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With firms starting to see the effect of a downturn for legal services, many will now be looking at their partners and teams who do not produce the level of profitability required by the business as a whole. In some cases this may result in the firm wishing to move on partners and/or teams in order to maintain profits per equity partner where otherwise these may be falling.
It is possible that in some cases firms may be able to turn such difficult situations into a positive step for both the firm and the targeted individual or team. In these circumstances there are likely to be a number of options available to the firm.
The obvious route would simply be to terminate the employment or partnership of the individual or individuals concerned, but the downside with this approach is that there will inevitably be costs associated with the termination, and it may result in the departing personnel feeling let down by the firm and their former colleagues and leaving with a negative view of the firm.
However, there may be circumstances where a more positive action could bring about mutually beneficial arrangements. One such circumstance could be where a firm identifies a team or department which is not producing the level of profitability required. One of the reasons why the department may be unable to achieve this level of profitability may be due to a type of work being performed rather than the lack of skill or inefficiency in dealing with matters. In these instances, one might want to consider de-merging of the individual or team and assisting them to either join another firm where their level of profitability would be more in keeping with the firm or even to set up their own specialist niche practice. This way, the firm bringing about the change may actually benefit.
One benefit is that they will have a suitable home for any clients involved in the unprofitable part of the business; avoiding the need for difficult discussions with clients about why they are no longer suitable clients of the firm. In addition, this approach may also enable them to retain key secondary relationships with former clients who may still be of influence to the balance of the firms business such that they look favourably on the parent firm despite the change that has taken place.
Any such arrangement, if handled correctly, may well be seen by all concerned as a very positive step and may have a significant influence on the perception of the change by the parent firms own personnel and ongoing clients and contacts. I have known instances where such a positive approach has resulted in the termination arrangements costing the firm substantially less than had been anticipated had they proceeded with a straightforward termination. Finally, the firm should not underestimate the reaction of partners in such situations, as they are likely to have been feeling considerable peer pressure at their lack of profitability and a well managed exit can prove to be of great relief to those under the spotlight.