Asian leaders embrace lockstep as firms aim to handle growing pains

In US legal circles, lockstep compensation is most frequently described as a relic of the profession's past. Although a handful of elite firms continue to embrace it, most others long ago discarded lockstep and its seniority-based pay scale in favour of performance-based compensation schemes for partners. Many large US law firms are now looking at abolishing lockstep for associates too.

But among emerging leaders of the legal profession in Asia, lockstep is getting a new lease of life. Last autumn, India's top corporate law firm, Amarchand & Mangaldas & Suresh A Shroff & Co, dropped its 'eat-what-you-kill' performance-based pay scheme and adopted a pure lockstep for its equity partners. At the beginning of this year, leading Beijing corporate firm Haiwen & Partners likewise moved to lockstep for its 20 partners. Several other prominent Asian firms, including China's King & Wood and Japan's Nagashima Ohno & Tsunematsu, also have some form of lockstep.

At first blush, it may seem strange that firms in some of the world's fastest-growing legal markets would opt for one of the legal profession's hoariest traditions. But those firms say their eyes are on the long haul.

"We want to create more synergies among the partners and build a very longstanding firm," says Haiwen management committee member Zhang Jiping, who spearheaded the transition to lockstep. How longstanding? Zhang says the 100-lawyer firm aspires to be a bai nian lao dian - literally, a 100-year-old shop.

Lockstep is generally associated with 100-year-old firms in New York and London. Those firms are also generally the most profitable firms around and have historically dominated top-end corporate work. Haiwen, many of whose partners have worked at elite international firms, sees itself in that mould.

"We knew a lot of these firms had this kind of system," says Zhang, himself a former associate at lockstep stalwart Simpson Thacher & Bartlett.

Founded in 1919, 400-lawyer Amarchand is older than many of the top New York or London firms. But the Mumbai-based firm similarly has institutional longevity in mind.

"It is something that came out of our discussions on how to remain a dominant firm and remain independent in a changing legal market in India," says managing partner Cyril Shroff of Amarchand's move to lockstep, which will apply only to the firm's equity partners. Non-equity partners account for more than half of Amarchand's 42 partners.

The change to which Shroff refers is the Indian legal market's likely opening up to competition from foreign firms. Though the timetable for such liberalisation remains in question, Shroff already sees the nation's corporate Bar cleaving between those who hope to combine with global firms and those who want to compete as standalone firms. Amarchand is firmly in the latter camp, and Shroff sees lockstep as a "preparatory" measure that will make the partnership more cohesive in the face of potential new challenges.

For firm leaders concerned with institution-building, lockstep has several well-known virtues relative to eat-what-you-kill, in which partners are paid according to the volume of business they originate. Freed from the need to claim individual billing credit, lockstep partners are more likely to cooperate than compete with each other when it comes to business development and client service. Key client relationships can be spread around partners and institutionalised, lessening any single partner's importance and blunting the impact of departures and defections.

These are the strengths typically cited by those elite New York and London firms that continue to operate as lockstep partnerships.

"It is the only way to make all the partners co-operate," says Hisashi Hara, chairman of Nagashima Ohno, one of Tokyo's 'Big Four' corporate law firms. Over the years, the Japanese firm has steadily increased the lockstep portion of partners' compensation. It now stands at 50%, the rest based on revenue generation.

But lockstep's emphasis on the collective over the individual is also the main reason the system has fallen out of favour in America. Underperformers can more easily find hide within a lockstep, alienating their more entrepreneurial peers. Rainmaking partners who feel underpaid and underappreciated are quickly snapped up by competing firms.

For such reasons, lockstep at top US and UK firms is always part of a total cultural package. Laterals are generally avoided and successive generations of rising partners are indoctrinated to put the interests of the firm ahead of their own. Of course, given the high level of compensation partners at such firms have typically enjoyed over the years, the choice has not exactly been onerous.

"I always say rich people will never fight," says Hara of US and UK lockstep partners.

Still, he doubts his own partners, without years of lockstep tradition behind them, would be willing to embrace it any further. It took two years of debate for Nagashima Ohno partners to go from 30% to 50% lockstep and there is no thought to increase it further.

"To change partners' remuneration system is the most difficult thing," says Hara. "In Asia, many lawyers are not accustomed to lockstep. They are not prepared for the really tough work."

But Shroff wonders if Asian lawyers might turn out to have even greater cultural affinity for lockstep. "I find Asian firms are not really good at confronting partners and telling them they are underperforming," he notes.

Zhang says Haiwen may be particularly well-suited to lockstep because the firm culture is one in which partners already share work and co-operate. The firm also has a fairly stable client base among large Chinese state-owned enterprises and global financial institutions. So far the move has gone over well, he says.

Shroff says his firm's experiment with lockstep is going well too, though he is flexible about its final outcome.

"We were one way for many years, then we went all the way to the opposite," he says. "We will probably end up somewhere in the middle."