Aug 07 Professor Mayson Article

 

PERSONAL PLANS AND PARTNER CONTRIBUTION

Stephen Mayson

As competitive conditions become tighter, and profit is harder to generate and maintain, there is increasing attention on the issue of ‘under-performing’ partners. However, most firms lack the wherewithal to make a sophisticated assessment.

I believe that there are two issues at play. First, even if firms carry out their business planning effectively, they do not drill down to the specific actions required from each partner to implement their strategy. The result is usually an unrealised strategy, and an impatient suggestion that strategic planning was a waste of time and effort. Second, few firms manage the ‘total contribution’ of partners. The usual approach is to expect something like 1,200 chargeable hours plus some indeterminate amount of (often unrecorded) ‘non-chargeable’ time. In these circumstances, it is not surprising that assessing partner performance is a crude, painful process: there is no basis for saying whether or not a partner has done what the firm required of that individual beyond the illusory certainty of chargeable hours worked, fees billed and new work originated.


From ‘non-chargeable’ to ‘total contribution’

One of the key issues in financial performance in law firms is utilisation. This is the percentage of available time that is converted into chargeable hours. Logically, profit will increase if utilisation is maximised. However, my starting point to a different approach to assessing partners’ performance is to think not in terms of maximising partners’ chargeable time, or of ‘1,200 chargeable hours plus’, but of total contribution. The time contributed to the firm by equity partners is arguably the scarcest resource: it must be coordinated and managed effectively. I encourage partners to agree the total hours contribution that they expect each other to make to the business. For example, a good starting point might be 45 weeks a year (allowing for holidays), five days a week, and 10 hours a day, giving a total of 2,250 hours. The issue now becomes a question of what is the best use of those hours by each partner – not the crude maximising of chargeable time at the expense of other activities.

There is a very telling sentence in David Maister’s book, True Professionalism (1997, The Free Press): “What you do with your billable time determines your current income, but what you do with your nonbillable time determines your future.” In this sense, non-chargeable time is mainly an investment in the future and would be better described as ‘investment time’. This subtle, but important, change in terminology then encourages partners to think about the correct balance of chargeable and investment time, and about return on the investment. The investments might be made in client relationships, in developing new business, in training the less experienced in the firm, or in self-development. Whatever they are, though, they should be made in the context of – and contribute to – the firm’s strategic objectives.


The link to business planning

I will assume for the purposes of this article that a firm has articulated a business strategy. In larger firms, this will need taking down a stage further to departments or practice groups. In all cases, however, unless the strategy is supported by a personal business plan for each partner, it will not be realised. We cannot assume that, just because partners voted to adopt the strategy, they will inevitably know what action is required of each of them to implement it. The personal plan should be the most detailed plan in the firm. A personal plan is a personalised document – partners are not identical and should not have identical plans. An individual should not be assessed relative to some standardised or idealised notion of what a partner should do. Each plan should be negotiated with and later reviewed by a practice group leader, head of department, managing partner or senior partner (depending on the size and circumstances of the firm).

The personal plan should require partners to set out what they intend to do with their total contributed time of 2,250 hours, both chargeable and investment. It should describe their principal activities and priorities, and how these are intended to contribute to the firm’s, and (if appropriate) their department’s or practice group’s, strategy. Since the time contributed is only a very basic measure of contribution, perhaps the most important part of the plan is, for each activity, to identify a suitable measure of outcome. In practice, this is also one of the most difficult things to do. The measure must be specific, and represent a suitable return on the time spent. For example, if part of the plan is to spend time developing a client, rather than at best recording a certain amount of time to the non-chargeable category ‘marketing’ or ‘business development’ with little accountability for the outcome, the personal planning process would require a partner to identify how many hours should be devoted to that client, with what expected outcome (such as n new matters of a certain type, new or additional fee income of £x, the opportunity to deliver an in-house seminar on topic A, an introduction to person B in another part of the client organisation or family).

Within the total commitment of 2,250 hours, each partner should agree in the personal planning process to an amount of chargeable time (without necessarily requiring an indication of how that time would be spent). The amount should vary depending on other commitments. As long as partners as a whole contribute the total fee-earning value required by the firm’s financial planning, how they each contribute to the firm’s productivity is a matter for agreement rather than standard prescription.

Client work is reactive and therefore difficult to anticipate and plan for. There would be little sense in putting the emphasis of a personal plan on client work. However, although the nature, volume and content of particular client work is unpredictable, that is no reason for not planning investment time in many other activities that are not (or should not be) unpredictable. Therefore, beyond the targets for chargeable time, the balance of the 2,250 hours should be made up of as high a proportion of ‘investment’ contributions as possible. Investment will be measured in terms of hours committed and of specific, measurable outcomes. I would suggest that the investment content and emphasis of the personal plans should be based on the following broad categories:

(a) Client relationships.
(b) Referral/intermediary relationships.
(c) Prospective clients.
(d) Business development.
(e) Management responsibilities.
(f) Staff development, training and know-how.
(g) Personal development.
(h) Contribution to group, department and firm.

There is no need for a plan to have commitments in every category; and, in fact, there should be significant differences of emphasis between individuals. The plan should identify probably no more than half a dozen key, prioritised commitments that represent the best contribution an individual can make to the firm. There should also be an indication of outline priorities or intentions for the two subsequent years: whether or not ‘more of the same’ is acceptable in this context will be a matter for the reviewer to assess.


Assessing performance

An agreed personal plan represents the ‘criteria’ against which a partner’s performance and contribution should be reviewed. It is a principal responsibility of the reviewer to agree and coordinate these individual contributions in the context of group, departmental and firm-wide strategy. There may also be different ‘stages’ of partnership at which individuals will be expected to make different types of contribution. For junior partners, for example, there will usually be a greater focus on client work and client relationships. For senior partners, there will often be a greater focus on client, group, departmental or firm-wide management, and community profile.

An agreed personal plan describes what is an acceptable level and balance of contribution from each partner. There should be no retrospective variation of an agreed plan: achievement of the plan should amount to acceptable performance. Nevertheless, the personal plan is not a blueprint, and partners should not become slaves to their plans. Life does not always progress as expected, and sometimes better opportunities come along. If it is likely that unexpected events, or unforeseen opportunities, will prevent or distract a partner from achieving some part of the plan or objectives, he or she will be expected to discuss this at the time with the reviewer. It is important to the process of planning and reviews that changes in expectations are mutually agreed, and not simply raised as excuses at the time of the review.


Dealing with ‘under-performance’

There will inevitably be differences in performance and contribution between partners, and between what a partner agreed to do and what he or she actually did. The question in planning and performance review terms is whether those differences reach a point where action is required (and where, ultimately, a partner’s departure cannot be negotiated on mutually acceptable terms). This article does not deal with circumstances where a partner can be required to leave the firm because of behaviour giving ‘cause’ for compulsory withdrawal, or where the partner’s practice area no longer fits strategically with the business of the firm.

Where the reviewer feels that a partner’s performance does not reach an acceptable level of achievement against the plan, the partner must be made aware of that view and the reasons for it. The reviewer must also agree with the partner the support and actions required (from the individual and on behalf of the firm) as part of agreeing the next year’s plan.

I believe that, in principle, no partner should be expected or required to leave the partnership because of under-performance until it is clear, after a period during which he or she has been redirected and supported, that the situation is irredeemable. In other words, under-performance should not be seen as ‘the individual’s problem’ but should properly be seen as ‘our problem’ by the partnership. However, if the under-achievement continues for three years (despite support), then the only ‘sanction’ for under-performance should be expulsion from the partnership: the individual has shown that he or she is not capable of making the minimum contribution required for continued membership.



Professor Stephen Mayson has been a consultant in legal practice since 1985. He has advised leading law firms around the world about strategy, economics and partnership issues. Stephen is currently also professor of strategy and Director of the Legal Services Policy Institute in London, and a senior fellow in the Faculty of Law at the University of Melbourne. He is the author of Making Sense of Law Firms (1997), and his latest book, Law Firm Strategy: Competitive Advantage and Valuation, is published by Oxford University Press in September 2007. Stephen is a speaker at the ALPMA Legal Management Summit in Melbourne in October.

Copyright 2007, Stephen Mayson