Q: When is a partner not really a partner?
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30 June 2014
The increasing trend of the "local partner' is shrouded in secrecy, creating scepticism among the profession and its clients, writes Linda Tsang
Once again, the proud announcements from City firms gush forth. Several firms are making up more partners and more partners overseas than ever before.
But for some firms, foreign partner appointments are not all they seem to be.
Many partners abroad are "local partners", with a share only in the profits of their own office, rather than the firm's international equity and they may have no rights to vote on the management decisions of the firm as a whole. Some are only salaried partners.
This controversial practice sometimes leaves local partners feeling like second-class citizens, particularly in emerging market countries.
One Hungarian lawyer, a former City firm partner, spat: "All these foreign firms say they are making you a partner, but they're not real partners at all. They have no say in the management of the whole firm."
Freshfields, with seven of its 17 new partners this year based overseas, does not believe in local partners. Managing partner Ian Terry stresses that although criteria for considering candidates for partnership in foreign countries may differ, "there is no distinction between the home-grown products at the firm and those who have not come up through the system".
Linklaters is open in declaring that three of its 25 new partners are local one in Bangkok and two in Paris. But it is reluctant to explain to the outside world exactly what this means.
Managing partner Terence Kyle says that a local partner is a partner in that particular office, and "will not necessarily become an international partner", but did not expand further on the difference.
Allen & Overy is even more secretive about the sensitive distinction between local and international partners. The firm is believed to be about to make up its largest number of partners ever, 25 in all of whom 10 will be based overseas. But it has not revealed how many are local partners. A source says it is an "internal administrative distinction, but which partners are local and which are not is not known to the outside world".
At Cameron McKenna, local partners will be partners in that office or in that jurisdiction, and that has an impact on matters such as voting rights in partnership matters. It does, however, leave local partners out of its current partnership announcements made for the UK market.
Only Clifford Chance managing partner Tony Williams is prepared to defend the idea of local partners.
He first stresses that of the 18 new partners announced in this year's round nine overseas and nine in London all are "full worldwide equity partners. The firm has traditionally always worked on the basis that it is one firm worldwide and one equity worldwide".
He adds: "Whether, if we link up with another firm, that is maintainable is another issue, but we would need a lot of persuading to change that structure."
Local partners at Clifford Chance are announced at a different time there are currently 35 who are based in the overseas offices that are growing most rapidly.
Some of this year's new partners were formerly local partners, and Williams explains that, inevitably, "the position of local partner is seen as a stepping stone to worldwide partnership".
He adds: "It may well be that before they are fully developed for equity, they should have that status before being admitted to full equity."
This distinction is maintained, he says, so that "you don't debase the partnership label".
The implication is clear: if you do have local partners and do not make the distinction clear to the outside world, foreign lawyers will doubt if they will ever have a chance to be made a true partner, and clients will never believe that they are dealing with a true partner.
It is a question of trust many firms are reluctant to share profits with foreign partners in a start-up office in an emerging market at least until the office is safely bedded down and profitable.
Meanwhile, firms without local partners argue that if you are prepared to invest in a country, then you should take the plunge, show your belief in the place and allow good, locally qualified lawyers to share in your international profits.
So, are you truly international or just a franchise?