruitment, supervision, etc.), check if the compensation model encourages the behaviors expect them and if it is in line with the culture (the real one, over the declared one) of the office.
How partners are compensated reflects and shapes a firm’s culture, and this culture, in turn, influences compensation systems.
The values of the founding partners determine how the partners will be compensated. As businesses grow, they need to formalize their systems. However, no matter how formal they are, there will always be a margin of interpretation that tends towards the core values.
The most widespread problem is that discussion of these topics is often avoided because they are considered uncomfortable conversations that could hinder the development of the joint project.
Culture eats regulations for breakfast
There are two large partner reward systems. The model created by Cravath more than 100 years ago establishes a partner reward system based on seniority rather than compensation directly linked to individual turnover or client acquisition. This approach, called green degreereward loyalty and time dedicated to the firm, encouraging collaboration and training of associates instead of promoting internal competition between partners.
The goal is to maintain cohesion and quality of work, ensuring that partners are aligned with the long-term interests of the firm rather than focusing solely on their own short-term financial results.
At the other end, the system Eat What Kills You (EWYK) emerged in the 80s and 90s as an alternative to traditional compensation models such as green degreebecoming popular in law firms in the United States that sought to reward the individual productivity of partners. This model is based on compensation proportional to the revenue and clients generated by each partner, which promotes competition and independence. While it motivates partners to maximize their performance and capture more business, it can create a competitive environment that negatively affects organizational culture, discouraging collaboration and mentorship. It is used in companies that prioritize individual productivity, although there are risks of internal fragmentation and lack of strategic integration.
Between these two models, many grays are called mixed systems or green degrees of management, which combine individual performance factors or the teams being led, with seniority and contributions to the firm in terms of management, reputation, expansion, innovation or internal climate.
Partners are typically compensated based on their performance and contributions to the firm. If partners are rewarded primarily for their annual income, they may be reluctant to support investments that do not generate immediate benefits. This leads to a short-term view that limits large projects.
Some incentives are toxic and can destroy a firm by turning colleagues into competitors, as my partner Rafael Mery relates in this article. When partners in an office compete fiercely for points based on billable hours and client acquisition, neglecting the quality of service and fostering a destructive environment of individualism and distrust, they separate and take “their clients” with them. The big danger with these compensation models – very common in the legal industry – is that they generate high incentives for individualism. These compensation models may benefit the rainmaker attorney, but may harm the firm in the long run.
Long-term investment decisions, such as adopting new technologies or opening new offices, may be jeopardized. The firm risks being left behind in a rapidly changing market and drawn into fratricidal fights.
Partner retirement challenge
Another critical aspect is managing the expectations of partners close to retirement. These partners are often more interested in maximizing their short-term income before retirement. This can create friction with younger partners, who have a longer-term vision and are willing to invest in the future of the firm.
Strategies for aligning interests
If they are long-term objectives, it is not enough to align the interests of the partners. It is also necessary to promote a culture of investment in the construction of projects that exceed.
Partners need to understand how the proposed investments will benefit the firm in the long term. and, somehow, the value of the point at exit does not degrade. Transparency and clarity in decision-making are key to gaining support from all partners.
What is the best model?
There is no model that is good for every office. It must reward behaviors that make the business successful, satisfy its values, and encourage a shared vision for the future.
We will talk about these questions with Gloria Hernandezof Finreg360, Sean Rocafrom Roca Junyent, and Mario Alonsowith Auren, at the panel on the partnership model at the plenary session of the Legal Management Forum, on October 15 at the Mutua Madrileña.
Don’t miss it.
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