DLA Piper Has a New Partnership Structure

The Maryland Daily Record reports DLA Piper is eliminating its two-tiered partnership structure in favor of a new arrangement where all partners are equity owners of the law firm with 18 tiers on the equity partner ladder. According to joint CEO Frank Burch, DLA Piper says it made theexternall decision to reduce Piper’s outside borrowing and give income partners an ownership interest in the firm. “From now on, you’re a partner, or you’re not a partner,” Burch said.

Burch said DLA Piper did not make the change because it has financial problems or having trouble obtaining credit. “The firm has excellent, excellent relationships with our banks and a very, very favorable credit facility, almost too favorable,” Burch said. No explanation was given as to what “almost too favorable” means.

How Partnerships Like DLA Piper Work

DLA Piper is one of the largest law firms in the world, with a network of offices in more than 40 countries. The firm’s partnership structure is designed to balance the benefits of a traditional partnership and the protections of a limited liability partnership (LLP).

DLA Piper operates as an LLP, which provides its partners with limited liability for the debts and obligations of the firm. This means that the partners’ personal assets are generally protected from the claims of creditors in the event of the firm’s financial difficulties, which eliminates some stress, I guess.  Of course, the partners share in the firm’s profits, which provides them with a direct financial incentive to work together to grow the business.

Giant firms like Piper have a decentralized management structure. They would have to, right?  So many lawyers in so many locations.

The Equity Partner/Non-Equity Partner Divide

Most firms today don’t have an 18-tier partnership system.  The divide is usually between equity and non-equity partners. Equity partners are the owners of the law firm and have a direct financial stake in its success. They are typically the most senior partners in the firm (or bring in the business) and have the most decision-making power. They share in the firm’s profits and have a say in how the firm is managed and run. In addition to their share of the profits, equity partners may also receive a salary, often based on their level of seniority and contribution to the firm.

Non-equity partners, on the other hand, do not have an ownership stake in the firm and do not share in its profits. They may still have some level of decision-making power and management responsibility, but they typically have less influence over the firm’s direction than equity partners. Non-equity partners are usually compensated with a salary, which is often higher than a regular associate but lower than an equity partner.

So the main difference between equity and non-equity partners in a law firm is their level of ownership, decision-making power, and financial incentives. Equity partners have a direct financial stake in the success of the firm, share in its profits, and have a say in how it is managed. In contrast, non-equity partners do not have an ownership stake in the firm and do not share in its profits, but may still have some level of decision-making power and management responsibility.

18 Tiers Is a Major Rat Race

The first chapter of Malcolm Gladwell’s amexcellentew book Outliers talks about the town of Roseto, Pennsylvania, and what an incredible impact the town’s strong sense of community had in dramatically decreasing the rate of heart disease in Roseto. Eighteen partner tiers sound like the ultimate, never-ending rat race. ThPartners have always had a de facto demarcation cause they are paid differently. But formalizing that with an 1818-tieradder just has to add stress to many lawyers who are already feeling plenty of stress. This may lead to an anti-Roseto effect: my detailed statistical analysis predicts that this system will take 1.8 years off the life of the average DLA Piper partner. (Of course, I made that up. But you get the point.)

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