What Should Law Firms Do About Non-Equity Partnership

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The non-equity tier is the fastest growing segment of the private law firm lawyer ranks.  It has multiple entry points, few exit points, is often undermanaged, and is growing in an environment where efficiency of service delivery suggests the need for fewer – not more – service partners. Non-equity partners are needed in some situations, but almost certainly not in the numbers seen in most firms. 

It is important to note that many non-equity partners can provide clients with significant experience, deep expertise, the ability to independently lead teams and manage portfolios dealing with sophisticated legal issues – and do all this at a billing rate a bit below that of equity partners. The use of a second tier can allow law firms to leverage their equity partners, freeing additional time to build practices and engage in a larger community. Restricting access to equity seats at the table also converts into easier governance and an increase in reported equity partner earnings. Finally, the non-equity tier provides a “partner” mantle without capital obligations to individuals who lack sufficient business development skills – extending the number of senior, experienced advisors and providing an additional retention tool.

Although there is clearly a case to made for a second tier, law firms need to manage this group with much more attention and discipline – including standards for entry into, retention, and exit from the tier. 

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