The Partnership Model is Past its Use-by date

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What if Google was a Law Firm? If Larry Page and Sergie Brin had founded a law firm instead of a search engine do you think they would fill out timesheets, charge their customers by time, undertake legal work themselves and structure their business as a partnership?

I do not know them personally but somehow I just cannot envisage either of them doing any of the above.

Can you imagine Larry Page coming up with an “out there”, no guarantees, risky idea that nevertheless if successful could potentially make Google Law millions of dollars by making their customers deliriously happy? But first Larry has to ask his fellow partners to make a decision on his proposal and if more than 50% (sometimes only more than 25%) of his partners do not understand or share his enthusiasm  and say “nah I am not convinced this will work” he either shelves the idea completely or modifies it to such an extent so it involves little or no risk to his firm-and consequently provides little or nil additional value and benefits to his customers resulting in little additional financial reward to he and his partners.

You can’t imagine that? Well similar scenarios are played out most days in the boardrooms of many law firms around the world who still stick to the traditional partnership and consensus based model of yesteryear.

It was Lady Thatcher who said  “Consensus is the negation of leadership” and for many firms their partnership model still represents the high water mark of consensus decision making (some would say “non decision making”).  Many law firms are over-managed and under-led and history has shown time and time again if everyone is responsible for decision making no one is.

Most lawyers would never advise a client to enter into a partnership arrangement with anyone other than perhaps their spouse or best friend (and even then?) and certainly not with a large number of people who at the same time wear the hats of a co-worker, co-owner, co-decision maker and co-non decision maker. Yet  lawyers themselves have embraced a similar business model since the 19th century?

Since law firm partnerships started involving more than 3 persons there has been any number of legal commentators. advisors and observers saying there just has to be a better model, that the traditional partnership model is outdated and inefficient, is ineffective, stifles creativity and innovation, lacks quick decision making, fails to separate ownership from control and often rewards the LCD (“lowest common denominator”).

We did this for several reasons.

For a start until recent times there was no real alternative for any lawyer who, instead of practicing on his own, desired to practice in the fellowship of a colleague or two. He/she had to agree to some sort of partnership arrangement with the fellow lawyers. The emerging corporate structures of an increasingly industrialized world in the 19th century was not seen as an appropriate vehicle for the practice of the law which after all was often seen as a “calling”- a personal service provided by professionals-not a product manufactured and provided by some inanimate corporation. Legislation in most jurisdictions, promoted and supported by the conservatism of the legal profession, ensured that the practice of law remained a personal practice.

Over time during the 20th century our affluence increased, the law became more diverse and complex and technological advances could even assist lawyers carrying out their duties (quill pen-biro, typewriters-key pads, carbon copies-printers, short hand-dictaphones, etc). There were natural benefits to both lawyers and their clients for lawyers to get together in ever increasing numbers where the economies of scale, the sharing of personnel, products and ideas (if not always work and clients) made the practice of law arguably more intellectually enriching and more financially rewarding.

Most importantly however most who entered the practice of law did so often because we were not entrepreneurs, we were risk averse, we were trained to follow precedents not necessarily set them, and we wanted to be part of a profession-not part of a business. Indeed to serve our clients well we understandably perceived that our clients did not wish their lawyers to be risk takers or entrepreneurs at least with their money.

Despite the drawbacks of the traditional partnership model it arguably served the profession well in the past but like most business models it has a life cycle and it seems that the life cycle of the traditional partnership model has well and truly reached the mature stage and should be-and is being- replaced by other models that better serve and reflect modern business values of the 21st Century as well as the interests of both the profession and importantly the profession’s customers.

Along with many other challenges and changes in recent times to the practice of law many brought about by changing expectations of clients seeking better value and service, several lawyers have slowly but surely either morphed their traditional partnership structures into something else- or alternatively left their traditional partnerships in ever increasing numbers- to firms that have a more corporatized, accountable, specialized and relevant business model and management structure.

Indeed Australia is a world leader in much of this having been one of the first western jurisdictions to allow alternative business models for law firms, the sharing of profits with non lawyers and we can proudly boast of giving birth to the world’s first law firm to publicly float. Whilst many would say not before time the fact is notwithstanding the over regulation of the legal profession generally there are now less legislative restrictions (excuses?) for lawyers not to seriously look at a better business model. Although to ATO still has to come to the party on some taxation consequences.

Many are and we are seeing some great examples in Australia of entrepreneurial spirit, enthusiasm, and innovative ideas and models amongst some lawyers that have and will continue to challenge the status quo and the traditional leveraged based partnership pyramid structure many have come to love but an increasing number of stakeholders have come to loathe.

Little wonder that Google never chose a partnership model as its business structure- if it did I highly doubt that Google Earth, Google Chrome, Google Books, Gmail and a host of other products and services would have ever seen the light of day. One wonders how many potentially valuable legal products and services never saw the light of day in the past?