When law firms consider adding a partner, or colleagues consider starting their own firm, they understandably focus on business metrics such hourly rates, billable hours, and portable books of business. There is no denying that such metrics are critical to the success of any law firm. But in my experience consulting with lawyers, too many partnerships fail because law firms and attorneys fail to pay enough attention to certain personal qualities of a prospective business partner.
Specifically, law firms fail to give adequate weight to how stable and reliable prospective partners are in their personal lives. Too often a partner’s personal life bleeds over into how the firm manages money. For example, a lawyer going through a divorce may convince the firm to forego capital contributions or distribute funds imprudently. In firms with five or fewer equity partners, some of the pressure firms face to carry a small cash reserve arises because one firm partner needs an unusually large infusion of cash. Similar cash flow pressures can also arise because partners live beyond their means. Whatever the cause, too many firms imperil their financial viability by catering to the short-term cash flow needs of a single partner.
That is why well-run firms and strong partnerships will set up mechanisms that will make it harder for them to be held captive by the private life of a single partner. It can, for example, be wise to strictly enforce provisions in the partnership agreement that deny the payment of bonuses to partners who haven’t submitted their time sheets. Likewise, firms should generally be skeptical about loaning firm assets or money to a partner whose personal life is in relative disarray.
There are no easy or part answers when a firm partner develops an immediate need for cash. Firm leaders need to weigh carefully the best interests of the firm with treating a colleague decently. Human beings are unpredictable and forming law partnerships inherently involves assuming certain uncertainty regarding the personal lives of partners. Medical and family emergencies impact even the most stable and reliable of people. It is impossible to eliminate the risks associated with making any significant hire.
Law firms that are considering adding new partners should therefore be more vigilant than they are about identifying high-risk behaviors and traits in those partners. This is especially important for lateral partners who have little or no previous connection to the firm. Too often firms have been burned by not performing adequate due diligence on prospective partners. In today’s dynamic and competitive market place, law firms have much to lose by failing to pay attention to troubling personal qualities of potential business partners.