Is the old-school lockstep model better for business?

September 27, 2012 Here is an interesting article about how firms recruit lateral partners. Failed law firm Dewey & LeBoeuf went on a huge recruitment drive in the year before it collapsed, taking on 37 new partners and promising them multimillion dollar salaries that were guaranteed for a number of years. They didn’t consult with the wider partnership, who were often advised of new hires via email.

By contrast, Cravath Swaine & Moore rarely takes on outside partners. Last summer when the firm hired Christine A. Varney, the Obama administration’s former top antitrust lawyer, she was the fourth lateral hire in 50 years. She was hired after meeting all 83 partners, as well as any retired partner that wanted to meet her, and after a unanimous vote of approval from the partners. She received no signing bonus and no guarantee - entering the firm’s seniority-based lock-step system, just like anyone else.

It might seem like an antiquated method, but commentators are looking to Cravath and seeing a more sustainable business model than that currently followed by many major law firms.

A strict lockstep system, with partners paid in a narrow range according to seniority, is followed by just three major law firms: Cravath, Debevoise & Plimpton and Cleary Gottlieb Steen & Hamilton. At these firms, no one is given star staus or additional compensation for bringing in clients, and everyone knows what everyone else is earning.

The alternative model - rapid growth through mergers, international expansion and lateral hires - promotes a compensation culture that rewards rainmakers and erodes the morale of a firm’s so-called service partners.

“When a law firm grows too fast, it almost by definition loses its culture,” said Cameron F. MacRae III, a former Dewey lawyer now at Duane Morris. “And a star system weakens the bonds of a law firm partnership and destroys the shared sense of purpose.”

Read more at dealbook.nytimes.com.

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