Asked and Answered 

By John W. Olmstead, MBA, Ph.D, CMC

Q. Our firm is a small firm of two shareholders and two associates based in Bakersfield, Calif. The firm was formed 15 years ago by the two existing shareholders. We have never added additional shareholders, but we believe that we owe it to our associates to have some guidelines as to what we are looking for in future shareholders. We’re considering a partner track program/document. Do you have any suggestions?

A. I believe you should have at least a general set of guidelines laid out in writing. For example:

Associates who have been in practice for seven years and employed by your firm for two or more years and who have consistently performed as outlined below should be eligible for equity shareholder-level review based on equity shareholder-level openings, competencies attained, performance, and behavior.

• Seven Years in Practice and Two Years or Longer Employment with the Firm as an attorney.
   
• Individual Production Requirement
  • Annual Billable Hour Expectation
    • The firm has an annual billable expectation of 1,800 billable hours. 
  • Origination Fees Collected 
    • The firm has an expectation of $100,000 or more per year for a minimum of three consecutive years.
  • Generated (Working Attorney) Fees Collected
    • The firm has an expectation of $300,000 or more per year for a minimum of three consecutive years.
  • Responsible (Managed Revenue) Fees Collected
    • The firm has an expectation of $400,000 or more per year for a minimum of three consecutive years.
       
• Competency Level Attainment at Shareholder Level 
  • Knowledge
    • The firm expects associate candidates to be performing at shareholder level.
  • Skills & Abilities
    • The firm expects associate candidates to be performing at shareholder level.
  • Work Management
    • The firm expects associate candidates to be performing at shareholder level.
       
• Character and Commitment 
  • The firm expects associate candidates to have the commitment and character that the firm expects of shareholders. This includes a “firm-first” and teamwork attitude and behavior. Lone wolves and mavericks will not be considered for equity shareholder status.
     
• Professionalism 
  • The firm expect professionalism in the form of dress, appearance, and behavior in dealing with personnel in the firm, clients, prospective clients, referral sources, and colleagues and other professionals outside the firm.
     
• Client Service and Business Development 
  • The firm expects associate candidates to be performing at shareholder level.
     
• Supervision and Mentoring 
  • The firm expects associate candidates to be supervising and mentoring junior associates, paralegals, and staff.
• Client Satisfaction 
  • The firm expects associate candidates to have a client satisfaction rating average over the last three years of 4.0 (maximum rating is 5.0) or higher as measured by the firm’s client satisfaction questionnaires that clients complete at the conclusion of a matter.
     
• Other Factors Considered – Associates Should: 
  • Be willing to share in the risk and reward of ownership and invest time and capital in the firm.
  • Have a firm-first orientation and share the vision and core values of other equity owners in the firm.
  • Add value to the firm and pay for themselves, cover their costs and share of the firm overhead, and generate enough work to keep other attorneys busy.
  • Act like owners of small businesses.
  • Contribute to the management and marketing of the firm.
  • Mentor younger attorneys.
  • Follow firm policies systems and procedures.
  • Contribute capital, sign for the office lease, firm credit line, and share in other financial obligations of the firm.
  • Be good marriage partners considering the other equity members in the firm.
  • Exhibited the ability to supervise junior associate attorneys, paralegals, and staff.
  • Successfully tried cases (litigation attorneys).
  • Demonstrate the ability to either originate new client business or developed such a relationship with existing clients or referral sources that clients have sent business to the firm as a result of the relationship.

Associates selected for admission should be notified by the executive committee or managing shareholder, and a meeting will be scheduled to discuss whether the associate has a tentative interest in taking this step. If the associate is interested in taking this step and after executing a non-disclosure agreement, the executive committee or managing shareholder should then prepare a detailed proposal outlining the mechanics and details required for admission. The proposal will include firm financial information, the buy-in or capital contribution requirement, and a copy of the firm’s shareholder agreement and equity shareholder compensation plan.

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John W. Olmstead, MBA, Ph.D, CMC, (www.olmsteadassoc.com) is a past chair and member of the ISBA Standing Committee on Law Office Management and Economics and author of The Lawyers Guide to Succession Planning published by the ABA. For more information on law office management please direct questions to the ISBA listserver, which John and other committee members review, or view archived copies of The Bottom Line Newsletters. Contact John at jolmstead@olmsteadassoc.com.