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A Day for the Finder, Not the Grinder : Attorneys: Law firms, once proud institutions in their communities, are being savaged by partners who grab client portfolios as they head for the door.

January 28, 1990|Robert W. Hillman | Robert W. Hillman is a professor of law at UC Davis and the author of "Law Firm Break-ups: The Law and Ethics of Grab bing and Leaving" (Little, Brown & Co.)

DAVIS — In case you missed it, Arnie Becker of the television series "L.A. Law" gave his partners at McKenzie, Brackman, Chaney & Kuzak quite a scare when he announced that he would be leaving the firm. Arnie's apparent disloyalty may have provided an entertaining event for viewers, but it also undoubtedly sent chills down the spines of countless lawyers associated with law firms recently damaged by power moves of the type depicted by the show's clever writers.

The 1980s saw the destabilization of the American law firm. Once proud institutions in their communities, law firms have become fragile economic units providing only temporary resting places for their partners. Lateral movement, once confined largely to junior lawyers, now extends to all levels of law partnerships.

The partner who can transport clients and revenues to another firm is a particularly attractive candidate for lateral movement, a fact evidenced by the advertisements of firms and their agents seeking partners with substantial client "portfolios." Luckily for his partners, Arnie only wanted a little respect and his name on the door. He could be bought for a pittance. Other partners carry higher price tags for their loyalty.

Not many years ago, partnership in a law firm created a bonded relationship between the lawyer and the firm that was difficult to break. The culture of the profession promoted institutional loyalty (or at least discouraged institutional disloyalty). Thus, in the early 1960s, an ethics committee of the American Bar Assn. could conclude that an agreement restraining competition after a lawyer's withdrawal was unethical because professional responsibility would preclude him from making "any effort to secure the work of his former employer."

This ban on restrictive convenants was affirmed in the late 1960s, but this time for a very different reason: "The attorney must remain free to practice when and where he will and to be available to prospective clients who might desire to engage his services." In less than a decade, the focus had shifted from aversion to competition to the right of clients to employ the lawyers of their choice.

The ban on restrictive covenants did not immediately provide ammunition for warfare between law firms and partners pursuing better opportunities. For several years, the larger and more established firms looked critically at lateral hiring and rewarded loyalty through "lock-step" income systems based on seniority. Although some lawyers chafed at a system that prized age over productivity, they had few options, since interfirm movement was difficult. However, with the growth in the size of law firms and changing attitudes toward competition, the culture changed. Lateral hiring is now an accepted practice, and lawyers who control clients have something they can auction to the highest bidder.

It is the era of the rainmaker in the legal profession, a time of the finder rather than the grinder. Partners sometimes become rainmakers because they are indeed excellent lawyers. But in other cases, success in controlling clients derives less from the partner's lawyering skills than his or her marketing acumen, political notoriety, club memberships or family connections. All of this raises the question of whether ethical standards should promote greater incentives for rainmaking than activities more traditionally associated with good lawyering. If so, members who are excellent lawyers but less gifted in the fine art of rainmaking will be the losers.

It may be that another kind of market--a market for stable law firms--already exists and may develop further over time. A firm savaged by grabbing will face difficulties in maintaining an environment conducive to providing quality legal services. Firms now enjoying relative stability are well positioned to gain in an environment of instability. Whether and how firms now crippled by partner turnover can enter that market, and the effect of such a trend on small and medium-sized firms, are open questions.

An alternative approach would be to modify the freedom of clients to change lawyers. An environment that encourages grabbing rests upon the clients' freedom to change lawyers or firms at will. The ban on restrictive convenants is unique to the legal profession. Accountants and physicians regularly enter into restrictive covenants. The reasons for distinguishing lawyering from other professions are not compelling, and it is questionable whether the availability of choice for the client is any less critical than if it involved a physician, for example, rather than a lawyer. But the ban on restrictive covenants in the legal profession is likely to remain, and so long as it does, law firms will remain under siege.

Because his partners were able to cut a deal with Arnie Becker, their firm did not break up. But it will never be the same.

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