The Lawyer reported last week that Linklaters and Berwin Leighton Paisner have de-equitised some of their partners to save money. De-equitising happens in 'lockstep' firms, where equity partners, through longevity and expertise, enjoy a set position in a profit-sharing hierarchy. Partners who are de-equitised are demoted down the ladder, thereby receiving less of the firm's profits, or taken out of the equity partnership altogether and re-employed as salaried partners. According to legal recruiters, it is not uncommon for de-equitised partners to leave law firms that have demoted them. The general legal consensus is that, when a partner is de-equitised, they cannot take legal action against the firm.
Tony Williams, former head of Andersen Legal and founder of consultancy Jomati
“I'm not surprised by recent moves to de-equitise partners. This allows firms to retain good partners that have not been able to fulfil what is required of them by their positions on the lockstep. Locksteps can be very inflexible and de-equitisation is a good way of getting round this inflexibility.”
Gavin Sharpe, legal recruiter, Shilton Sharpe International
“Often partners who have been de-equitised will decide to leave. There are no shortage of mid-sized City firms who'd be delighted to receive the benefits of the experience of a de-equitised partner from a magic circle firm like Linklaters. However, de-equitised partners from large firms usually want to move to another top City firm or a leading US firm in London, which makes it hard to find them new positions.”
Richard Linsell, partnership expert, Mayer Brown Rowe & Maw
“Most partnership deeds have a clause that enables the firm to get rid of partners. Either the management committee is given a mandate to expel partners or it can be done through a vote. Firms can threaten underperforming partners with expulsion from the partnership unless they agree to move down the lockstep or be re-employed as a salaried partner.”