An important element of a law firm’s culture is the manner in which it designates ‘client lawyer’ status, or ‘client origination credits’ (“OCs”).
By way of background, there are three ways to earn money in a law firm.
One is by being absolutely brilliant. Few lawyers qualify, and even those who do are not well compensated for it.
The second is by billing many hours. That is very hard work, but it is much more remunerative than being smart.
The third is by bringing in clients. That is the best paid activity in a law firm and is less exhausting than billing hours.
For the uninitiated, when a client retains a law firm, at least one of the lawyers is usually designated as the “client lawyer” and granted OC status for that client.
Lawyers are often paid a percentage of their aggregate OCs.
So, to take an example, if I bring in General Motors as a new client of the firm, they are considered to be “my” client, even if there are fifty firm lawyers working on their files. If the firm bills GM $2,000,000 that year, I get my cut of that money, even if other lawyers did all of the work. Every firm will have a different formula, but 10% is not out of line. So, in this case, I would earn $200,000 for bringing in that one client. If in the next year the firm bills GM $10,000,000, I will earn $1,000,000 from that work.
As you can imagine, good rainmakers have a lot of OCs and make a lot of money.
In view of the potential for mischief, you might think that law firms would have detailed written policies for deciding who is entitled to be awarded OC status for a particular client. Some do. Others do not. Even where there are good policies in place, lawyers do their best to game the system in their favour.
I imagine that the person who invented OCs must have announced, as they do at the start of the Olympics, “Let the Games Begin.”
Here are some of the issues which arise:
- Sam and Louise both participate in the marketing initiatives which result in the firm landing the first GM file. Who gets the OC? Do they get split 50/50? Does Sam scoop it all up because Sam is a senior partner? Does Louise get 75% of the OC because she did 75% of the work to land them?
- Let’s say that when the dust settles, Sam is awarded 75% of the OC and Louise is given 25% of the OC. After the firm lands GM, Louise does or supervises all of the work on the GM file and handles most of the firm’s communications with the client. Sam would not recognize the GM client contacts if he passed them in the hall. Five years go by. Is Sam entitled to retain 75% of the OC credits forever? In some firms he would be.
- Ten years later Louise is more than a little frustrated that she does all of the work and Sam still has 75% of the OC for GM. The GM account is now worth $20,0000,000. Sam is getting rich. Louise is getting less rich. Sam is not willing to voluntarily give up his OC for GM and take a substantial pay cut. Is Louise forced to leave the firm and take GM with her in order to get compensated for bringing in GM?
- Susan, a junior associate, gets a lead on a new client. She thinks that her odds of landing the client are better if she invites Louise along with her to make the pitch. Susan and Louise are successful in bringing in the client. Susan thinks that she should be entitled to 100% of the OC because she made the initial contact. Louise thinks that Susan would never have landed the client without her, so she should get at least 80% of the OC, and be thankful that Louise is not insisting on 100%.
- John proudly tells his partners that he has just landed a new institutional client. Sam says that he did a matter for that client 3 years ago and they are “his” client in the firm’s accounting system. The OC should be 100% his. John says, “if they are your client, why didn’t they ever mention you, and why did they give me the file? It is all mine.”
My firm developed a detailed policy designed to encourage people to actively promote business instead of sitting on their historical OCs. One element of the policy was that a lawyer who did not remain active in holding onto the client could lose the OC for that client after a specified number of years. One day a client called me and said, “your partner Richard has just invited me out to lunch, even though I have not spoken to me for five years since he introduced me to you. Why is he doing that?” The answer, of course, is that after five years I had the right under our policy to ask for the OC to be switched to me. Richard wanted to ensure that he could argue that he was still active in preserving the client relationships.
The problem with OCs is that they translate directly into money, and those with OCs, and the compensation that they represent, tend to prefer not to give them up. They prefer that very much, and often more than they value firm harmony.
Now of course, in a great law firm culture where collaboration is valued, money is not everything, people want each other to succeed, and partners have confidence in their own ability to bring in new clients, this type of nonsense would not be tolerated.
I am sure that somewhere such a firm exists. Maybe.
This article was originally published by Law360 Canada, part of LexisNexis Canada Inc.