Few are chosen – is partnership still worth the contest?

Partnership prospects continue to decline in a gloomy economy, while UK law firms are increasingly promoting abroad or associates hired from other firms. Legal Business investigates whether the odds of making partner make it still worth the contest

When a trainee joins a firm, aspirations are high and the road to success is inviting. The route is mapped out from the start – train at the firm, become an associate, rise up the ranks to the ultimate goal – partnership. Sounds perfect.

It’s a highly structured career path and a long-term motivational tool that has for decades delivered high performance and stability to the legal profession. The tournament of partnership is often bruising – many ultimately decide to abandon the contest before the victors are called – but despite much tinkering with the model, the basic approach of talent management within law firms has been only cosmetically altered, not rethought.

But do the numbers stack up? Major law firms used to claim that economic prospects didn’t materially impact on partnership promotions. Eventually that line was abandoned following the dot.com crash and the banking crisis as the figures demonstrated so conclusively that the economy did indeed have a huge impact on promotion prospects.

In 2008 the UK’s largest 25 law firms made up 447 partners – the figure has been well below 400 every year since. In 2013, the number of promotions declined again from 391 in 2012 to 358. But the overall numbers hide a particularly acute pressure on the prospects of London promotions as advisers shift more of their businesses outside the UK in favour of faster-growing international markets. In 2008, the top 25 made up 210 partners in the UK – this year that figure was just 128.

In addition, the huge growth of partner recruitment and the increasing propensity of law firms to promote those that were recruited as mid-level associates, means that the odds of moving from trainee to partner at the same firm have lengthened dramatically. Across the top 25, just 40% of this year’s new partners were associates that trained with the firm or joined at equivalent intake level.

City firms are now routinely announcing partnership rounds that are well under 10% of their current annual intakes, even after accounting for a marked decline in UK trainee recruitment since 2009. The odds of making partner are long and lengthening by the year, even before allowing for the increasing possibility that the prize will ultimately go to external recruits or laterally-hired partners with a stronger business case.

Ashurst senior partner Charlie Geffen concedes how much harder ascending the ladder has become. ‘It’s incredibly hard to make partnership these days. When I joined the firm, I was one of four trainees, but at that time there were 20 partners. It is totally different now. We get something like 3,000 applications for around 45 trainee places so the quality of people that come through the door is extremely high.’

Peter Hasson, chief executive at Clyde & Co, agrees that shifts in the legal industry have dramatically changed the partnership deal. ‘On average, our partnership has grown steadily; we don’t try to cut down our partnership or de-equitise purely to boost PEP.’

While there has been much debate in recent years regarding the viability of the partnership model, Legal Business decided to pull together some current figures to gain a clearer picture of the prospects of emerging a victor in the contest for partnership at major firms. The question is simple: how sustainable will it be for law firms to build their businesses on the current basis when aspiring lawyers are becoming increasingly aware – and resentful – that their chances of being elevated are slim and getting slimmer by the year?

That shrinking feeling

The number of partner promotions certainly shows no sign of returning to levels seen before the banking crisis reshaped the legal profession. The number of partner promotions at top 25 firms has been plummeting since 2008, falling as low as 282 in 2010. Since then the level of promotions has hit a ‘new normal’ equilibrium in the rough region of 350 a year.

Of the 358 promoted this year, the shift towards international promotions continues, with UK promotions accounting for only 36% of new partners. Just three firms in the group – Eversheds, Pinsent Masons and Irwin Mitchell – made up ten or more in the UK.

This is even more pronounced at the UK’s largest law firms, with Linklaters, Allen & Overy (A&O) and Freshfields Bruckhaus Deringer all making up a mere six partners in London. Clifford Chance (CC) and the far smaller Slaughter and May made up respectively just five and two.

Even DLA Piper, a firm with huge global scale and one of the most prolific promoters of recent years – made up just four new partners in the UK, fewer than the number of offices in its domestic network.

Bird & Bird and Holman Fenwick Willan both promoted one partner in the UK, while Herbert Smith Freehills, Simmons & Simmons, Squire Sanders, Wragge & Co and DAC Beachcroft all promoted less than five new partners domestically. Taylor Wessing in particular demonstrates this bias towards international, with the firm making up one partner in the UK out of 16 globally.

While partner promotions in individual regions typically show considerable variation year-on-year, the underlying picture confirms that many firms are promoting well below the replacement rate needed to sustain their partnerships at their current size. (Law firms need to promote the equivalent of around 5% of their partnerships annually to account just for normal retirements.)

In context, this year’s 128 UK promotions have edged downwards on 2012, when 137 were promoted, but are still well above 2010, when the number of UK promotions was 106. In 2008, in the months leading up to the collapse of Lehman Brothers and the onset of the banking crisis, the group made up 210 partners in their home market.

As expected, the Magic Circle this year has continued to keep a tight grip on partnership, with the elite five promoting 79 partners – a fall of 17% on the previous year. The group promoted 95 partners in 2012 and 87 in 2011.

The Magic Circle promoted 137 partners back in the boom year of 2007, with Linklaters and CC each promoting 38, substantially above their rounds over the last three years. Even the expansive A&O – the fastest-growing Magic Circle firm in recent years – has seen a decline in new partnerships.

Freshfields is the only exception in London’s big four, having largely sustained a long-run rate of promotions, though it had been generally more conservative than its peers in this regard. Likewise, Slaughters – long-renowned for the difficulty of making partner – has made up just nine partners over the last three years.

Slaughters’ senior partner Chris Saul concedes that it is challenging to make the grade at the firm, which takes on around 75 trainees a year, but says that trainees recognise the intense focus the firm puts on their development.

‘There is a notion of longevity in the way we recruit and train our trainees. We look to this as the core pool of partners of the future. When I speak to trainees, I say: “We want to give you the best possible experience because some of you will be the partners of the future.”’

Saul also stresses that Slaughters has eschewed the move of many peers to usher in salaried partners or partner alternative roles, putting additional onus on the firm to get its partnership decisions right.

London’s big four firms currently field between 433 and 589 partners – such annual rates of promotion are consistently equivalent to between 3% and 5% of their current partnerships. Unsurprisingly, the promotions heavily tilt towards their higher-growing international business with 70% of their 2013 promotions being outside the UK.

The overall picture in the UK top 25 is clear: promotions show no sign of recovery. And, though 2013 saw a fall back in the number of Asian promotions from 2012, reflecting the struggle for international firms to operate profitably in the region, the run of promotions continues to shift towards the global stage.

Matthew Rhodes, founder of popular legal news and social media site RollOnFriday, warns that law firms have become very reliant on growth: ‘The ability to make up partners every year depends on double-digit growth and right now the market is static. How do you create space for new partners if current partners are not leaving? In order to make up partners, a firm needs to be growing. Unless it is a type of artificial partnership like salaried partners.’

A more positive view of the current trends in partner promotions is offered by Olswang HR head Ffion Griffith, who argues that the pressure to present a strong business case means commercially-minded associates can win promotion during a turbulent economy.

‘Making partner hasn’t got tougher because of the downturn. Associates don’t have to wait for a partner to retire so they can make partner – there are always opportunities. It’s down to associates to align themselves with a particular client area or a growing service line. This may be different in an established firm where people are waiting for a dead man’s shoes, but that is not the case in a firm like Olswang.’

Pity the home-grown

If the headline figures confirm the expected picture of jealously-guarded equity ranks amid a turbulent economy, delving a little into who is being made up indicates how much harder it has become to go from trainee to partnership at the same firm.

Barely over a third (40%) of the 2013 promotions represent lawyers that trained with the firm or joined at entry level. Perhaps surprisingly, even top-tier practices are often more likely to promote associates recruited after qualification than their own home-grown talent.

Across London’s big four, only 49% of their promotions were entry-level candidates, with just 36% at Freshfields and 40% at CC. This somewhat contradicts the traditional view of leading law firms as having a strong bias towards developing their own trainees over external recruitment. A broadly comparable picture is seen at Herbert Smith Freehills, Ashurst and Norton Rose.

The proportion is even lower at some mid-tier practices, with Berwin Leighton Paisner having trained just one of the nine partners it promoted in 2013 (see box, ‘Making partner at Berwin Leighton Paisner’, page 40). Taken across the top 25 as a whole, the group in 2013 averaged just under six partner promotions each that had joined the firm at intake level.

Slaughters, as usual, stands as something of an exception with both its 2013 promotions having trained with the firm, though the 117-partner firm’s smaller scale relative to its London peers and ‘up-and-out’ approach means that it still remains a huge challenge to make it through to partnership. It is interesting to note that Saul himself was one of eight partners made up in 1986, a proportion it is hard to see the firm promoting now.

Surprisingly, given that Slaughters has never recruited a partner laterally in the City, Saul argues there is no bias in promoting partners who trained at the firm.

Overall, what the figures show is the huge impact on the profession of both associate and partner mobility on the traditional partnership path. Thirty years ago, the majority of City firms used the traditional cradle-to-grave model, which provided a far better chance of making partner.

Of course, a greater willingness to appoint partners who didn’t train at a firm means there are greater prospects for associates to switch track mid-career and still make partner elsewhere, while greater mobility should allow for a more efficient labour market.

Olswang’s Griffith comments on the shifting dynamic: ‘Emotionally, the partnership always like to see people come into partnership who have been there since being a trainee and have spent their entire careers at the firm. I’m not sure I would say they are necessarily better than associates that have been hired in, as different people have different strengths, but there certainly is a particular affection [from the partnership] when we are able to promote a trainee.’

But there are obviously losers in such shifts and it is unclear what the full impact will be on the profession of the loosening of the bonds and loyalty between junior lawyers and law firms.

The women’s issue

Despite gender diversity in law being discussed with increasing angst in the City and pledges from firms including A&O, CC and Ashurst to improve their record on retention of senior female lawyers, there is little sign of progress in 2013.

The top 25 made up 95 female partners in 2013, 26.5% of the total. This is down from 2012, when 113 made partnership, and similar to 2011, when 94 women were promoted.

Once again, leading City firms performed poorly. The Magic Circle promoted 11 women in 2013, just 14% of its total. A&O saw the largest fall with two female promotions this year (11% of total promotions) compared to nine last year, followed closely by CC, who also promoted two (10% of partnership entrants), down from seven in 2012. Linklaters and Slaughters promoted half of their 2012 total, coming in at three and one respectively, while Freshfields remained static with three female promotions.

Norton Rose made the highest number of female promotions: 14 female partners, 42% of its total. Eversheds was next, coming in at 32% with a total of nine women, followed by DLA Piper at 29% or ten female partners. The only firm to promote more women than men this year was Bird & Bird, which gave 64%, or seven of its total promotions of 11 to women.

In contrast, Ashurst made up just one female to partnership this year, equating to 8% of its total promotions, the lowest proportion among all the firms surveyed. Holman Fenwick Willan also scored low, making up just one female partner, 11% of total promotions awarded.

At current levels there is no sign that major firms are making progress in converting intake levels – typically running at over 50% female – into partnerships that are more than 20% female. The ‘pipeline’ to partnership remains as leaky as ever when it comes to women lawyers.

Debate continues over the extent to which women lawyers are deliberately taking themselves out of the partnership race – in part judging that the long-hours culture of private practice is incompatible with family life – or whether such statistics reflect resistance at City firms to genuinely cultivating women lawyers. The likelihood is that both factors are related, functioning as a re-enforcing cycle.

The result is that the odds female associates will actually make it through to partnership at any major City firms are woeful, and less than half that of equivalent male lawyers.

Clyde & Co’s Hasson concedes this state of affairs is a problem for the profession. ‘Over 50% of our trainees are women and there would be a problem if none of those individuals were making it to partnership.’

Hasson highlights one response to the issue – Clyde & Co’s introduction of a legal director role as a senior, long-term position for talented senior lawyers – as a partner alternative.

‘[The position] recognises that the step to partnership requires extra support and training for those who seek that path. Not every associate wants to make partner but the legal director role recognises the contributions of talented associates,’ Hasson adds.

Opinions remain sharply divided over the issue of partner alternatives. Research has generally indicated substantial and growing support for such roles, particularly among female lawyers. However, critics see such roles as a fudge that undermines the partnership ethos and encourages law firms to duck career management issues.

Scott Gibson, founder of recruiter Edwards Gibson, takes a relatively cynical view: ‘No lawyer I know aspires to the role of legal director and are these roles really on the track to partnership? Senior associates need to look at the structure of the team and get a sense of the political power in a firm.’

It seems for such roles to work constructively, at the least law firms have to deploy – and then stick to – clear criteria as to who is fit for the role, what is expected of them and whether the rank functions as a staging post rather than an alternative to partnership.

The price of entry

While extrapolating from partnership data is more art than science, there are some fairly broad observations that can be made about the impact on how the legal industry functions.

It is well established that traditional legal careers mean associates generally have a window in which to make partnership between eight and 12 years’ post-qualification. The sustained downward pressure on partnerships for four years is raising the prospect of a lost generation of talented, experienced, hard-working lawyers who would have made partner but for economic factors beyond their control.

Where they will go is unknown. Further fading in the lustre of partnership raises the possibility that in-house legal teams – which have already expanded dramatically over the last decade – will become an even more potent threat to law firms. Likewise, alternative legal service providers like Axiom or Lawyers on Demand, which explicitly aim to capitalise on disillusionment with the traditional career track, will certainly look to exploit such trends.

There is also mounting indication that the current unobtainable state of partnership is damaging motivation and engagement of the mid-level associates who are the traditional life-blood of law firms.

The Legal Week Intelligence Employee Satisfaction Report (ESR), which generally gains responses from 4,000 UK associates a year, has found marked falls in the level of partnership aspiration in recent years, in particular with associates whose primary goal was to make partner at their current firm.

Ultimately a shift much further in the direction of a free-agent model of regular movement would raise questions about the whole work-based training regime for lawyers and, by extension, the basis of partnership as the dominant way to structure a legal business.

This lack of engagement is particularly acute among female lawyers who are increasingly aware of the remoteness of partnership and that there is little evidence of change at the coal-face.

The notion of replacing the underlying merit of aspiring partners with a business case for promotion may be entirely justified commercially but the shift is having an impact on the culture of the profession.

Of course, some of these changes are positive and reflect a changing world in which associates have opportunity and choices in how they shape their careers, both in and out of the law.

Slaughters’ Saul stresses the far wider career opportunities now open to the junior ranks, compared to even ten or 15 years ago. ‘So many [junior lawyers] will think of law firms as a great start to a professional life which will give them real options after a few years. In that sense they may be interested in partnership but just see it as one of a number of options.

‘That means that more than enough associates will remain engaged – knowing that even in a tough world they will have options if either they decide they don’t want to go for partnership or they don’t manage to get a partnership. So I remain optimistic for partnerships.’

RollOnFriday’s Rhodes takes a different position: ‘The question is, what does partner actually mean? It’s harder to make partner now and trainees know this. The days where trainees join thinking they will actually make it to partnership are well and truly over.’

Quitting the tournament

The death of the partnership model has been forecast many times previously and in truth it has proved far more durable than critics have allowed. It is certainly not about to fade away as the dominant means by which corporate legal service providers structure their businesses. Why should it? In many regards the model has served the profession admirably, aligning the interests of owners and management, encouraging long-term thinking and independence and delivering high performance.

But the mounting pressures placed upon the model over the last 25 years by globalisation in law and the related competition to push partner profits to internationally-competitive levels has clearly intensified through the 2000s. The long-term expansion of partner/fee-earner leverage, the addition of salaried partners and partner alternatives and even the shift towards actively-managed partnerships in place of lockstep-driven compensation have all challenged the model.

In addition, the last five years have heaped sustained economic pressure on the legal ‘pyramid’. Partnership decisions can ride out a conventional two-year recession. It is a different story with a lost decade of growth or a long-term downturn in the growth prospects of Western economies.

And other forces are at play. The growth in lawyer and partner mobility has had huge impact on the partnership model in a way that looks certain to ultimately weaken it. Alternative career structures are already having an impact – this is a reality in the major expansion of in-house legal teams over the last decade and the law firm model is already starting to face a new challenge from alternative business structures.

In this context, it is not hyperbole to assert that partnership is facing an unprecedented threat to its existence in comparison to even just five years ago.

While leading law firms have no shortage of candidates aspiring to join them, it is hard to see how they can as effectively engage their ranks while making up partners at levels seen over the last four years.

It could well be as the legal market evolves and consolidates globally, varying structures start to emerge in which only some leading law firms feel a truly partnership-driven model suits their business. Certainly the legal market appears to be rapidly moving toward a greater diversity in which partnership itself has to fight to earn its place.

Partnership will have to evolve to a changing world. In some regards that will be positive. But law firm leaders should tread with caution. The need to adapt doesn’t mean that partnership can be pushed to accommodate whatever expedient tinkering is forced without ultimately risking its viability.

The irony is that while senior lawyers freely acknowledge the pressures on partnership, they remain reluctant to consider the full implications of growing numbers of associates deciding the tournament of partnership just isn’t worth the game. LB

jaishree.kalia@legalease.co.uk