I have posited before that
the traditional one-size-fits-all associate-to-partner model is coming
under increasing stress

Evidently Allen & Overy agrees.

After suffering 25% attrition in its associate ranks last year, they
have announced after
a lengthy study that
they will be introducing two formal new career tracks for associates:  "Managing
Associate" and "Of Counsel."  The second first:  "Of
Counsel,"
as has sometimes been the case here, will be for people
who are expected to make a serious ongoing business contribution but
who, for reasons of temperament or talent, don’t quite make the Equity
Partner cut.  A&O Managing Partner David Morley commented pointedly:  "It’s
not a reward for long service.  It’s not an elephants’ graveyard."  Yes,
quite.  [Subtext:  They are not damaged goods; as a client
I can rest assured that I’m still in good hands at A&O when an "of counsel"
is on my matter.]  Point
taken.

 However, this raises the metaphysical question of what distinguishes
an Of Counsel from a Non-Equity Partner.  Even A&O admits the
possibility, however remote, that an "OC" could become an "EP," which
is likewise true of US-style "NEP’s," at least according to
the party line.  

My
take on the distinction?  On the surface, not much; the proof will
be in the execution over time.  Indeed, the most salient point as
of now is purely and primarily one of terminology:  The OC’s business
card and letterhead will say OC, while the NEP’s card and
letterhead say to the world, "partner."   To the
outside world, partner is partner is partner, and the equity/non-equity
distinction is (intentionally?) suppressed.

So what?  Actually, it matters:  If I were in a bakeoff
for General Counsel of a Fortune 500 company, I’d far prefer my title
be a (non-equity) "partner" at
a name-brand US firm than "OC" at Allen & Overy, even if
there is no functional distinction:  There is a chasm of semantic
distinction.  So
give A&O credit for candor.

What, then, of "managing associates?"

"Managing associates will have increased responsibilities and
some access to partnership information and will be viewed as likely partnership
material."

In other words, these are the contenders. 

Again, great credit is due A&O for being among the first to recognize—and
act on (always the tricky part)—the fact that the world of associates  is
not divided in Manichean fashion into washouts and stars.  While
it’s a fact of life in any hierarchical organization that not all can
ascend to the top, it has long struck me as the height of irrationality
to proceed from that truism to the conclusion that those who will not
ascend to the top should be discarded after about a decade, just as they
are hitting their career stride.

What to do with these "Of Counsel"’s?  Actually, I have
two economically-driven suggestions:

  • In today’s global (or large-national) firms, while it’s indisputably
    the case that places like New York, London, and Hong Kong generate a
    disproportionate share of business, we’ve known at least since we first
    heard of Bangalore that there’s zero reason all the work has to be performed in
    those global high-rent districts.  Logically, some nontrivial
    percentage of the OC’s (or NEP’s, as I consider them functionally interchangeable
    within the firm) will be located in places like St. Louis, Atlanta,
    or Dallas, with a lower cost-of-living and lower commercial overhead.  And
    they are, by hypothesis, thoroughly trained and inarguably competent:  Why
    couldn’t more "originating" partners staff their matters in the field
    rather than in midtown Manhattan?  The firm  could then offer
    either lower rates (enter acerbic comment here) or enjoy higher margins.
  • My second suggestion looks at the situation from the OC’s perspective
    (and I duly credit the prefers-to-remain-anonymous reader who contributed
    to my thinking on this; you know who you are).  As matters stand,
    an associate earns perhaps 30% of the amount he/she bills up to, say,
    2,000 hours/year.  No one would claim this is a remotely inadequate
    return to the associate.  On the other hand, once the billable
    hours cruise above 2,000 or so, what is the associate’s "return" on
    those extra hours?  5%?  10%?  Certainly nothing like
    30%; almost the entire value is captured by the firm.  (I’m assuming
    that at 2,000  hours, the associate is "paid for," in the sense
    that benefits, rent, overhead, and a reasonable profit have all been
    covered by the firm from the associate’s revenue, so the associate’s
    marginal cost to the firm takes a dive.)

    But isn’t this illogical? Don’t we have our incentives mis-aligned?  After
    all, it’s the hours > 2,000 that are the really hard ones, the ones
    put in on nights and weekends, the ones that are carved out of "personal"
    time, the ones, in other words, where a little incentive would do nicely,
    thank you very much.  Assume a firm chose to share the same 30%
    or so of revenue with an associate (or an OC) smoothly right on up
    the curve?  I predict some nontrivial proportion of OC’s would
    take the firm up on the offer, as it were, to the enrichment of all.

The basic point dramatized by A&O’s move remains the key:  Whatever
we as a profession decide to "do" with OC’s and NEP’s, there are surely
smarter, more economically and emotionally productive alternatives, than
continuing our devil’s bargain with up-or-out.

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