Glenn Kazlow was quoted in an article titled, "Nonequity Partner Ranks Still Swelling"
May 7, 2015As Published in: New Jersey Law JournalAttorney: Glenn R. Kazlow
The number of nonequity partners has continued to grow at bellwether firms and branches in New Jersey, and now makes up nearly half of partner ranks.
“Before this phenomenon, it was an up-or-out [situation]—you had six, seven years, and if you didn’t make equity, you were gone,” according to Glenn Kazlow, administrative partner at Hackensack-based Cole Schotz, which began making nonequity partners about 25 years ago.
“We’ve established the structure. It’s been long enough that it’s been accepted,” Kazlow added. “Firms don’t give equity lightly. ... You have to hit the ball out of the park on a lot of issues.”
In fiscal 2014, of the 1,466 total partners at 20 of the state’s most populous homegrown firms and branches of out-of-state firms, 667, or 45.5 percent, were nonequity partners, who generally earn less and often are called “service partners” or “income partners” because they are compensated mainly by salary instead of a share of firm profit.
It marks at least the ninth straight year that the overall proportion of nonequity partners has grown at those firms. (The group of 20 is nearly identical to that included in the Law Journal’s Top 20 survey released last month, with one exception. For consistency’s sake, Norris McLaughlin & Marcus of Bridgewater was substituted for Lerner, David, Littenberg, Krumholz & Mentlik of Westfield, because the former firm has been included in prior examinations of nonequity partner ranks.)
In fiscal 2013, nonequity partners made up 44.8 percent of total partner ranks at those firms. They accounted for 42.7 percent in 2012; 40.5 percent in 2011; 39.9 percent in 2010; 37.5 percent in 2009; 35.6 percent in 2008; 34.4 percent in 2007; and 29.1 percent in 2006.
The trend might even predate 2006: that year is the furthest back data was available for the same group of firms.
Once again, the firms with the highest proportion of nonequity partners were Gibbons, of Newark, and McElroy Deutsch Mulvaney & Carpenter, of Morristown, which both had nearly 2.5 nonequity partners for each equity partner. At the former firm, 70.8 percent of partners were nonequity partners, while at the latter, it was 70.1 percent.
At Greenberg Traurig’s Florham Park office, 63.3 percent of partners were nonequity partners.
Five other firms—for a total of eight—had more nonequity than equity partners, the same number as the previous year. At Porzio, Bromberg & Newman, of Morristown, nonequity partners accounted for 61.1 percent of partners; at Sills Cummis & Gross, of Newark, 58.3 percent; at McCarter & English, of Newark, 56.6 percent; at Lowenstein Sandler, in Roseland, 56 percent; and at Stark & Stark, of Princeton, 53.6 percent.
An additional five firms rostered fewer nonequity than equity partners, but not by a wide margin. At Budd Larner, in Short Hills, nonequity partners accounted for 47.1 percent of partners; at Archer & Greiner, of Haddonfield, 45.2 percent; at Connell Foley, of Roseland, 44.6 percent; and at Norris McLaughlin and Cole Schotz, 40.5 percent each.
The structure was more top-heavy at Greenbaum, Rowe, Smith & Davis, in Woodbridge, where nonequity partners accounted for 36.2 percent of partners; at Drinker Biddle & Reath’s Florham Park office, where it was 31.3 percent; at the Roseland, Lawrenceville, Atlantic City and Morristown offices of Fox Rothschild, where it was 27.9 percent; and at Day Pitney’s Parsippany office, where it was 26.3 percent.
At Riker Danzig Scherer Hyland & Perretti, of Morristown, only about one out of every 10 partners was in the nonequity tier.
The remaining two firms didn’t have any partners in the nonequity tier: Wilentz, Goldman & Spitzer, of Woodbridge, and Wolff & Samson, of West Orange.
Fox Rothschild’s equity-heavy New Jersey branches are somewhat anomalous in that the proportion of nonequity partners firmwide is far higher, at 69.2 percent.
Use of the nonequity tier was less common when those New Jersey offices opened, according to firm-wide managing partner Mark Silow, who said the “biggest change for us over the past few years has actually been making fewer equity partners.”
“What we like to say is, everyone who has the title of partner ... is performing at a partner level when it comes to the substantive practice of law,” Silow said. “The difference is the economic profile of the individual.”
The two elements of business generation—winning new clients and getting more work from existing ones—“usually [are] a function of time as much as anything,” Silow said.
Fox Rothschild considers people for equity partnership once each year. Partners tend to spend at least two or three years in the nonequity tier, though typically it winds up being more like three to five years, and some never make it to the equity tier, according to Silow.
“We don’t want any one-hit wonders,” he said. “We want to see consistent performance on the nonequity side.
“Twenty-five years ago, it was a totally binary system,” he added. “I think law firms have adapted to the marketplace. ... I do see this continuing—I think there will be more classifications and differences.”
Kazlow said nonequity partnership “gives [attorneys] a way to be recognized for their expertise, and for us, as a way to retain them.”
Cole Schotz leadership elevates lawyers to partner with the intent that they’ll eventually progress to the equity tier, according to Kazlow.
“We wouldn’t give out the title if we didn’t think they deserved it,” he said. “We don’t want rolls and rolls of service partners. We’re looking for future leaders of the firm.”
Both managers said client demands, as well as the emergence of flex-time and part-time lawyers to accommodate family and other personal obligations, have helped precipitate the increase in nonequity partners.
Swelling of the nonequity tier is not relegated to New Jersey. Law Journal sibling publication The American Lawyer has tracked the decades-long trend nationally. Am Law recently reported that, among the firms in its recent ranking of the top-grossing 100, more than 40 percent of partners were nonequity partners, and the raw number of nonequity partners has doubled in the past 10 years alone—from 7,250 in 2004 to 14,508 last year.
Equity partner ranks, meanwhile, have been shrinking: When Am Law published its first Am Law 50 survey in 1985, 36 percent of all lawyers at those firms were equity partners. Since then, the percentage of lawyers at Am Law 100 firms who are equity partners has receded to less than 22 percent, according to Am Law.
Reprinted with permission from the May 7, 2015 issue of the New Jersey Law Journal. © 2015 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.
Originally published by the New Jersey Law Journal.