Are You at Risk of Being De-Equitized? Is It Time to Look for Option B?

By Bernard Knight
September 18, 2017

Law firm partners are no longer safe in their positions once they attain equity partnership.   That security is a thing of the past.   If you are a law firm partner, I provide below 7 questions that you can answer that will help you determine if you are about to be de-equitized.

Equity partnership means that you are an owner of the firm and share in the profits and losses of the business according to your allocated share.   You would think that as an owner of the business your job would be safe.   Not true.

Depending on your answers to the questions below, it may be time to pack your bags.   Nothing lasts forever.   It’s a big mistake for us to bury our heads in the sand and not have Option B ready to implement.   What is your Option B?

This article discusses how to determine whether you are at risk of losing your partnership interest and if so, some steps to strengthen your position.   My next article will give you ways to protect yourself should you be in a situation where your equity partnership share could be taken away.

My Option B

When I left the USPTO for private practice, I knew then that it would not last forever.   I realized that as the former USPTO general counsel who helped implement the America Invents Act, that I was a diminishing asset with a limited shelf life.   That was just reality.

I had always wanted to be a life coach and counselor and was finishing up my masters’ degree in counseling at night and on the weekends while working at the USPTO.   This was my Plan B or maybe, my Plan A.

The 7 Questions to Ask Now

The partnership agreement controls the rights of all partners, including equity partners who own the business.   Many partnership agreements provide that a partner can lose his or her equity interest in the business by a mere vote of a management or other committee.   Answer the questions below if you want to assess the strength of your partnership interest.

Are Your Partners Talking Negatively About You?

Big law partners need to constantly watch their backs and continue to protect their reputations.   One sign that you are in trouble is that your fellow partners are criticizing your work or your contributions to the firm.   You may not be named but the talk may be about your clients, your practice area or your associates.  Watch out–this negative talk breeds like a wildfire.

If you don’t stop it, the rumors will take on a life of their own and soon will be viewed as reality.  You need to immediately put together an action plan to counteract this negative chatter.

So, what can you do?  If the rumors are false, correct the misinformation within the firm.   For example, the firm that I joined had monthly practice group meetings and monthly office partner meetings.   You could make a presentation to the practice group or office that counteracts this false information.

You don’t need to say who said what.   Just present contradictory information in your presentation.   Data is always a powerful tool to dispel false beliefs.

If the rumors are true, find other ways to bolster your practice.   You can improve your brand to have increased value within the firm.   See my prior IPWatchdog article on how to improve your brand http://www.ipwatchdog.com/2017/07/19/get-more-business-when-patent-litigation-filings-are-down/id=85844/.

Is Your Practice Area in a Downturn?

If it is, the firm is going to be looking to downsize.   If so, are you a likely target?  You must do what you can to show your value to the firm and protect yourself.   Remember that origination credit includes revenues generated for the firm whether you do the work or not.   Cross-sell your firm’s abilities in other areas to your clients.

Showcase other partners in your firm on the management committee.   If you do, they will be more likely to protect you.  The beauty of this approach is that all you must do is to show the potential to generate more business to buy you more time.

In 2016, intellectual property litigation was down over 20% from the previous year.   That immediately caused many firms with intellectual property litigation practices to look for partners to cut and new laterals to hire to bring in new business and retain profitability.   District court patent litigation is still down in 2017.

One partner that I knew whose business had plummeted started a blog in his practice niche.   He promoted his blog across his firm merely by asking other attorneys to provide names of people at companies who might be interested in the blog.  This can be a smart way to show the other partners that you are marketing the firm and working to get additional business.   The key is to create the hope that you can expand your business.

I don’t know if the blog produced any business, but it helped the partner keep his equity partnership and $1 million plus compensation for another year.   Not a bad payoff for writing a blog!   Do what you can now.

Are Your Billings Down?

This is the biggest factor in today’s law firm world.   A firm may wait 1 or 2 years for a partner to get her billings up, but it will not wait long.   If your billings are down, ask why.

If you lost a client, put together a marketing plan now to get new clients.   You want to be viewed as someone who is beating the bushes to get more work.   At a minimum, this will buy time.

Try to work for other partners to keep your billable hours up even if revenues from your clients have dropped.   This way, you can still show value through hours billed.  The key is to bring in more revenue than you cost no matter how you do it.

Are the Per Partner Profits Low at Your Firm?

Profits per partner is an important metric for any firm.   It is a key indicator of firm success.   Laterals with a big book of business are more likely to join a firm if the profits per partner are higher at that firm than at other firms courting them.

Your firm is more likely to de-equitize you if the profits per partner are low.   One way to get the number up is to cut the lower performing partners.   Do you know the profits per partner at your firm versus other firms?

Does Your Firm Want to Merge with Another Firm?

If yes, it needs to clean out the lower performing partners.   The firm needs to do all it can now to have its balance sheet and profits per partner appearing as strong as possible.   The firm will not be an attractive merger target if it is clinging on to less profitable partners.

Are You Over 55?

I hate to say it, but there is covert discrimination based on age.   A partner over 55 is seen as having less future potential to generate business and increase profits.   Partners over 55 may be seen as “over the hill.”

If you are over 55, you need to show your contributions to the firm more than a new partner who is 40 years old.   This is just the truth and it’s good to realize this now.

Have You Been Critical of Others in the Past?

If yes, you are likely to be one of the first to get cut.   People love to take revenge on those who have attacked them in the past.   This is just human nature.

Make sure that you are not an easy target in the future.   Be nice to people!

Eyes Wide Open

It’s important to constantly look around and assess your value to the firm.   This depends on the firm’s profitability, your revenue generation and how you are perceived.   You must be a team player and show it.   Always know your position in the firm and adjust your performance when appropriate.   If you would like more information on how to protect your partnership interest, look at my website www.attorneyexecutivecoaching.com

The Author

Bernard Knight

Bernard Knight is a career coach and counselor, and is a licensed professional mental health counselor in Washington, D.C. Bernie was a partner practicing complex patent litigation in the law firm of McDermott Will & Emery LLP from 2013-2017. Prior to joining McDermott, Bernie served as General Counsel for the U.S. Patent and Trademark Office (USPTO) from 2010 to 2013. As General Counsel of the USPTO, he led the development and legal review of the regulations implementing the new Inter Partes review, post grant review, business method review and derivation proceedings, as well as the regulations changing the United States to a first-inventor-to-file system. Bernie previously served as Acting General Counsel of the U.S. Treasury at the height of the financial crisis. From 2001 to 2006, he was Deputy General Counsel for the USPTO. Bernie began his government career in 1991 at the Department of Justice, Tax Division, where he served for 10 years.

For more information or to contact Bernie, check out his Coaching Website.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 2 Comments comments.

  1. Ternary September 18, 2017 12:59 pm

    “…but it helped the partner keep his equity partnership and $1 million plus compensation for another year.”

    I know it is a bad thought, but statements like the above one, makes me wonder if the patent prosecution and litigation community is not deliberately promoting and benefiting from the mess that we are in. That is: rather have chaos that generates $ million compensation than a smooth patent system that generates merely $ 100,000s. Exemplified by firms that have dedicated and very profitable PTAB practices.

    It seems that a system wherein inventors make millions of dollars and the attorneys merely hundred of thousands would be a better proposition.

  2. Edward Heller September 18, 2017 5:03 pm

    I am currently watching The Tudors on Netflix. Talk about palace intrigue where a king is easily influenced by slander.

    Some ought to consider re-cutting The Tudors as upper management training. The parallels to this post are too many to ignore.

    “Uneasy lies the head that bears the crown.”

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