The international firm's US arm will ask its 275 salaried partners — who now receive an income rather than hold an equity stake at the firm — to contribute, with the amount depending on seniority. The contribution will give them a limited stake in the firm's profits and losses that is less than that of current equity partners, said DLA joint chief executive officer Frank Burch (pictured left, centre).
However, the firm has indicated that DLA Piper International, which consists of offices in the UK, Europe, Middle East and Asia, will not be conducting the same exercise, with the partnership maintaining the status quo.
The proposed capital and partnership structure changes will be voted on by partners next month, but are likely to be approved and take effect in January, he said.
"Everybody who is a partner in the firm will have some skin in the game, and as you evolve and progress you will contribute more capital and have more skin in the game," Burch said in an interview.
DLA Piper's changes, announced to partners this month, come as many firms cut employees, facilities and costs as a result of banks' shrinking credit lines and tighter lending terms. The move may be the first sign that the changing credit landscape will lead law firms to change how they fund their operations in light of the higher cost of borrowing money.
DLA Piper expects record profit this year, and its capital reserves and credit lines remain strong, but the firm wanted to make changes now to avoid being in a difficult position later, Burch said.
"The firms that wait until their backs are up against the wall are the firms that have problems," said Burch, who will become DLA chairman in January. "When you look at what is going on out there in the marketplace, particularly in the banking world, we thought it would be prudent to finance more of our operations with our own money as opposed to through our lines of credit with our banks."
DLA Piper is aiming to reduce its credit exposure by 30% through the changes, said Burch. DLA executive director Stephen Colgate said in July that the firm had increased capital contributions required of partners in recent years to avoid bank debt while the firm was expanding.
"I have never seen a law firm do this," said John Cashman, a legal recruiter in the
DLA's motivation for the changes was to make the firm's compensation process easier to manage, to strengthen the balance sheet through reduced borrowings and more capital on hand, and to try to create more of an ownership mentality among income partners, Burch said. The move was also prompted by the realisation that the firm’s current lending terms were too favourable to last, given the current fallout and the fast-paced changes happening in bank ownership and lending terms, he said.
"If it's too good to be true, over time, you shouldn't count on it," Burch said.
The structural revamp was developed by Burch, joint chief executive officer Lee Miller (pictured above, left) and Terry O'Malley, the firm’s US managing partner, with "substantial input" from the firm's US executive and policy committees. Under the new plan, a single group of lawyers would determine compensation for all partners whereas in the past there was a separate compensation committee to decide on earnings for income partners. Firm meetings with partners about the changes are ongoing this month.
"We want every partner to act like and feel like an owner of the business even if it is only partially so," Burch said. "We have found with a large class of income partners, there is a tendency on the part of some people to behave and think like an employee as opposed to someone with a vested interest in the long-term success of the firm."The National Law Journal is a
