Should Law Firms Be More Financially Transparent to Partners?

Does the increased transparency of firm finances benefit or vitiate its partners?  A recent article by The American Lawyer investigates, positing that “as part-owners of the business, law firm partners have both a financial incentive and an ethical responsibility to take an active interest in the firm’s strategic and financial conduct.”  At small firms, this is easily apparent–but at the AmLaw 100 and Global 100 firms of today, with hundreds of partners and offices spread across the globe, the business significance of the partner title becomes much less obvious.

In fact, notes James Jones, senior fellow at Georgetown Law’s Center for the Study of the Legal Profession, while the partner title is “still very important symbolically,” the actual ownership role “has reduced quite significantly,” to the point that “if you’re a partner at a really large firm, you maybe own 0.005 percent of the equity” (as quoted in The American Lawyer).

While many believe that transparency is “key to engendering partner engagement and ensuring management accountability,” (Peter Kalis, as quoted by The American Lawyer), some believe that financial transparency can actually be detrimental to the firm.  John Morley, associate professor at Yale Law School, asserts that transparency actually “enhances the risk of partners fleeing in response to changes in profitability.”

AmLaw furthers Morley’s view by citing the ruination of Finley Kumble, the first major American firm to enter bankruptcy–and a firm known for its incredibly obscured operations, the unveiling of which incited a mass exodus of partners.

Visit The American Lawyer to read more.