It is conventional wisdom (or perhaps for some an unwelcome realization midway through first semester of the 1L year) that you don’t come to law school with the primary aim of instantaneous monetary enrichment. For those anxious to “make it big, fast” there are plenty of investment banks and hedge funds, roaming the “ivy” hills, hoping to entice yet another unsuspecting undergraduate with the vision of dollar signs without another day of schooling. The law-school-bound of the bunch refuse to fall victim to these sales pitches, preferring to sacrifice the Lamborghini for the promise of justice, to fulfill our souls rather than our pocketbooks. I expect snickers here, and of course, to some degree I am being facetious. Only some because I can readily point to fellow students in my own first-year class who are indeed driven by the pursuit of something loftier than a trophy car, who genuinely believe in the social responsibility aspect of the legal profession. But just to be realistic or perhaps a little cynical – a good number of us chose the path we did on much simpler and less principled grounds: risk-aversion! While the financial sector offers immense rewards, they come at the price of an equally high risk of failure. By opting for the legal profession, we are implicitly choosing long-term stability and security over a less certain (though perhaps more affluent) future. Or at least we think we are…

 

Historically, the private law firm personnel structure was simple and relatively predictable – you slave away as an office associate (a salaried employee) for 6-8 years, eagerly awaiting the partnership promotion that will release you from your shackles. Partnership allows you to both share in the firm’s profits (and its liabilities) and vote on a variety of business matters. A part of you (a very small part) acknowledges the remote possibility that you might be dismissed from the firm rather than admitted to the ranks of partner – certainly, the stringent “up or out” system didn’t favor everyone. And yet most firms were of a manageable enough size to limit “outers” and maintain a fairly steady advancement scheme.

 

Starting in the late 1970’s and early 1980’s several trends challenged this traditional organizational system, particularly the notion of predictability that attracted the risk-averse to the field of law in the first place. Firms began to grow in size exponentially, both in response to increased business and mergers. According to career pattern studies conducted by Ronald J. Gilson and Robert H. Mnookin, firms reacted to the sudden swell by increasing their demand for higher-risk associates (manifested in increased recruitment from lower-tier law schools) and changing the way in which profits are divided among partners, shifting from a general sharing approach to one that emphasizes individual productivity. This latter change lifted pressure from the partnership promotion decision – a disappointing partner simply receives a reduced share of the pie. Another notable development in the legal field has been the diminished significance of firm-specific human capital due to the replacement of longstanding client relationships with one-shot transactional projects for a succession of different clients. Given that technical skills are now less client-based and much more universally marketable, the practice of lateral hiring has gained in popularity.

 

The culmination of these trends has been the emergence of a second non-equity partnership tier, characterized by fixed salary-liked compensation and limited decision-making power. In practical terms, the main benefit (besides a pay raise) lies in the credibility attached to the partner title that may facilitate the cultivation of clients. In justifying the change, firms will emphasize the need to address their growing concern of better preparing associates for the elevated expectations and responsibilities they will confront as equity partners. Of course my inexorable cynicism will not allow me to ignore a more likely incentive that, for obvious reasons, is articulated least frequently: in the early 1980s, The American Lawyer magazine popularized a new statistic that measures law firm economic success - profits per equity partner (PPP). Once made publically available, PPP developed into a competitive issue among firms, especially in recognition of its usefulness for attracting both top law school graduates and experienced lateral hires. Logically, if calculating PPP requires dividing total firm profits by the number of existing equity partners, the easiest way to boost the ratio is by reducing the denominator. The non-equity tier provided a convenient solution for firms seeking to increase PPP without having to sacrifice the appearance of promotional accessibility.

 

Evidently this clever loophole is no well-kept secret. In 2004 over 70% of U.S. law firms with more than 75 attorneys reported having more than one level of partnership. It is obvious why profit-maximizing firms would embrace the option of creating a second tier. The more pressing question for those of us on the brink of entering the legal jungle blind sighted, is what benefits and hazards we can expect to encounter in confronting the newly revamped system? Unfortunately, I can offer only the most frustrating and conventionally lawyerly answer: it depends. This ambiguous response is appropriate for two reasons: (1) every attorney is different and (2) every firm is different. It is difficult to make generalizations when every single prospective associate has unique aspirations that will determine his/her personal career path. Analogously, a non-equity partner means something slightly different depending on the firm context: in certain firms it carries the stigma of the “mommy track” or the permanent non-partnership material “loser track”. Other firms require all associates to temporarily occupy this position before they can attain equity status, for the purpose of honing their business development skills.

 

Of even greater interest to law students, an unrelated, but additional benefit for firms who created and increasingly relied on the nonequity partnership track was that they could include these new “partners” in their answers to the annual NALP questionnaire and therefore make it appear that they had more female or minority lawyers in positions of power and authority. 

 

As we have seen, however, all “partners” are not necessarily “partners” and the overall effect has been to substantially cloud the picture for female law students seeking to estimate their chances of succeeding in any particular firm (or even of understanding the promotion structure). This has even confused BBLP’s rankings for 2007 (a problem we are working on correcting for 2008). For example, Chicago-based Sonnenschein Nath Rosenthal was awarded first place among all ranked Chicago firms on BBLP’s diversity report card, its female partnership numbers receiving a shining “A” grade . The numbers prove deceiving, however, when you account for the equity/non-equity distinction. According to a 2007 study conducted by Working Mothers Magazine, the 29.8% female partnership statistic BBLP relied on in its rankings actually includes both equity and non-equity female “partners”. In fact, the proportion of female equity partners at Sonnenschein in 2007 was a far less impressive 15%. This means that around half of the female partners at Sonnenschein are not owners, do not share in the firm’s profits, and probably don’t have a vote or a seat on the management and policy committees. Similarly New York-based Pillsbury Winthrop Shaw Pittman came in 9^th overall among all BBLP’s ranked New York firms and was assigned an “A” grade for its alleged 20% female partnership total (isn’t it pathetic that we perceive a fifth as ideal?). A closer look reveals that only 14% of the firm’s equity partners are women actually sharing in the profits of the firm (for wasn’t that originally the entire purpose of making “partner”?). A whopping 28% of the non-equity tier, however, is comprised of females, relegated to limbo zone.