Biglaw, Partner Issues

In Major Overhaul, Biglaw Firm Creates Two-Tier Partnership To Boost Profits

This is a pretty bold move.

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Why can't I be an equity partner?

Why can’t I be an equity partner?

Earlier this week, we discovered that Shearman & Sterling was facing difficulties with unproductive members of its partnership. Profits per partner had fallen by 4 percent in 2015, and thanks to its restrictive partnership agreement — one requiring a supermajority of 75 percent of equity partners to approve a partner’s removal — Shearman’s management was having a hard time dealing with what was referred to as a “major problem for the firm.”

Thanks to the firm’s push for greater profits, anonymous partners disclosed to various media outlets that Shearman was thinking of demoting current equity partners and reducing its current number of practice group heads. The matter was to be discussed between the firm’s global and regional managing partners during a meeting on Wednesday in New York City. No one knew, however, that Sherman & Sterling was considering a major overhaul to its entire partnership structure.

A confidential memorandum leaked to Above the Law details the firm’s plans to move to a two-tier partnership structure, creating a non-equity partnership role during a time when many law firms are reconsidering or phasing out this type of partnership model.

Here’s an excerpt from a firm-wide email sent this morning by Global Managing Partner David J. Beveridge and Senior Partner Creighton O’M. Condon, explaining the big changes coming to the firm (the full email is available on the next page):

The firm has decided to create a new non-equity partner role to help us grow the partnership. This approach, adopted by a high percentage of the Am Law 100 and most global law firms, will allow junior partners to grow into equity partnership and facilitate the continued growth of our practices across our global platform. These changes are part of a process of strengthening our equity partnership and more fairly rewarding partners at all levels.

The memo goes on to state: “We believe these developments will provide significant benefits and opportunities for all of us at the firm.” One of the most significant benefits Shearman will reap from its new partnership structure is the way that its profits per partner are reported by the American Lawyer in its annual survey of law firm performance. Non-equity partners’ profits are not included in Am Law’s methodology for calculating partner profits, and Shearman’s new non-equity partnership class may result in the firm posting a better performance in that area for equity partners.

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How do you feel about Shearman & Sterling’s move to a two-tier partnership? Do you have any additional information? Let us know via email or via text at (646) 820-8477.

(Flip to the next page to read the Shearman & Sterling memo.)

Earlier: This Biglaw Firm May Demote Partners To Boost Profits

Staci Zaretsky is an editor at Above the Law. Feel free to email her with any tips, questions, or comments. Follow her on Twitter or connect with her on LinkedIn.

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