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Remuneration of Managing Partners and Formalization of Their Functional Responsibilities

21.10.2014
Rubric: Uncategorized

To continue a topic which was brought up earlier, I would like to share the results of my survey held among managing partners on two issues (very important to my opinion) named “what does not concern managing partners, although it should”:

1) How the functional responsibilities of a managing partner are formalized?
2) How they are remunerated for it?

The discussions held up to this day (numbered over 60) clarified the following. To the question “is the institute of managing partner in your firm is formalized?”, I have received a positive answer only in one out of four cases.

On one hand, if the partnership consists only from “despicable me” there is not much to formalize. On the other hand, if there are more partners in a partnership, the response “it just happened, it is more for a business card, and we make all the decisions together”  is an often case.

Fun situation may happen then because the employees have a right to solely take the decisions about the distribution of authority in a partnership. For example, “today partner A is in a good mood, I will come up to him to sign my vocation slip, but I have to wait until partner B leaves for court”.

For example, only one of my clients has a clear job description of a managing partner. This job description has been formalized in a process of modifying the formula for partner profit distribution.

Especially interesting is the fact what partners understand by a formalization. Basically, according to the accepted understanding, it is a “weight” of one’s vote in decision making in a partnership andor a large percentage in a formula to distribute profit. Meanwhile, the formalization actually means:

  • A procedure and order of managerial goal setting and task distributions of a managing partner for a period (1 or 2 years), and reporting system and procedure for a partnership;
  • A definition a remuneration scheme for a managing partner for execution of own functions in accordance with the goals and tasks set.

It is important to note that today a national segment (due to its size and age) of a legal market functions without a possibility to have a free  managing partner, i.e. a partner which head is preoccupied by the firm’s affairs 24/7/365.  On practice, it happens that the issues of business management are linked together with other issues (practice management and client work) and if to be completely sincere, they are secondary as compared to the practical decision on client issues.

The outcomes are the following:

  • A job description of a managing partner of a national legal firm can hardly be unified and is very subjective based on historical development of responsibilities sharing;
  • Partners-founders and senior partners of legal firms often play a “collective responsibility” game without a clear distribution of  influence zones and responsibilities for managing a business;
  • Remuneration of a managing partner in the majority of the cases is included in the general partnership formula; such mixture looks logical but does not motivate  simultaneous quality performance of both roles (practice partner, public figure, managing partner and other);
  • Even if such “selected” remuneration exists but it does not correlate with managerial achievements and results.

Formalization of job responsibilities of managing partners of national legal business, formation of a balanced system of indicators of his/her/ activities and distributing respective payment for this work – is not “unclear and ambiguous” issue but rather it is a decision, which needs political power. The issue of formalization is especially important for the firms, which have a generation of “junior” partners or expects them to come arrive soon. It is a big majority of a national legal business at this point!

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