Tuesday, June 11, 2002

Eat What You Kill

No More Origination Credits for Wilson Sonsini Associates. Wilson Sonsini Goodrich & Rosati associates won’t get credit anymore for new business they bag for the Palo Alto, Calif .-based firm. The firm outlined the reversal of its long-standing policy in a memo circulated last month. The decision is a big change for Wilson Sonsini, and is part of the firm’s attempt to shift away from an “eat-what-you-kill” model that encourages lawyers to work only on their own clients. [Law.com]

I was interviewed today by The Lawyer, a UK legal publication. This very issue came up during our discussion – will there be a middle ground between UK and US law firm business models?  One of the big differences between the UK and US legal models is that the US is primarily an “eat what you kill” model, while the UK is considered “lock-step”. Rick, speak English!

OK, here goes: in the U.S., most firms compensate lawyers based in part on origination credit. The more business you generate, the more money you make. While this sounds right, in practice it often leads to a competitive, rather than a complementary, work environment. Individuals don’t share, for fear that others in the firm might get a share of the credit – and therefore cut into the individual’s take. While it allows so-called “rain makers” to go out and bag the big clients, it doesn’t encourage long-term relationship building.

The UK, by contrast, compensates lawyers primarily based on their longevity with the firm. This is certainly more encouraging for team-based business development: the better the firm does, the better you do. An added benefit is that it encourages loyalty – the longer you’re at the firm, the larger your share of the profits.

But therein lies the problem: profits at UK firms are often lower – much lower – than their US counterparts. Consequently, many UK firms are looking to change their compensation model in an effort to boost profits. It’s not so simple a solution – though many seem to believe that there is at least some causation between compensation model and profitability .

In any event, it’s interesting to note that Wilson Sonsini is moving away from the eat-what-you-kill model. Why they’re doing it for associates is easy enough to figure out – they don’t get a vote. (And, as one associate admits in the article, they’re also not bringing in all that much business.) Buried later in the article, though, is an even more interesting prospect – that the partner compensation structure may be under review.

That’s when it gets interesting. My prediction? Any firm where the decision-making authority is decentralized will have an incredibly difficult time making a decision that is in the long-term best interest of the firm but sacrifices their own self-interest. (The firm may make more money over the long term, but their annual compensation may suffer.)

This is what Morrie Schechtman talks about when he states the professional services firms need centralized hierarchies for decision-making.

No comments:

Post a Comment