Powers behind the throne

April 3, 2014

Forget the management committee. Who’s really in charge of your firm?

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You may be sick to the back teeth of endless media prattling about the collapse of Dewey & LeBoeuf. But the latest court case between the firm’s partners and its bank serves as a reminder of the battles for power that continue to go on behind the scenes of most law firms. For those rising the ranks, the moral of the story is to always know where the power really lies. That is, if you want to get ahead.

At Dewey, the collapse of the firm was just the beginning of an on-going struggle to determine liability for debts. This has most recently characterised itself as litigation between the firm’s former partners and its bank, Barclays.

The bank wants its money back for the partners’ individual capital loans taken out in 2010, when the firm was struggling. The partners argue, however, that they were misled over the firm’s financial health and their personal liability for repayment.

We will wait to see who comes out on top of this one, but what is clear is that where money talks, partners still have an awful lot of sway. The fact is that most firms depend on their partners as a critical source of capital – in both good times and bad. If the proverbial hits the fan, it’ll be the partners who are called upon to inject more cash. If they bail instead (as many Dewey partners did), the firm is sunk.

Dewey is far from alone in making such a call on partners in recent years when finances have been stretched. It’s just that other firms have been more canny (or luckier) in getting back on track.

But for as long as partners are owners of the business in this way, the fact remains that they also call the shots. The corporate-style management board might be more popular. But as shown by Dewey, dependency still very much lies with those who can both generate revenue and inject capital. And that’s not the full-time management or leadership teams. It’s the partners.

Add to that some consideration of the rainmakers. These are the stand-out partners who have the big names and always bill the most. They may have zero interest in anyone else because they’re pretty much operating as sole-traders. They may be the most disagreeable of characters, and exhibit generally the most appalling behaviour. But don’t expect the firm’s management to take issue with them. They’re too important to the financial functioning of the firm.

Work in progress

Firms are working hard to shift this power balance. Some have been more successful than others, particularly in getting partners to collaborate better with all layers of the firm for the good of the firm – and their mutual profit. A few have even proved willing to dispense with some groups/partners that no longer sit comfortably with the direction of the firm. But it’s a particularly hard nut to crack and most would admit it remains a work in progress.

This leaves ambitious associates with a tricky path to the top. Not only must you decipher who are the legal heavyweights with the biggest voice in the boardroom, but also how these pieces on the board might change under the twin pressures of external market forces and internal politics. It may also mean sidling up to the odd unpleasant character along the way.

For rest assured, it is the equity partners – and a small clique of them at that – who, for good or ill, continue to determine their firm’s fate. CP  

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