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The Holy Grail

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24 March 2017 11:36

The Equity Partnership


"How do I refuse a promotion to equity without damaging my prospects? Last week the senior partner sidled up to me and suggested that we talk about me becoming a full equity partner.  However I don't want to put my home on the line for the sake of MAYBE getting some more pay and some enhanced status. How do I say no without damaging my career?"


All I ever read about now is firms going bust.  Big firms are no longer safe and small firms live from hand to mouth.

Equity is a busted model. Why this is deemed desirable for law firms when almost every other organisation realises that the limited company is the right way to go is unbelievable. Why move to a variable and uncertain salary, with personal risk, when any decent organisation should reward you according to productivity and contribution with no requirement to accept having to sell your house if the other partners (over whom you have no control) or yourself (more likely in my case!) mess it up? Promotion on ability, not based on whether you have mortgaged your house to the firm’s bank, should be the rule. The Practice Manager considers what to do with your capital contribution.


The irony is that once you put aside the old fashioned view that partnership is the goal of private practice, there are many alternatives.  All these titles such as “Legal Director” and so on work just fine. Whilst I was as snobbish as the next person when these titles were introduced (just sliding another rung on the top of the ladder), equity is not for everyone.   The way to do this is to appeal to the partnership’s greed - another equity partner dilutes the profits per partner.  It muddies the decision making process (theoretically…) and it sets up new rivalries and insecurities in the partnership.  Since the only real reason to get you into partnership is to (a) get their hands on your capital as they need the cash or (b) lock you in and stop you leaving, neither of them are designed to appeal to YOU.  Offer to accept a longer notice period in your contract (which can always be dropped when you come to leave) and remind them that you are helping their profits which flatter them in the profits league table.


If that fails, just say “my partner won’t let me take on any liabilities” and the male dominated partnership will sympathise with your predicament and immediately accept that as a valid reason.


Of course accepting equity is a test of your loyalty but one that perhaps should no longer be required. It’s time to come up with a new structure for law firms.  


What appeals most to Roffers?


  

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anonymous user
24/03/2017 16:15
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What appeals most to Roffers? Chocolate hobnobs...
anonymous user
29/03/2017 21:58
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What career damage can reasonably ensue? Presumably if you are being offered equity you are one rung below the top, and you are being offered a step onto the top rung. If you turn it down, what future promotions are you anticipating you might be precluded from?
anonymous user
31/03/2017 10:40
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If it's an LLP, then it's no worse than investing in a company - you stand to lose your equity stake, but no more. If it is going down the toilet, then take independent advice and make sure the firm is not over-distributing its profit (a la KWM) otherwise you may have to repay some of your drawings. But if the firm's that risky, should you stay there anyway?

BUT if it's a true partnership with unlimited liability, then you should be like Goldie Lookin' Chain "Just say No, just like Zammo". With the least intelligent 52% of the population having carefully steered the economy off the cliff and Lloyds of London shortly to become Lloyds of Brussels run a mile.

If you're a Brexiteer, give yourself a round of applause - two world wars couldn't shift Lloyds out of London, but you did.
anonymous user
31/03/2017 14:56
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I find your belief that these risks only attach to 'full equity' horrifyingly naive.
The Legal Agony
02/04/2017 11:52
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@anonymous 14.56. 31/3. Thank you for pointing this out. You are correct. It's all equity I fear. I used the term "full" as for some the risk of a more limited contribution in return for a guaranteed cheque every month is more appealing. However as Halliwell's etc showed us, all equity is at risk. Many drums don't let you see the accounts before you join any equity. And the devil is in the detail of WIP valuation etc. It's scary.