5 Managing the Size of the Partnership

 

Partner compensation depends not only on the compensation system, it depends equally on the size of the profit pool and the number of partners. The size of the profit pool is something that is discussed throughout this book. This chapter will focus on the number of partners.

If there are more mouths to feed, each will get less. Law firms are very much aware of this simple dynamic and the number of equity partners has been in steady decline for a number of years. The Am Law top-100 equity partner total declined slightly in 2023 and continued to decline or stagnate through 2024 and 2025.

In the past, the size of the equity partnership typically didn’t present an issue since growth in revenue and profit largely outpaced the growing number of equity partners. One could say that after the 2008 financial crisis, law firms started to become more aware. As revenue started growing again partnerships discovered the significant increase in PEP that followed a disciplined and restrictive equity tier. The 2025 data highlights a widening gap between the growth of a firm's business and the growth of its ownership class. While PEP in the Am Law top-100 increased with 12.3% to an average of $3.15 million, the total number of equity partners were reduced.

The latest data available at the time of writing shows that demand for legal services decreased 2.1% in the first half of 2025. At the same time, firm revenue increased 11.3% and net income increased 14.5%, according to the Wells Fargo Legal Specialty Group survey[1]. The same survey states that the revenue growth is primarily due to increases in standard billing rates, up 9.2% from the first six months of 2024. This is indeed not a market in which to steadily keep on making more equity partners. And PEP has to keep on growing.

Today there are a number of methods that are widely applied to effectively assure that the top-performing partners see continued growth of their payouts.

 

To Have Nonequity Partners or Not to Have

In the past few years law firms have been adding or extending nonequity partner tiers. This trend is not slowing down anytime soon by the looks of it. Today more than half of partners in Big Law now are classified as income or nonequity partners and the industry largely agrees that the number of nonequity tier partners will become larger than that of equity partners and remain that way. Of the top 100 law firms by revenue today, 87 have a nonequity partner tier. Wall Street firms that held out for a long time have now embraced the business model. Cravath, Swaine & Moore adopted the model late 2021 and in 2024, Paul Weiss and Cleary Gottlieb both followed suit. The latest firms to introduce a nonequity tier are Freshfields and Skadden, Arps, Slate, Meagher & Flom.

The poster child of nonequity partner tier and the pioneer of this phenomenon, is US firm Kirkland & Ellis. The firm had 969 nonequity partners at the start of 2024, while the firm had only 539 equity partners at that same time. Over 2023 K&E had a PEP of USD 7,955,000. For calculating the size of the profit pool, we multiply PEP with the number of partners, with USD 4,287,745,000 (4.3 billion). What if all the income-partners would also be equity partners? Obviously the profit pool would be larger because their salaries and bonuses would no longer be part of the cost. For the sake of the calculation we will assume that salaried partners at K&E earn USD 1.5 million on average (which is a fictional number). This will add USD 1,453,500,000 (1.4 billion) to the pool. Despite this, the PEP would drop by a whopping 52% to USD 3,807,192. The firm would drop from being the second most profitable law firm in the world to 27th place, far behind all its main competitors. This example illustrates how profound the effect of a two-tier partnership is on partner compensation.

There is also another advantage to introducing a 2-tier partnership. The outside world (clients) does not know if a partner is an equity partner or a salaried partner. That means that both categories can charge the partner rate. Higher rates equal more revenue. On top of that in a system where some of the salaried partners can make equity partner if their performance is great, there is a strong incentive to work really hard. Having a class of super ambitious nonequity partners can bring in a lot of extra revenue. This is the system that K&E seems to be using.

Introducing a 2-tier partnership could potentially be a great booster for the PEP. There are, however, significant risks attached. Not every law firm is a Kirkland & Ellis, having a stellar reputation and a top of the market lucrative client base. This is the environment in which young talented salaried partners realistically can succeed in building a practice within a couple of years, that would make them qualify for equity partnership. It is a rat race and most may not make it, but for those who do, the rewards are huge. They become equity partner in one of the most profitable law firms in the world. The Kirkland & Ellis salaried partners that don’t make it to equity often have the pick of an equity partnership in plenty other respectable firms.

Now let’s focus on law firms that are outside the US. The picture will look rather different. In Europe, for example, most domestic markets are relatively small and there is limited opportunity for growth without cannibalising on other partners’ practice. In many jurisdictions even newly appointed equity partners may have a hard time building a sizeable practice of their own. In these conditions, it is not very attractive to be in the position of a salaried partner since there is limited realistic opportunity to build within a few years a practice that is convincing enough to be appointed equity partner.

As a consequence, outside the world of the US elite, salaried partners become those that do not measure up to the standard required to be appointed equity partner. This then effectively creates two quality classes, that for the client are not self-evident. Client is entitled to assume that within a firm all partners meet the same level. In terms of legal skills there will probably not be much difference between the two types of partners, however, there might be a difference when it comes to negotiation skills, interpersonal skills, commercial awareness, and other relevant non-legal skills. The difference between a great lawyer and a good lawyer is not in the technical knowledge of the law. It is precisely in these other skills. With a salaried partner, a client might not entirely get what they are hoping for. For the law firm, there is a risk of eroding the value of the brand.

What if we would adjust the previous K&E calculation for a leading continental European law firm which has 50 equity partners and 10 nonequity partners. PEP is 2.5 million and the nonequity partners earn 500,000 on average. If all would become equity partners PEP would be 2,167,000. This is a decline of 13%. This is still significant, but far less than the minus 52% in the (fictional) K&E example.

Introducing a nonequity partner tier has for the firms previously mentioned in this chapter not been for the sake of cranking up the PEP in the short term. It has been a forced response as they found themselves bleeding talent to competitors who could instantly offer the partner title. In the tightly pruned equity partnerships of the last ten years talented and ambitious young lawyers lose motivation when they understand that they will not make partner any time soon. Obtaining the title is a stepping stone to equity, if not in the firm they move to then in the one thereafter. K&E use its system as a less dystopian Hunger Games where the equity-worthy talent crystallise and subsequently gets incorporated into the equity. The rest naturally leave for other firms and younger talent fill their shoes. This system has served K&E and its salaried partners really well. Firms introducing this system in order to compete for talent are taking onboard a host of potential problems which the likes of K&E will not have.

 

The Salaried Partner remuneration conundrum

As a category, the nonequity partners are squeezed between the senior-associates and counsel on the one hand and the equity partners on the other hand. As a law firm you might want to avoid overlap with either category. Law firms are seeing complications in setting competitive pay for nonequity partners, as the number of so-called income partners rapidly grows. Pay for nonequity partners can approach or overlap with compensation of senior associates, counsel as well as some equity partners.

The increasingly blurry pay lines between the lawyer ranks are causing conflicts. Law firms could lose some nonequity partner talent if firms don’t appear to be paying them more than senior associates, or if some nonequity partners are earning as much as equity partners but don't have the benefits that come along with equity ownership. Single-tier firms that moved to a two-tier system have been found struggling to find that thin line to keep both equity and nonequity partners happy. They may have gone to two tiers specifically to divert more compensation to the equity partners. So, finding the right balance can be very tricky.

Overlaps with equity partner pay do also happen. In many firms partner compensation will depend on the practice area and the book of business. Some practice areas have more revenue and profit generating potential than others. Comparing M&A on the one hand and Employment on the other is a classic example. There is an almost unfair difference in potential between both. As a consequence, a nonequity M&A partner will receive less than the equity M&A partners (perhaps depending on seniority), but might earn more than the Employment equity partner. It is these dynamics that add to the complication.

At the lower end of the spectrum overlap with the most senior associates can be an issue. Again depending on the practice area, associates can often earn sizeable bonuses on top of their compensation. When some associates are making more than the salaried partners, this will for sure not add to the motivation of the latter.

 

Two tier issues

While in theory moving from a single tier to a two-tier partnership is a smart move that will immediately boost profit per equity partner, in practice this comes with downsides and risks. For starters, there is often a lot of ambivalence if nonequity partners are in a waiting chamber or in a parking lot. In the case of a waiting chamber, the salaried partner potentially has what it takes to become an equity partner, but still needs some honing and developing of skills, and some time to prove the business case.

The second category are those that are on the parking lot. These are not considered equity partner material, but still are valuable for the firm. The parking lot is permanent. It will be very unlikely that these salaried partners will become equity partners. Many firms have these two categories within the nonequity tier. It will come as no surprise that this practice is causing confusion. Often firms do not have the courage to be open about this, giving the false impression that everyone could make it to equity. This will create disillusion and frustration for those who find themselves in the parking lot after all their ‘classmates’ have moved up. Some will lose motivation and leave the firm. Associates will be observing this from a distance and for them becoming salaried partner might lose the appeal.

The root of this is usually that the firm has never defined clearly what it expects from a partner. Financial targets may exist, but they are rarely enough on their own to describe what the role actually requires. Without a clear picture of what a partner is supposed to be doing and contributing, leaving someone as a nonequity partner is the path of least resistance. It requires no difficult conversation and no explicit decision. It just happens. Add poor communication to that and the nonequity partner has no real understanding of where they stand or what would change their situation. That is a recipe for disengagement, and disengaged partners are expensive to carry.

Partner meetings are another arena where things could easily get awkward. A number of topics such as the budget or partner appointments are only for those who are equity partners. When such topics are on the table, typically the salaried partners will have to leave the room. It is very hard not to feel ‘second tier’ in such situations.

Most law firms have in the past year or two floated the idea of creating a nonequity tier partner class if they didn’t already have one. The ones who already had such a tier have been looking into expanding it to become a real revenue engine rather than just a way to hold onto senior associates. But merely creating or ramping up a nonequity tier of partners as a ticket to more revenue is not quite as easy as it sounds. The success of such a strategy not only depends on the market the firm is in, it requires a careful strategy of how to manage it. Its success depends on having rigorous accountability and a clearly defined entry and exit. Data analysis consistently shows that nonequity partners are together with counsel the lowest performing fee-earner class. Lack of perspective and motivation are likely culprits.

What Kirkland & Ellis gets right is that the nonequity tier is clearly a station on the journey to either join the equity tier in the near term or exit the firm. The time span is relatively short and candidates are relatively young. This is the whole idea behind its earning power – that eagerness to prove a business case in a limited time is an engine running hot. Their market, so far, allows for this dynamic. It provides space to grow the equity tier, as well as attractive options for those that exit. The firm even use its alumni network to ensure good landing places. If a firm gets these dynamics wrong and end up with a nonequity tier as an indefinite holding tank for partners who for whatever reason don't make the cut to be equity partners, it can give rise to a multitude of problems – higher costs, differences in partner quality and poorly developed associates.

Not every law firm can sustain the level of churn needed. It is not only that it needs a market that will allow for it, the type of firm must also be set up for it in terms of attracting and guiding talent. Some are better at being a talent breeding machine than others. It seems that the numbers so far say if a firm is not in the right market and focused on managing a two-tier partnership rigorously, a segment of salaried partners can quickly become a deadweight.

Even if the billed partner rate is higher than that of an associate it typically costs the firm more to get the work done with partner compensation than associate compensation. Having a salaried partner doing associate work is a bad business model. The nonequity partners would have to keep a practice like that of an equity partner to be profitable. That requires motivation to develop a practice and acquire work while leveraging that work with associates who feel they will be given the opportunity to make it to partner ranks if they work hard. All of this is hard if it is starting to look like you will never make it out of the nonequity tier.

The most successful model is where nonequity partners have a two- to three-year time frame to prove they can build and sustain an equity partner practice. If not, they have to move to another firm. The managed time frame is not only important to maintain its profitability it is also crucial to ensure nonequity partners have the same quality and work ethic as those who take home a profit share lest the overall reputation of the firm will start to go down. Bottom line is, with certain exception, nonequity material should not be allowed to hang around. Clients expect a consistent level of partner quality under one brand. They typically do not know who is equity or not. If they experience differences that do not correspond with a certain age then trust in the brand will take a hit. Truth be told, the whole reason of naming associates on probation to become owners as ‘partner’ is to fool the client. Otherwise, the labelling should be something else. Those nonequity partners that didn’t make the cut to become equity after the appropriate amount of time did bill the client a partner rate nonetheless. Law firms have to acknowledge that there is a potential reputational risk here. The reasoning for the law firms to create nonequity tier partners is reasonably clear – revenue, war for talent, and signalling strength in the face of a stagnant number of equity partners – but for what the consequences are for clients is much less clear. Not only do they foot the bill for what might turn out to be a dud, their wish for the most experienced person advising them might be a case of mirrors and blue smoke.

 

Hybrid Equity

Hybrid equity (also frequently referred to as a hybrid partnership model) has surged in popularity as law firms move away from the traditional all or nothing equity structure. Historically, the law firm partnership was a binary world: you were either an Equity Partner (an owner who invested capital, shared in the profits and losses, and held voting rights) or a Salary/Income Partner (a senior employee with a partner title who received a fixed salary and did not own a stake in the business). Hybrid equity also referred to as "Limited Equity" or "Tiered Equity" is a middle-ground model. In this structure, a partner is neither a pure employee nor a full owner. Instead, they receive a compensation package that combines a guaranteed base salary with a smaller, variable equity stake in the firm’s profits. They are required to contribute a smaller amount of capital than a full equity partner and typically receive limited voting rights.

Current market practice in 2026 shows that hybrid equity is no longer an experimental niche but a standard structural tool for the world’s largest law firms to manage growth without eroding partner profits. Most Am Law 100 and Global 100 firms now use a version of this model to create a buffered equity tier. This allows firms to report record-breaking PEP by keeping the top-tier full equity circle extremely tight while still offering a sense of ownership to a larger group of high-performing lawyers.

The prevailing practice involves a highly data-driven approach where firms use advanced analytics to determine the exact buy-in and payout for hybrid partners. Unlike the old subjective handshake deals, today’s hybrid partners typically contribute a smaller, standardised capital amount - often between 20% and 40% of a full equity stake - and in return receive a compensation package where the variable profit component is capped or mathematically tied to specific performance metrics rather than a simple share of the total firm pool. This provides firms with a shock absorber during market volatility, as the base salary component for hybrid partners remains fixed while the variable portion absorbs the fluctuations of the firm’s performance.

In the current recruitment market, the hybrid model is being used aggressively as a golden handcuff for lateral hires. Firms frequently move high-billing partners from competitors into these hybrid roles first, using it as a two-to-three-year probationary period. This "try before you buy" approach protects the firm’s existing capital structure from the risk of a lateral hire failing to integrate or bring over their promised client base. For the incoming partner, it offers a more attractive title and a higher compensation ceiling than a traditional salary position, making it the default offer for mid-market talent moving into elite global firms.

Furthermore, there is an emerging trend of using hybrid equity to integrate non-lawyer professionals, such as C-suite executives or lead data scientists. As law firms increasingly function like technology and investment entities, the hybrid tier provides a mechanism to give these essential non-legal leaders a stake in the game without violating traditional bar rules that often restrict non-lawyers from full equity ownership. This coordinated capital approach ensures that the firm’s strategic leaders are financially aligned with the partners they support.

In 2026, market practice for hybrid equity has diverged into two distinct geographical schools of thought, the US "Am Law" approach and the UK "LLP" approach, largely due to differing tax and regulatory landscapes.

In the United States, hybrid equity is primarily used as a high-velocity recruitment and retention tool. The standard practice is a fixed-period hybrid (often two to three years). Laterals or internal promotees are given the title of partner and a compensation package that is roughly 70% to 80% fixed salary, with the remainder coming from a small pool of equity units. A key US practice is the Low-Capital Entry. Unlike full equity partners who might be required to contribute 30% of their annual compensation as capital, hybrid partners often contribute a nominal amount or nothing at all in their first year. This trial period allows the firm to verify the partner's billings before granting full voting rights. In terms of governance, US hybrid partners typically vote on day-to-day matters but are excluded from fundamental votes, such as merging the firm, changing the partnership agreement or electing the management committee.

In the UK, the hybrid model is more formal and driven by tax regulations under the Salaried Member Rules. To ensure a partner is taxed as self-employed (which saves the firm 13.8% in Employer National Insurance contributions), the UK market practice is to ensure the partner has significant skin in the game. Market practice in London now dictates that a hybrid partner, often called a Fixed Share Partner, must contribute at least 25% of their expected annual income as capital to the firm. Their compensation is usually structured as a fixed draw plus a very small, genuine share of the total profit (typically 5% to 10% of their total pay). Unlike the US, UK hybrid partners are often registered as members of the Limited Liability Partnership (LLP) at Companies House, giving them a more robust legal status but also exposing them to more direct professional liability.

A significant 2026 trend is the transatlantic alignment. As more US and UK firms merge, they are forcing these two models together into a global hybrid tier. The current best practice for these global firms is to use the hybrid tier to smooth out the massive pay gap between New York and London offices. By placing London partners into a hybrid equity tier of a US-led global firm, management can offer them US-level prestige and bonuses without immediately granting them the same voting power as the high-revenue rainmakers in the New York or D.C. offices. This tier has also become the primary home for Legal Operations Leaders and Chief Technology Officers. By 2026, it is standard practice for elite firms to grant these non-lawyer executives hybrid equity status, allowing them to share in the firm's financial success without violating the strict lawyer-only equity rules that still persist in many US jurisdictions.

Making a case for nonequity partners

Having set out the perils of introducing a nonequity tier partnership there are nevertheless reasons why a nonequity tier partnership might be a good idea. But not as a reason to turbocharge income. The reality here is that when it comes to making equity partners in hindsight mistakes are made. We will dive into the reasons behind disappointing development and performance later, but knowing mistakes do happen a ‘probation period’ is maybe not such a bad idea. In this philosophy the salaried partners would be in the waiting-room, the antechamber. After they have built and demonstrated their business case, they move on to become equity partners. Following this approach, the antechamber should apply as a standard to all home-grown talent eligible for partnership. It would send the wrong signal to only apply this in case of doubt. A clearly defined gate at the end of the probation period will help with catching those appointments that were perhaps a result of politics or wishful thinking.

A second ‘business case’ for salaried partners would be for practice areas that are too small to support a new equity partner. For many full-service law firms the practice area of Employment would be an example. Whereas a firm could have a sizeable M&A department, there quickly comes a limit to the size of the Employment team simply because there is not that much high-end employment matters around. This can become a frustrating situation for talent in the employment practice. Having to wait until one of the equity partners is up for retirement will be demotivating. Making someone a nonequity partner could accommodate the talent without ruining the practice group’s business case. Some firms use the title of Counsel for this. Talent they do not want to lose, often with skills that are niche, but whose market will never be able to carry the leverage, turnover and prospect of growth needed to take home a piece of the profit.

In fact, the more common reason to create a nonequity tier partnership is to offer talent the prospect of achieving the title of partner faster in order to prove their viability as equity partner. When Paul Weiss introduced a nonequity tier partnership in 2024 their stated motivation was to compete effectively in the existential war for talent. They insisted the road to equity partnership had not become longer with the introduction of the extra tier. It would offer associates a fair way of developing equity partner practices, which they might not have been able to do under the traditional system.

Local culture could be another argument to make nonequity partners. Having offices in multiple locations and across countries could introduce significant differences in profit generating capability. At the same time, local clients will expect partners to be present. This is why law firms have adopted the ‘local partner’ model. These partners are not equity partner in the firm, but only partner in the local office. This gives them the status they need to build their business and will give client the comfort that they are in good hands. Local partners, while employees, can sometimes share in the results of their local office.

Another argument in favour of salaried partners is that nearly every firm already has partners performing senior associate work. We call them ‘helper partners’. A home-grown partner was nearly always someone’s protégé bringing in a personal dimension in the partner selection process. As a favour to the promoting partner, or as a political move from other practice areas with their own promotions waiting in the wings, the protégé is not rejected by the other partners. Often, these protégés end up being partners that serve their promoter by doing much of the execution on mandates, like they did when they were associates. There might simply not be enough room for two mandate hunting partners in the same practice. In many markets this thinking makes sense, however, for the business it would make even more sense if the ‘helper partner’ would not be an equity partner.

There is another argument developing in favour of having more partner titles – it might be a first response to the AI threat. Increasingly AI erode associate hours because that is the core of the ‘efficiency gain’. They are the ones doing the bulk of bread-and-butter work, which will be the first type of work performed by AI whether on client side or law firm side. If you have to sell hours in a world where your clients use AI for the routine legal tasks then partner hours most likely carry the most value and are most in demand. As stated earlier, using a salaried partner for performing associate work is not a good business model, but if a firm cannot leverage a compact set of partners the way they used to then more partners, at least in name, might be a tempting first response.

 

Making Equity Partners

Over the past several years and particularly since the 2008 Financial Crisis, the composition and structure of law firms has been steadily changing. As mentioned, firms have seen an increasing proportion of nonequity partners, and a reduction in the percentage of equity partners and associates. Within the equity partner and associate categories, however, we have seen further shifts with a higher proportion of senior equity partners and associates rather than junior roles.

In the near future AI will likely further reduce the number of associates as part of their work will be performed or augmented by technology. The debate is still up if in the future law firms will still look like the pyramid above, or more streamlined like a rocket or top heavy like a tree. Whatever the structure, there will always be equity partners at the top of that structure and the lower parts of the structure need to provide a filtration and selection process at the end of which the best talent remains on top. Appointing new talented equity partners is key to a law firm’s survival and the composition of the partner group is an aspect that need to be carefully managed.

Ideally a partnership has an evenly distributed partners’ age curve, avoiding over representation of a particular age category as is still too often the case with the baby boomers overrepresented. What we also see happening is firms that after a few years of stand-still, for example after a merger or a number of departures, appoint a relatively large group of new partners at the same time. This typically leads to issues at the start in the form of a too wide performance gap between the new partners and the rest. It will also lead to issues down the line when that whole group is down to retirement at the same time. The size and composition of the partnership is a strategic component that needs to be carefully managed.

Theoretically and ideally the average quality of the partnership should improve with each new appointment. Practically this often is not the case. The rationale behind the appointment of a new partner is that as a result of the appointment the firm will be more successful and profitable. This could be because of expanding a practice area, succession of a retiring partner or exploring a new industry or practice altogether. Unfortunately all too often equity partner promotions are the result of internal politics. In that process, the business case does not get the attention it deserves. The result is a weak partner the firm will have to ‘carry’ for a long time. This creates tensions. Law firms are well advised to be strict at the gate and make sure there is a compelling business case for the new partner. Fear that a valuable and experienced associate might leave is not enough. Apart from the business case, a partner candidate should tick a majority, or ideally all, of the 7-Core Dimensions© set out in Chapter 4. For the partnership it will make perfect sense to ‘invest’ in a young talented equity partner, being confident that soon enough this young partner will contribute to the bottom line. There will be less enthusiasm to invest in a new partner who will not carry his or her own weight.

Having said that, the hesitance to risk the investment of a new young equity partner might make good economic sense in the short term but is bad business in the long term. As mentioned, law firms started to shrink their equity partner number out of an effort to keep up the PEP as they were hit by the 2008 financial crisis. As the market picked up, by and large law firms continued to keep their number of equity partners contained, some even shrinking them further as partners naturally retired. If a law firm had done this prior to 2008 it would have widely been interpreted as the partnership’s lack of confidence in the future of the firm and perhaps even the start of a death spiral. Today, keeping a firm grip on the number of equity partners is seen as running a tight ship. But firms should not be fooled into thinking that keeping a tight rein on the number of equity partners is a necessity for a strong PEP. Just as before 2008, confidence in the strategy of the firm and a real growth in revenue creates space for adding more equity partners who in turn grows the revenue further. What many miss when getting excited about the near 70% growth in the nonequity tier of Kirkland & Ellis since 2018 is that the firm also expanded its equity partnership by 25% or more in that same time. With a revenue growth of 16% in 2024 alone, resulting in a total of $8.8bn, this strategy seems to have paid off.

 

The political game

A partnership is a dynamic body of talented people. Jointly the equity partners own and operate the firm. Equity partners should be entrepreneurs before anything else. In practice this is something which is easily forgotten. Law firms have become institutional, with many employees, processes and procedures. When becoming equity partner, a lawyer stops being an employee and becomes responsible for attracting clients and mandates. This transition does not always go well. A number of partners effectively keep behaving as employees, which is not good.

In general law firms would have far fewer problems if the process of selecting and appointing new equity partners were more rigorous and strict. The partnership should focus on how the candidate scores on the 7-Core Dimensions© explored in Chapter 4 and on whether there really is a strong business case. If this were done, fewer mistakes would be made.

Reality is that the selection and appointment of new equity partners is often the result of political bargaining and power-play. The driving force behind this is the tribal nature of a law firm partnership. On the surface there appears to be one partnership; in reality there are many tribes within. Each practice group is a tribe; each office is a tribe. Each practice group in an office is a tribe within a tribe. The social fabric and the loyalty are not primarily with the firm as a whole but at the tribal level. This is also the level on which the potential candidate is best known. The other tribes may not even know this person, let alone have worked with the candidate.

Voting on a new equity partner relies on trust. The partners must feel confident that the other tribe has made a fair assessment, as there is not much else they can base their vote on. This creates an interesting but potentially dangerous dynamic: if I vote against your candidate, I am signalling that I do not trust your judgement. As a result, you might get insulted and in retaliation vote against my future candidate. Practically, the threshold for voting against a candidate is surprisingly high. As a result, partnerships sometimes appoint new equity partners who do not meet the standard and who have no real support from the other tribes. This increases the demand for measurable contribution, to avoid sharing profit with a non-performer.

 

A firm’s main assets are highly movable

In the past, equity partners stayed with their firm until and sometimes beyond their day of retirement. This past is now long gone. Like employees partners have become mobile. They stick with their firm until a better opportunity comes along. Loyalty is increasingly a thing of the past. There is a lot of nuance to this obviously. We dedicate a whole chapter to lateral partner movements since it has become a significant factor of the compensation model.

There are a couple of reasons why law firm partners have become movable assets to a much greater degree than partners in other professional services. Tasks that law firms are asked to perform are rather narrow compared to engagements at consultancy firms like BCG or Deloitte that often require large multidisciplinary teams, specialised software, and global reach. At those firms a single departing partner cannot easily "port" a $50 million account to a competitor while law firm partners are attractive with or without their team. Consequently, these firms do not have to accommodate rainmakers for fear of them leaving because the partner’s personal market value is intrinsically linked to the firm’s infrastructure and the entire system is set up to ensure no one is irreplaceable.

Perhaps even more importantly, the legal profession is largely governed by ethics rules that prohibit restrictions on a lawyer's right to practise. Accounting and consulting firms face no such limitations and aggressively use non-compete agreements and lengthy "garden leave" provisions to cool the lateral market. If a partner at a major accounting firm wishes to move to a rival, they may be forced to sit out for twelve to twenty-four months. This cooling-off period effectively destroys the "portability" of the client relationship, as the firm has two years to transition the account to a new team. This systemic friction prevents the bidding wars that lead to the multi-million dollar "guarantees" common in Big Law.

But even for law firms, the level of partner mobility will mostly depend on the specifics of the local legal market. In New York City, partner mobility is among the highest in the world, whereas in most continental European cities partner mobility is very low. It is important to keep these local differences in mind when we think about partner compensation. As far as partner compensation is a tool to prevent ‘rainmakers’ from deflecting to the competition, one should be aware that in smaller legal markets, such risk is relatively low. In a small legal market it is unlikely that a partner can move between two top firms. Each firm tend to already has a complete team and local aspiring talent to take into consideration. Only when something breaks that equilibrium – retirement or otherwise unforeseen events leading to a partner dropping out – will a firm look to go hunting partners among peers. Otherwise potential conflicts of interest prevent a partner from bringing most of his book of business. Even so, a high-income partner often manages to obtain a greater share of the profit by explicitly or implicitly threatening to leave, without the partnership daring to call the bluff.

So your firm decides to take a lateral hire, how to decide on the compensation? This is an area where historic mistakes have been made. Think Dewey and LeBoeuf. The firm was born out of a merger in 2007 and when Dewey & LeBoeuf went bankrupt only 5 years later The Times called it the largest law-firm collapse in US history. Dewey & LeBoeuf was an international successful law firm with a broad portfolio. The firm handled high-profile transactions for marquee clients such as JPMorgan Chase in banking, Lloyd’s in insurance, BP in energy, Disney in media and entertainment, eBay in technology and Alcoa in heavy industry. Chambers Global 2009 edition ranked the firm as a leader in 35 practice areas and named 37 of its lawyers as leading practitioners. The merger creating Dewey & LeBoeuf in 2007 combined two revered New York-based firms, Dewey Ballantine and LeBoeuf, Lamb, Greene & MacRae. After the merger, the new firm had a fee-earner head count of more than 1300 people in 26 offices around the world. It was the largest merger of New York law firms in history. Dewey & LeBoeuf attracted lateral partners by offering lavish financial packages and the firm had some of the highest-paid corporate lawyers in the US. Partners were paid a base compensation supplemented by their share of the firm’s profits. To determine the additional compensation, a complicated point system was used involving their success in attracting new clients, hours billed, quality of work and pro-bono activities and service to the firm.

Leading up to the merger, LeBoeuf, Lamb, Greene & MacRae wanted to grow. Before seeking out Dewey Ballantine, LeBoeuf brought in twenty-two lateral partners with various signing bonuses and guarantees. Dewey Ballantine was a pedigree New York firm that was ailing financially, but it still had some star partners. In an article “The Collapse“, written by James B. Stewart and published in the New Yorker, October 14, 2013, it was revealed that during preparations of the merger the firm was advised by McKinsey to “create financial incentives for partners to remain at the Firm” because the top 5% of partners at LeBoeuf generated 42% of the year’s billings. This made them “vulnerable to the financial risk posed by individual ‘rainmakers’ leaving the firm”. The merger with Dewey Ballantine meant issuing payment guarantees so that the key partners would remain with the firm. A number of key partners got contracts for ‘target’ compensation that would be paid out after three years if they remained. When the often generous terms were leaked amongst the partners of the merged entity, many started making demands for guarantees of their own. By 2011 there were about a hundred partners with a special agreement. As the financial crisis hit in 2008, income from the M&A and equity capital market practices plummeted for Dewey & LeBoeuf, as for most firms. Although other practice areas of the firm were flourishing, such as the insurance side, these profits would not be enough to cover the generous compensation contracts. The firm started paying its partners by borrowing against future income. But revenues did not pick up. On May 28, 2012, Dewey & LeBoeuf filed for bankruptcy.

In many, if not most cases the lateral hire comes with the prospect of a great book of business. The receiving firm tends to see this through rosy glasses and performs a sloppy due diligence. Expectations are inflated when it comes to how much this new partner will contribute to the firm’s revenue, reputation and profitability. The lateral will try to bank on that, demanding perhaps some form of guaranteed compensation. Depending on the driver behind the transfer, pull or push, the incoming partner might indeed be taking a risk. New firm with unfamiliar internal workings and a new team might indeed provide a bumpy take-off. This is only to be priced in when the new partner is lured away from his old firm (pull). When the partner in fact is expelled from his old firm (push) these risk factors become less relevant as they are simply part of the deal.

Fitting a lateral partner into a firm’s compensation can be tricky and complicated. One factor to take into account is the gap between the two firms. This is usually not a big issue if the partner used to have a lower compensation. It gets complicated if the partner comes from a firm that offers a higher compensation, forcing the new firm to bridge the gap and potentially create an outlier in its compensation system by which the other partners are effectively personally investing in the new hire. As long as the new hire lives up to the promises and immediately contributes to overall profitability, this will not be an issue. If not, there will be problems. Rarely does a new hire immediately ‘pay for itself’ with a plump book of business. One of the notable exceptions being the US where a lateral hire can be a way to buy instant market share. Paul Hastings revenue fiscal year 2025, for example, surged 20% to $2.68 billion to a large extent by poaching lawyers from Cravath, Swaine & Moore, Kirkland & Ellis, and Latham & Watkins. The firm lured between 30 and 50 lateral partners in recent years and more than 140 partners since the start of 2023. But unless you are a top law firm in a large market luring a star partner from another top law firm, a lateral hire does not come with the promise of an intact revenue.

Mergers are in fact mass lateral hires and always create serious compensation headaches. Immediately after the mergers two partners working side by side in the same office, the same practice area and a comparable book of business, could end up with markedly different compensation. While this may be justifiable from a legacy point of view, it will create a bad vibe, hampering integration and collaboration. If only after a merger everyone would magically make more money. Unfortunately that is rarely the case.

 

When two compensation systems collide

The two-paragraph summary above, that mergers create compensation headaches and that two comparable partners from different legacy firms can find themselves paid very differently, understates the structural difficulty considerably. Compensation integration is not a side issue in a merger. It is often the issue, and firms that treat it as an administrative detail to be resolved after the strategic logic has been agreed are setting themselves up for the talent haemorrhage that has characterised several high-profile combinations in recent years.

The problem begins with what the two firms are actually combining. Each legacy firm has a compensation system that reflects its own history, culture and theory of value. One firm may use modified lockstep, with seniority as the primary driver and a modest merit component. The other may have operated a heavily performance-weighted system where origination credit drives most of the distribution. These are not just different formulas. They represent different answers to the most fundamental question in compensation design: what is a partner being paid for? Imposing a single system on a partnership that has been formed from two distinct cultures, before the partners have had the time or experience to build the mutual trust that makes collective compensation feel fair, is almost certain to produce resentment on one or both sides.

The difficulty is compounded by the profit gap that is often present between the merging firms. In transatlantic combinations, the dynamic has been consistent and damaging. US partners, operating in a market with higher billing rates and larger profit margins, typically earn considerably more than their UK counterparts. When the two firms merge under a common lockstep or modified lockstep system, the US partners experience an immediate and visible dilution: their compensation is compressed toward a system average that is lower than what they were previously earning, and the gap is most obvious when they sit next to a colleague from the legacy UK firm doing comparable work at a lower compensation level. The rational response from the most mobile US partners, those with the strongest books of business, is to leave. This is not disloyalty or short-termism. It is a straightforward response to a compensation system that no longer reflects their market value.

The A&O Shearman merger and the Ashurst and Perkins Coie combination, discussed in more detail in Chapter 9 from the perspective of lateral partner movement, both illustrate this dynamic. In both cases the strategic rationale was sound on paper: a transatlantic platform capable of serving global clients with a unified team. In both cases, the compensation integration proved harder than the deal-making, and the departure rate among partners in the higher-margin legacy offices in the period following the announcement and completion was substantially above what either firm would have publicly projected. The problem is not that the deals were wrong. It is that the compensation design phase received less rigour than the negotiation phase.

There is no formula that makes merger compensation easy, but there are approaches that make it less destructive. The most important is honesty about the profit gap before the deal is signed. If the two firms have materially different PEP, the partners on the higher-earning side need to understand, in concrete terms, what the merged system will mean for their personal income in years one, two and three. Presenting this as a long-term investment in a stronger platform is legitimate. Obscuring it until after completion is not, and the partners who discover the reality after the fact are precisely those with the leverage to leave.

The second principle is a transition period. Expecting two compensation cultures to converge immediately is unrealistic. Most successful integrations have used a protected period of two to three years during which legacy compensation levels are largely preserved, with a clear and transparent path toward the combined system. This gives partners time to experience the benefits of the merged platform, build relationships across the two legacy firms and develop a basis for the mutual trust that collective compensation requires. The cost is real: the transition period is expensive and the accounting is complex. But it is considerably less expensive than the departures that result from forcing convergence too quickly.

The third principle concerns the performance pool. In any merged firm, there will be partners whose origination capacity or market position justifies compensation at or above the top of what the combined lockstep can offer. Designing a meaningful performance pool or super-tier component into the merged system from the outset, rather than leaving it as a future aspiration, signals to these partners that the merged firm is designed to retain high performers rather than average them down. The three-tier equity structure introduced at A&O Shearman, with entry, core and super-partner levels, was a direct attempt to address this. Whether the execution matched the design is a separate question. The underlying principle, that a merged firm serving a heterogeneous partner base needs a compensation structure with sufficient range to accommodate that heterogeneity, is correct.

The deeper lesson is one that applies beyond mergers. A compensation system cannot be separated from the culture it is designed to serve. When two firms merge, they are not just combining balance sheets and client lists. They are attempting to create a single institution out of two that have, often over decades, developed distinct identities, distinct theories of partnership, and distinct expectations about what it means to be compensated fairly. The compensation design phase of a merger is not the moment to find the lowest-cost system that the majority will accept. It is the moment to decide what kind of institution the merged firm is trying to become, and to design a compensation model that is honest about the cost and the timeline of getting there.

 

A run on the bank

Fear of star performers leaving the firm is perhaps the strongest driver of partner compensation models. Indeed, the consequences of rainmakers leaving the firm could even ultimately trigger the downfall of a law firm. A cynic would say that partnerships are only as strong as last year’s profit. A slight fall in revenue can be enough to trigger the departures of a few high grossing partners. With few exceptions, the top 10% of a law firms’ partners generate three times as much turnover as the bottom 10%. A relatively small decrease in a law firm’s turnover translates into a much higher decrease in the profit due to the fact that nearly all costs are fixed. This can be demonstrated with a simple calculation: Say that we have a law firm with 100 partners generating a turnover of 2000. The top 10 partners generate 300 of the turnover while the bottom 10 generates 100. The other 80 partners each generate the average, resulting in 1600 together. We can count on using a fixed cost that roughly represents 65% of the turnover, as is the case for many law firms. In this example the costs would be 1300 out of the 2000, leaving us with 700 in profit. If the top 10 partners leave, this will decimate the turnover by 300, or by 15%. But the cost remains 1300, which means that the 300 comes straight off from the profit, reducing it by 42%. What was a profit of 700, is with the swipe of only 10 partners, reduced to 400. Few law firms will survive a 42% drop in profit. The second-best partners will immediately take action to leave for other firms, taking the best deal they can get. It becomes a run on the bank or rather, from it. Nobody wants to be the last rat on the ship.

One of the first notable examples of this is the case of Heller Ehrman LLP, an international law firm with more than 730 attorneys in 15 offices in the US, Europe and Asia. It was founded in San Francisco in 1890 and by 2006, it had offices located in the key financial centres of New York, Los Angeles, Washington D.C., London, Beijing, Hong Kong and Singapore. By all measures Heller Ehrman was a healthy organisation. It had organically grown to its peak size over time; there had been no blitz-expansion or exotic mergers. In 2007, the firm grossed $471m with $1m in profits per partner, which back then was a very healthy PEP. But a handful of partner departures coinciding with the closures of a number of large litigation cases resulted in a decline in profits per partner by 3% that year. At the same time Heller Ehrman had just entered merger talks with Mayer Brown. All of a sudden, a sizeable group of 15 intellectual property litigators decamped to another firm. This was the ball of snow that started to accelerate down the mountain. The remaining partners became increasingly anxious. No one wanted to be the last lawyer left. Panic broke out and within a year Heller Ehrman dissolved. A firm of Heller Ehrman’s size needs large clients, deals and cases in order to sustain itself. Heller Ehrman successfully attracted these. So a sizeable chunk of partners depart over 3% less profit? If you remember 2007 though, it was the boom time before the balloon burst. Insanely large mergers took place, clients spent lavishly and law firms were thriving. In 2007, a drop by 3% in profit was enough for some partners to gripe about. Other firms were doing better. All of a sudden the life of a business law firm seems very precarious.

At the same time, firms should be realistic about actual partner mobility in the country they’re in. There is rarely space for another star partner in the peer firms. In a majority of jurisdictions it would not be easy for a star-partner to leave and make more money elsewhere. In some jurisdictions, most notably the US and to a lesser extent China, a star-partner could easily leave at the drop of a hat. In such situations trying to tie the partner with ‘golden chains’ could make sense. Bearing in mind that if loyalty is only based on money, there is always a risk of getting overbid.

 

De-equitising

In any partnership there is a spread in performance and contribution between the partners. Ideally this gap does not become too big and all partners operate within a certain bandwidth that is acceptable for all. Reality is that sometimes a partner performs below what is expected. If this comes down to have one bad year, this is typically not a big deal. When it becomes structural, there will be a problem. In any partnership, including the ones based on EWYK, equity partners are expected to put their weight behind their practice. When a partner disengages, loses drive and ambition leading to poor performance, pressure will mount and something needs to be done. Sometimes it is easy and the partner is kicked out. These partners find their way to another firm, typically one tier below their old firm, and become lateral hires.

All too often things are not so easy. Partnerships can be tight-knit networks and the underperforming partner is liked as a person and has friends among the powerful partners. Kicking the partner out would not feel right, too harsh. The alternative would be to take away some or all of the equity and demote the partner on the compensation ladder. These are never easy conversations. Effectively the firm is reducing the partner’s income and depending on the personal financial situation this could result in serious consequences. Aspects like this complicate the discussion further. The main issue remains that taking away part of the compensation does not solve the underlying issue. Remember we are not talking a one-time dip but structural performance issues. Taking away money will not magically make a partner perform better. For most firms a penalty system of point reduction does not lead to a solution. A partner with fewer points will simply lose the incentive to work harder. By reducing their points once someone has performed poorly, the firm only serves to legitimise the fact that such a partner can stop trying altogether.

It might be good to keep in mind that the pressure to take measures against such partners is not only because of a sense of financial unfairness. The other partners will not gain much more if the underperformer gets less. The main problem usually is the underperformer does not put in the same amount of effort. Being a partner in a law firm can be highly rewarding, also financially, but it comes at a cost. Partners have to put in a lot of hours and be available all the time. This is felt as a sacrifice. If one of the partners is not making that investment, that sacrifice, that is deemed unfair. That hurts. Taking away money does not solve this. Total de-equitisation whereby the partner becomes counsel or income-partner is often a better long-term solution, when the partnership does not want to ‘kick the underperformer out’.

 

Retirement

For every equity partner at some point there comes the moment to retire. The age at which this happens varies quite a lot between firms. Some firms have a retirement age at 60 (or even younger). Other firms allow partners to continue until 70 and beyond.

Many successful law firms maintain some form of mandatory retirement policy. These are rarely "hard stops" at age 65 but instead staged transitions with a three to five year runway. They enter a mandatory "step-down" period starting at a specific age after which their equity points are reduced by a set percentage until they reach a nonequity or "Senior Counsel" status. Some firms use formal committees to oversee "hand-offs" to one or more successors. Having said this, there are always exceptions to be made in any firm. The most profitable partners are often granted year-to-year extensions. It would be madness to say goodbye to a partner with $20M+ book of business. This creates a "performance-based" retirement age where only the most productive are invited to stay past the firm's standard limit. The rise of the lateral market has certainly complicated retirement. If a firm's retirement policy is too rigid partners will simply move their substantial revenue to a firm with no mandatory age, like Quinn Emanuel.

Partners that are in their late fifties or sixties are at the top of the compensation ladder. Provided that there has been a successful succession plan that will keep the book of business for the firm, the partnership will financially benefit from the retirement as the compensation will be distributed among the partners. In the era of our parents and grandparents, people were seen as old when they were in their mid-sixties. Probably they also felt old themselves and were physically and mentally ready for retirement. This is no longer the case. Life expectancy has increased as has lifestyle and culture. Today in the developed world a person in their mid-sixties does not feel old and would still very much be part of everyday life. This has become the reality for the baby boomer generation who are retiring today: most are still very happy in their daily practice and do not feel like retiring and picking-up golf at all. This is probably why we have seen an increase in partners that do not want to retire and try to negotiate an extension.

As understandable as the desire to keep on working is, from the perspective of the partnership this is not a good thing. The most important argument is that a partner who has no intention of retiring will be unlikely to transfer his practice to a younger partner who will be their successor. The partner will understand that once the practice has been successfully transferred, the negotiating position is gone. A second argument is the compensation. A partner who is about to retire is often at the top of the compensation ladder. It is in the interest of the partnership that this profit share gets redistributed to allow for young partners to be appointed. What we see regularly unfortunately is that partners who do not want to retire – and have therefore not transferred their practice to a successor – threaten to take their book of business to a competing firm. Knowing that if this would happen it would impact revenue and profitability, the partnership is in a way ‘black mailed’ into agreeing an extension.

This is also why changing a compensation system is harder than it looks on paper. A senior partner who has not transferred their practice has leverage. They know it and the partnership knows it. Threatening to leave with the book of business is not an empty threat. The result is that the partnership works around them rather than managing them. Any new compensation system will be designed with that reality in mind, which means it is shaped partly by the people it was supposed to change. In founder-led firms this problem is at its worst. The founding generation often controls both the clients and the culture. Agreeing on a new compensation model without first agreeing on who leads the firm next, and when the founders step back, is a half-measure. It will only go as far as the founding partners allow it to go.

The founder-family dynamic compounds this in a specific way that affects governance more broadly. In Latin America in particular, many leading firms remain concentrated around founding families or tight founding circles. Partners who are not part of that circle can reach high levels of technical excellence and client responsibility and still find the equity club structurally closed to them, not because they fail any performance test, but because ownership concentration is a corporate governance problem, not a management one. No compensation reform addresses it. The reform itself will be shaped by the founders it was supposed to constrain. This pattern is not limited to Latin America but is especially visible there, where the generational transition from founder to institution is still under way at most leading firms.

Gender compounds it further. Latin Lawyer’s 2024 data[2] showed a sharp drop in women partnership hires across the region: from 38% in 2023 to just 28% in 2024. This is not an isolated data point. The non-equity tier in Latin American firms disproportionately concentrates women without providing clear advancement paths, functioning as a structural glass ceiling rather than a transitional category. The same dynamic exists in other markets but is particularly acute in the region. No evaluation framework or compensation formula can fully correct it without structural reform to how partnership decisions are made and by whom. Firms that are serious about the problem need to examine not just whether their criteria are fair on paper but whether the people applying them have any incentive to change the outcome.

 

Cannibalisation

Remember the Airbus A380? It is the world’s largest passenger airplane. A humongous double-decker with a wingspan of 80 meters and a max take-off weight of 570,000 kg. The A380 has a maximum seat capacity of 853. The first plane was delivered in 2007, the last one in 2021. It certainly has not been the commercial success that everyone envisioned when setting off on its 15 billion Euro development. Bigger did not turn out to be better.

So far in this chapter, we have focused on those elements of managing the size of the partnership that are directly related to the distribution of the profit. There is one more aspect and it is related to how much profit is generated. This is internal competition. Depending on the size of the market and the geographical spread of the firm, there will be an economical limit to the number of partners. Go beyond this number and partners will start competing internally for the same matters and clients. New partners will cannibalise on the practice of the existing partners. The law of diminishing returns will apply and from a certain point each new partner will effectively erode the Profit per Equity Partner. In this way, a market will dictate the size of the partnership. A firm might be able to increase the pie they divide by taking a piece from a competitor but due to conflicts of interest the scope will be limited.

This is often overlooked when law firm leaders are tempted by merging. Building a bigger boat can on paper be a near irresistible way to formulate a strategy. It is a more palatable and concrete option rather than having to somehow make the partners change how they work. But a thorough analysis of what each practice would look like after a particular merger – including which partners would inevitably have to leave either because the market cannot carry them or because in a conflict they have the lesser valuable clients – is seldom part of the equation. Two plus two is not four in most law firm merger lands. It’s usually a mere two and a half if you are lucky.

On a basic level the required size of a law firm will depend on whether it is a full-service firm or a boutique, and on having a national or an international practice. Boutiques that strongly focus on one practice area or industry do not need to be sizeable to serve their clients and be commercially successful. Around the world there are numerous examples of extremely profitable high-end boutiques that are less than 100 lawyers in total.

High-end full-service firms would by nature need to be bigger than the boutiques. For a full-service firm, the engine is typically the Corporate/M&A practice that will need to have a certain size in order to handle multiple complex transactions at the same time. M&A is considered the ‘engine’ since transactions typically generate a lot of spin-off for other practice areas such as Competition, Finance, Employment, and so on. In order to deliver the required level of service, each of these departments also has to meet certain minimum size requirements.

If the firm is aiming at the top-bracket in their market, there are, however, not only minimum size requirements, but equally, maximum size-limits for each practice group. As mentioned, Employment is a practice group where any full-service elite firm outside New York and London, would probably need about 2 employment partners with a team to service their transactional needs. As it is unlikely that the Employment practice will get 100% of their work through M&A, they will also have to find employment clients of their own. The problem is that in most markets there simply is not enough high-end employment matters around, so the Employment team will feel forced to accept mid-market work which does not fit the firm’s strategy and for which it will be extremely hard to charge the normal hourly-rates. Not to mention that on top of that conflicts with potential M&A clients will further limit their market.

While there is, depending on the strategy and on the market, always a minimum size for a full-service elite law firm, there also pretty soon is a maximum size, after which the average quality of the practice will decline. Too many partners for the number of strategic mandates, will inevitably increase the volume of less profitable plain vanilla work.

When practice groups become too large they will feel forced to take on lower quality work to meet their targets. This will in the end increase the profitability gap between the leading successful practices and the rest. This will over time result in a ‘two-speed’ firm, where part of the partners is highly successful and the others are structurally trailing behind. No need highlighting that this on the long run will create tensions.

The past two decades have been the heydays of law firm mergers. Merging was not just fashionable; it was generally considered the ‘silver bullet’. Many firms that had a weak performance merged with another firm that often also had a weak performance, resulting in one bigger firm that still had a weak performance. Merging rarely is the solution to a fundamental problem.

Law firms also seek to merge for other reasons like entering into a new market. Take for example the UK magic circle firms looking for a foothold in the lucrative US market. Some time ago it was the mergers between UK and Australian firms hoping for a lucrative piece of the Chinese market. For most firms, neither endeavour is working out as planned. Undeniably also some of these mergers have been a great success.

It is not only hope and despair that drive law firm mergers. Increasing the power to invest in technology or marketing have also become motives. And there’s the FOMO category: fear of missing out. Others are merging, they must have a clever plan, so our firm should also merge because bigger is better.

When a law firm becomes too large for the market they are in, the average quality of the partners and the mandates will go down. The spread between partners and between practice groups will grow, and there will be a high risk of becoming a two-speed firm. Also with every expansion of the partner group, the firm will become harder to manage. Beyond a certain size, partners do not really know each other, which will hinder strategic collaboration, team spirit and firm culture.

Above a certain size, partners will become more focused on their own interests and even less on the firm’s interests. Partners feeling the pressure to perform will increasingly feel frustrated by conflicts of interest that prevent them from taking certain clients. April 2022, Dentons, a global giant with more than 10.000 lawyers, lost a $32 million malpractice lawsuit as the court rejected their claim that their Swiss Verein structure would allow them to serve conflicting interest as long as the clients were in different countries that were technically independent. The court did not buy that. Firms cannot claim to be "one firm" for marketing and "many firms" for ethics.

The Swiss Verein model lost its popularity for growing firms as it lost its ‘conflict shield’. But being built for rapid growth the opposite is also true. It turned out to be an advantage when the need of rapid contraction arose in 2022. As firms were scrambling to respond to Russia’s invasion of Ukraine, Vereins like Dentons and Baker McKenzie were able to "sever" their Russian offices almost overnight because they were already separate legal entities. Integrated partnerships faced much more complex divorces. Another painless decoupling of a Swiss Verein was the Dentons-Dacheng split in 2023. Dentons split from its massive Chinese arm, Dacheng in a clean break made possible by the Verein structure. In 2025, several large firms have begun exploring a hybrid structure that in effect splits the firm into two. On the one hand a partner-owned entity that provides legal advice and on the other a Managed Service Operation that owns the brand, IT, and back-office services. This can provide the same "local autonomy" as a Verein but offers a possibility to bring in outside capital (as explored in Chapter 15 on Private Equity), something the Swiss Verein was never designed to handle well. The MSO structure is not a new idea in the legal business but was never really used by high earning business law firms until recently.

Once the partnership is the right size, the question becomes how to measure what each partner within it actually contributes. Chapter 6 takes that up.

 

[1] Wells Fargo Legal Specialty Group, mid-year 2025 survey (covering January–June 2025), reported 27 August 2025.

[2] Ignacio Abella, "Resilience and Reinvention in the Latin American Legal Market," Harvard Law School Center on the Legal Profession, June 2025. Data drawn from Latin Lawyer's annual partnership hires survey of leading Latin American law firms. Available at: clp.law.harvard.edu