This is the first of two posts on the issue of
partner underperformance in law firms.
The second part will suggest a process and procedure which firms can
follow.
Partner performance management systems attain
their sharpest focus in how they cope with the issues of non-performance and under-performance.
There is hardly a law firm of any substance in
the world which has not at some time had to deal with the issue of partner
underperformance. As I have reviewed
best practice in this area I have found many more examples of poor practice than
best practice, although it is also becoming clear that some leading firms are
learning to deal with these issues more sensibly. Examples of current and wholly avoidable bad
practices include:
- Failure to set firm standards and manage the
firm’s expectations of partner performance generally. - Criteria based on financial performance alone
with all other contributions under-valued or ignored. - Unacceptable partner behaviour and poor
standards tolerated and indulged by the firm’s leaders for long periods of time. This is often followed by sudden and
precipitous over-reaction, with partners finding themselves suddenly out of a
job without any warning. - Underperformance issues not being confronted
with any degree of openness and candour.
Instead there is often a whispering campaign behind the back of the
underperformer. - Hasty and sudden departures without warning and
without the underperformer being given an opportunity to address the underlying
issues. - Partners are over-promoted and should have
never been made an equity partner in the first place.
Whilst some of these issues derive from poor
management skills on the part of the firm’s leaders, there are three essential
infrastructure elements which will help firms address this difficult problem
area. First, time must be spent on constructing and agreeing a comprehensive performance
management system for partners. This should address how partners will be
monitored and managed on a year to year basis, and how they will be expected to
develop over time. Second, the firm must
manage the expectation of partners by setting out both the constant standards
and the baseline partner criteria which they expect partners to achieve. Third, the firm should give special
consideration to the process by which they not only monitor and support
struggling partners, but also, ultimately and in the event of failure, manage
partners out.
Clearly there are many financial indicators
which can be measured in law firms. One
indicator which is not commonly measured is the true cost of
underperformance. The problem is that,
not unlike the assessment of the true cost of replacing a departing partner, some
of the issues are hard to quantify.
Whilst it is possible, for example, to measure the cost of clients lost
due to negligent or inefficient work, it is less easy to measure the cost of
lost opportunities, or the effect on staff morale of an underperforming partner
who is continually allowed to get away with blue murder. Equally, the presence of an underperforming
partner may cause others to leave, or block promotion and recruitment
opportunities. Here, a “back of the
envelope” calculation can be as useful as a long-winded attempt at empirical
analysis. But the true cost of underperformance of a single partner almost
always can reach six figures and sometimes amount to several millions of
pounds. I spoke to one firm where a
partner had been identified as underperforming but the cost of severance was
considered too high. Two years later,
the underperforming partner was still there and the cost had, if anything,
increased, whilst at the same time, the partner concerned had been paid a
profit share far in excess of her contribution.
It is important to ensure that issues of
underperformance form a part (but not the whole) of the performance management system.
Firms do need to address those parts of the performance management system which
manage aspects of behaviour and contribution that are not in keeping with the
firm’s objectives. This part of the
overall performance management system must emphasise the importance of
providing a positive supporting role. It
would be detrimental to the partnership ethos of the firm if it were regarded
as a disciplinary procedure and nothing else.
The framework needs to be responsive and
flexible. The ability to operate the
framework rapidly and without delay will be crucial to the firm’s success and
its ability as a whole to operate efficiently.
It must also avoid operating with any element
of a ‘blame culture’, recognising that there may be partners trying hard to
achieve the firm’s standards and objectives but struggling to do so efficiently. However, there may be situations where the
framework needs to allow approaches to be made to partners who have adopted a
policy of quiet subversiveness and are therefore undermining the firm’s efforts
to achieve its strategic objectives or are in danger of losing trust and
credibility within the firm.
The
link with the firm’s Governance and Partnership Compensation/Remuneration
Scheme
It is important to draw a distinction between
conduct and professional ethics on the one hand and partner performance on the
other. Most partnership deeds will make
provision for misconduct and will therefore deal with matters such as the
contractual duties of partners and the provisions which relate to termination
for breach. These provisions should
provide a proper remedy with regard to partner misconduct issues. The focus of this book is, however, primarily
upon performance issues, although it must be acknowledged that ultimately
performance issues could form the subject of misconduct allegations within the
scope of the misconduct provisions of the partnership deed. Many partnership deeds make no provision for
expulsion for underperformance and, when revising their governance, many firms
are seeking to address this issue. There
is trend towards the firm being able to enforce compulsory retirement without
cause upon attaining an overwhelming resolution (say 75%) of the equity
partners to expel the underperforming partner.
Some firms even have put in place more draconian provisions to allow the
Board to expel a partner without taking the matter to the equity partners. In many cases, the provisions will call for
more generous notice to be given to the underperforming partner than expulsion
for misconduct.
Partner performance also is extremely relevant
in the context of the firm’s scheme for partner remuneration or compensation. I
have, however, noticed that some partner remuneration schemes avoid focus on
negative aspects of Partners performance; there is a widespread but mistaken
feeling in these firms that to do so could jeopardise the effectiveness and
validity of the remuneration scheme.
However, in setting criteria for admission,
promotion and the evaluation of partners, it is important that the firm
enunciates some standards which the leaders of the firm are prepared to
enforce. Clearly therefore, the firm
needs some recognised means of managing situations of underperformance against
the firm’s standards and criteria.
Setting
Criteria and constant standards
To confront a partner with an accusation of
underperformance often evokes the response, “what is your evidence?”,
or “against what standards am I being judged?“. It helps here to agree performance criteria
– in the financial context for chargeable hours, the targets, credit control,
and work in progress control — both for the partnership as a whole, but also,
and perhaps more importantly, for each individual partner as part of his or her
business plan. If a partner has agreed
his or her proper level of performance, then issues of underperformance become
easier to monitor. Financial criteria
are easier both to agree and to monitor than other key skills and
behaviours. Selfishness, rudeness, staff
intimidation, intolerance and disruptive behaviour all fall within a more
difficult area to police.
I observe that some firms draw up specific
underperformance criteria whilst others prefer to rely on the criteria for
incoming equity partners as a guide to the minimum baseline indicators of
acceptable performance. Where specific
‘elimination criteria’ are preferred, great care must be taken to draw them up
across all the Critical Areas of Performance and – as with all performance
metrics- to ensure that they are measurable or assessable in a fair and open
manner. Thus, elimination criteria in
the area of Financial and Business performance might appear as follows:
- Consistently records less than the chargeable hours
per annum expected at his level of the partnership. - Fails to manage engagements to the firm’s
standards for engagement profitability. - Fails consistently to adhere to firm’s
financial disciplines. - Fails to manage projects, time or priorities
adequately or cost effectively. - Fails to leverage work to an agreed level
(technology as well as people).
