Professional Services Accounting ARTICLE -

Giving Partners Credit for Originations Where Credit Is Due

Target Audience: Legal Professionals, Professional Service Firms, Law Firm Partners, Law Firm Accounting

When a valued partner left the fictional firm of Smith Richardson & Barthel (SRB) last year for a firm across town, everyone in his office was shocked. Larry Bowen had devoted 20 years to SRB and seemed happy in his position. Even if his rainmaking activity had dropped off significantly over the past couple of years, Bowen had originated some of the firm’s most prestigious clients.

But his colleagues had assumed the lead with many of these clients and captured larger shares of their legal business, which the firm recognized at compensation time. Bowen, on the other hand, got what he considered the short end of the stick. When he accepted an offer elsewhere, several SRB clients went with him.

Could this happen at your firm? It could, if the way you recognize — and compensate — partners for client origination isn’t perceived as fair.

Timely issue

Although client origination has long been considered one of a partner’s core responsibilities, disagreements over credit are less likely when business is booming. In a soft economy, however, lawyers can easily become possessive about clients. You could have a situation where one partner claims origination credit for bringing a client through the door, another for growing the client’s account and a third for performing most of the client’s legal work.

Formal scorekeeping isn’t necessary for every firm. Small firms, for example, usually consider origination a team effort that deserves shared recognition, and this equitable approach can be very successful. But as firms grow, they need to take up the recognition question, especially if partners are squabbling — or worse, leaving — because they don’t feel they’re getting the credit they deserve.

Policy decisions

How you track and recognize client origination will depend, in large part, on your firm’s size and values. For example, if your large firm tracks many clients and individual matters, you may want to recognize both the partner who introduced the client as well as the lawyers — often in different practice groups — who have initiated new matters and assumed lead roles. This approach recognizes that the attorney-client relationship changes over time. While you appreciate the original rainmaker, you also reward current successes.

To prevent resentment on the part of the client originator who might think he or she deserves credit in perpetuity, establish limits. For example, a litigator who lands a client with a major class action lawsuit might receive origination credit until the case closes or, alternatively, for a period of, say, five years. After that, recognition for new matters by other litigators is shared or goes entirely to the originator of the individual matter.

Or consider phasing out credit over time. During the first five years, the client originator might receive 100% credit; then credit decreases by 20% in each subsequent year. At the 10-year mark, the entire firm or the partners who currently service the client share origination credit.

Credit into dollars

Origination recognition matters for many reasons — prestige, influence, leadership opportunities — but no reason is more important to partners than how credit affects their share of profits. For this reason, your firm’s compensation committee will probably want to assume responsibility for it by:

• Communicating formal and informal policies to partners, including how client origination affects compensation decisions,
• Tracking client and matter origination, as well as the revenues attached to them, and
• Investigating complaints and resolving disputes between partners.

It’s important that your committee remain flexible. In some cases, for example, it may need to weigh the consequences of an unhappy partner leaving against a strict application of policy.

Make some decisions

Origination recognition is a complicated — and touchy — issue, but law firms need to address it at some point. Maybe your firm decides that origination should be a collaborative effort for which partners share credit. Or it may conclude that recognizing individual partners is critical to keeping them. Either way, make sure your attorneys understand how credit is tracked and applied, particularly when it comes to compensation.

Find out how our expertise in professional services accounting can add value to your business. Email us or call us at 1 (888) 875-9770.

related links