Let partners leave: restrictive covenants are not helpful

Mark Brandon, managing director, Motive Legal Consulting
Mark Brandon, managing director, Motive Legal
Consulting

Addleshaw Goddard’s recent announcement that it will be restricting the number of partners who can leave the firm each year is far from unique, but it is a manifestation of a management doctrine I find curious.

It’s a kind of modern feudalism, as if this strange entity, the firm, owns its human assets and will fight to keep them all and dispose of them as it sees fit.

In my apparently hilariously naïve worldview, a partnership is not a corporate entity with assets capable of expression upon a balance sheet, but a collection of individuals who band together for mutual commercial interest.

Clients are other people who choose to instruct the firm and are not owned by it in any sense. I say ‘the firm’, but I mean the partners and other lawyers within in. When you boil it down, people instruct people.

Attempts to regulate who can leave a firm or when, and how external agents may behave, is not only the antithesis of free-market philosophy, but entirely counter-productive.

I’m certainly no neo-liberal free marketeer. But nor do I believe in artificial attempts to regulate labour input or consumer choice in order to favour a particular supplier. To me, these kinds of measures smack of a deep-seated insecurity coupled with an often-misplaced lack of confidence and the inability to take an appropriately philosophical view when things do not go your way.

Benefitting clients

My alternative prescription? I’m not sufficiently libertarian to believe in a pure ‘at will’ partnership, but a period of notice beyond three months strikes me as the difference between mutual consideration between parties and unfair advantage for one. Three months is a reasonable pause, allowing all concerned to take a breath and for the ‘losing’ firm to reassess and gather its forces.

I do not think client-restrictive covenants are either wise or productive. I understand why they are enacted, but I’d contest the validity of the argument that the firm’s resources have been used to develop client relationships and that therefore gives it some claim to be losing an asset in which it has invested.

This is only a viable argument if you measure all input and output regarding client relationships and also take account of the non-input of partners who benefit from another partner’s development of a client relationship but who have done nothing to contribute. This is virtually impossible.

In the absence of a viable policy, why enact a crude and manifestly unjust one? Better to have no policy at all, or a three-month ‘hands-off’ while notice is being served, allowing the firm a fair crack at persuading potential wayward clients to stay.

“Attempts to regulate who can leave a firm is not only the antithesis of free-market philosophy, but entirely counter-productive”

I would heartily encourage a positive, proactive policy with leavers finding practical expression in a robust, professional and well-maintained alumni programme. Some firms do this, and the best are wildly – though quietly – successful.

People leave for a variety of reasons, but the competent ones do so for a change of platform they believe will benefit their clients. This should be remembered by all those firms that pompously declare that ‘the client comes first’. What they mean is ‘the client comes first as long as we’re acting for them, otherwise we will seek to make the lives of their chosen adviser, and hence the clients’ lives, as awkward as possible’.

When someone leaves for a better or bigger platform, it usually means they’re going to be charging more. So when the client has work that is better handled on a different platform, doesn’t it make sense that they refer it back to their alumnus, with which they are in regular and cordial contact? The converse would apply where the partner has moved to a lesser platform and can send more complex or larger pieces of work back to their former firm.

This is what the modern network should deliver. Restrictive covenants are the equivalent of tariff barriers: annoying, uneconomic and ultimately having a negative effect on the growth and development of business.

If your business is really at the stage where you have to restrict people exercising their right to choose where to display and develop their talent, I’d invite you to reflect on whether it is one really worth saving, or whether it is, in fact, being governed by the needs and ambitions of a frightened and unimaginative few at the top who claim they are managing in the interests of all.