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Challenges to Independence in Big Law Firms

During the interviews with corporate finance lawyers as part of his research, a number of structural pressures on independence were raised with Steven by the interviewees, most notably: fee arrangements (how law firms are paid by their clients); and law firm compensation systems (how individual lawyers are remunerated by their law firms).

Fee Arrangements

With regards to fee arrangements, several partners raised concerns about firms signing up to contingent fees, or success fees, which meant they had “too much skin in the game” and were no longer acting independently. These fee arrangements mean the lawyer only gets paid, or only gets a bonus on the payment, if the matter goes ahead. The risk here is that the lawyer is so tied up with the matter going ahead and getting paid once the matter goes ahead (e.g. winning a case, or a transaction completing) that they might feel obliged, for whatever reason, to do whatever it took to get the deal done and potentially compromise their independence.

These success and contingent fee arrangements can lead to a risk that partners become motivated less by their client’s best interests and more by getting the deal done at any cost so as to better remunerate the firm.

Lawyer Compensation

In the interviews, Steven was told by several law firms that the models by which they and their colleagues were remunerated had some impact on their ability, and willingness, to push back on client demands that made them feel uncomfortable.

For example, several lockstep firms felt that lockstep compensation – whereby law firm partners are rewarded according to seniority rather than according to their contribution, and where profits are shared equally (or on a points basis) among partners in the firm – served to support them in maintaining their independence from powerful clients. This was because it did not matter, in theory, if Partner X said no to acting for Client Y, because the law firm had many other clients whose profits she could share in.

Another option on remuneration is known as ‘eat what you kill’, where partners take home the profits from the work they personally bring in and complete. Here, one can imagine that Partner X who does most of her work for Client Y, and whose own personal, financial stability relies on Client Y giving her work, may become so close to Client Y that she does things, consciously or unconsciously, that might give cause for concern in the context of remaining independent from her client.

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This article is from the free online course:

Corporate Lawyers: Ethics, Regulation and Purpose

University of Birmingham

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