Question of the Month #5: De-equitizing Partners? by Bruce | October 1, 2017 | Articles, Cultural Considerations, Leadership, Partnership Structures | 4 comments We intend October’s “Question of the Month” to squarely address an issue laden with financial and emotional repercussions. But we have surpassing confidence that Adam Smith, Esq.’s intrepid readers are up to it. Without further ado, then: De-equitizing partners: Should never happen at any firm under any circumstances; you can always address the problem through compensation and/or coaching. Was resorted to in extremis in the wake of the Global Financial Crisis, but should be strictly off-limits in ordinary economic times. Runs the risk of being destabilizing so it must be reserved only for the most conspicuous or egregious cases. Is essential management and financial hygiene which needs to be a part of any firm’s ordinary operational toolkit. Can send a salutary and bracing message to the rest of the partnership. Is tough, but life is unfair. View Results Loading ... Print Version| Share « Previous Article Next Article » Related Articles Happy Birthday, Adam Smith! The War for Talent Gets Teeth Letter from London Memorial Day Question of the Month: How to get lawyers to collaborate? 4 Comments JC on October 4, 2017 at 2:45 pm If CEOs of top companies can be suddenly removed (Uber, GE, Ford, Equifax, Wells Fargo come to mind recently), equity partners can be subject to that outcome too. Removal is needed as any part of a company’s/firm’s toolkit. While some of the CEO removals are egregious circumstances (Uber, Equifax, Wells Fargo), some of the removals are tied into the executives’ performance/upcoming strategies (GE, Ford). Equity partners can be subject to the same scrutiny and standards, which may require removal if they don’t meet those goals. Reply Bruce on October 5, 2017 at 8:31 pm Sometimes isn’t it bracing to look at examples outside of Law Land? Of course this needs to be an available tool, so the interesting question to me is whence the resistance to it? Reply Mark Logsdon on October 4, 2017 at 3:46 pm Questions, really; sorry not a lawyer. 1) Does the partnership agreement allow for this? 2) Does the manner of loss allow for some measure of “due process” with respect to the decision? Even in the commercial systems where most of us are “employed at will” that is (a) specified and (b) subject to due process within a system known to all. Thanks for clarification. Reply Bruce on October 5, 2017 at 8:34 pm Mark: Not wrong-headed questions in the least, and thanks as always for contributing. Re (1) most partnership agreements call for some partnership vote (simple majority? super-majority?) on expulsion of a partner from the firm, but those provisions are more and more being diluted and/or repealed; and re (2) I think the “due process” accorded the expuls-ee (?) is informal but along the lines of ample notice, communication, opportunity to cure, and then if all else fails more communication to the firm at large. Reply Trackbacks/Pingbacks Question of the Month #4: Ban on non-lawyer ownership still a good idea? Report & Commentary – Adam Smith, Esq. - […] next Question of the Month about de-equitizing partners is up here. We’d love to hear what you have to… Submit a Comment Cancel reply Your email address will not be published. Required fields are marked *Comment Name * Email * Website Save my name, email, and website in this browser for the next time I comment.