Professional Partnerships, Competition, and the Evolution of Firm Culture: The Case of Law Firms

By Hillman, Robert W. | Journal of Corporation Law, Summer 2001 | Go to article overview

Professional Partnerships, Competition, and the Evolution of Firm Culture: The Case of Law Firms


Hillman, Robert W., Journal of Corporation Law


I. INTRODUCTION

In the United States, partnerships among professionals have always occupied a rather curious status in the law. Although the for-profit character of the enterprise is an accepted feature of the professional partnership, duties owed to client constituencies serve to temper commercial objectives and, in the process, shape the relations of the participants within the partnership.1 Thus, professionals in partnership2 generally are able to avail themselves of associational forms developed for purely commercial enterprises,

but an overlay of standards by the governing bodies of the professions effectively creates hybrid associational forms distinguishable from those used in purely commercial endeavors.

Any attempt to discuss professional associations in the United States is complicated by the lack of a unified approach to addressing the professional responsibility underpinnings of the associations. For example, accounting partnerships, medical partnerships, and law partnerships are regulated in different ways. In each of the professions, a different balance is struck between the economic interests of the professionals and the obligations they owe their clients. This is not a conscious policy choice, but rather a reflection of the fact that different groups are defining the nature of duties owed to consumers of professional services.

Among the professions, law seemingly exhibits greater concern for client interests over the economic interests of practicing professionals.3 The supremacy of client rights is evident in the near-absolute ethics mandate of client choice, which allows clients to change lawyers or law firms at any time, with or without good reason.4 As it has evolved, this right of control vested in clients significantly affects the relations of law partners and has operated to destabilize the American law partnership. As one court has stated, "Although the firm may refer to clients as `the firm's clients,' clients are not the 'possession' of anyone, but, to the contrary, control who will represent them."5 Over the last two decades, aggressive application of the principle of client choice has greatly enhanced lawyer mobility and made lateral movement of lawyers among firms an accepted part of the culture of the legal profession.6

The effect of lawyer mobility has been to greatly increase competition among law firms. Increasingly, competition is internalized as firms recognize that their current partners pose a significant competitive threat for the future. Because clients dictate the outcome of the competition, lawyers have every incentive to promote direct relationships with clients, so that client loyalties run to the lawyers rather than the firms of which they are members. Lawyers confident of such loyalties can speak of their "books of business."7 When such a claim is credible, the lawyer may pursue attractive offers at other firms or simply use the threat of departure as a means of securing a favorable reallocation of the firm's income. Lawyer mobility, in short, has prompted a significant wealth transfer within firms, favoring lawyers with "portable practices" at the expense of lawyers who for one reason or another do not enjoy significant client support.

This Article explores the development of lawyer mobility and its effects on the relationships among law partners. Particular attention is devoted to the firm destabilization consequences as well as the costs associated with lawyer mobility.

II. THE CULTURE OF THE PROFESSION: THE TRANSITION FROM PARTNER TO COMPETITOR

A. Client Choice and the Demise of Contractual Restraints on Competition

In 1961, the American Bar Association's Committee on Professional Ethics declared improper an anticompetition covenant in a firm's employment agreement with an associate.8 The Committee's Formal Opinion 300 noted that attorneys can neither buy nor sell clients, adding that a restrictive covenant represents an attempt to "barter in clients.

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