Mediation should be used before partner disputes become intractable

By Mark Whittell, Risk Partner, Cobbetts

It is a difficult time for all law firm partnerships. The recession from 2007 has caused significant reductions in fees and redundancies have been made. While turnover is beginning to improve, the economy is not recovering as we would like and, with the problems from the eurozone, we face the real risk of a double-dip recession. That uncertainty has been with us for three or more years.

While the odd quirky habits of one partner may have been tolerated, they are now becoming more of an issue. The slightly underperforming partner is more open to criticism and the differences in profitability between various departments can take on much more significance.

As these disputes develop, partners become more defensive, intransigent and very easily misinterpret the words or actions of those they perceive to be ganging up against them. Somehow it has become far easier for partners to manoeuvre themselves into positions where they cannot retract what has been said and to find themselves backed into a corner.

The consequence for the partnership, apart from the loss of time, particularly when partners need to be concentrating on winning new work, is the loss of motivation of certain partners, who are taking their eyes off the ball. There has become a real risk of losing partners at a time when the partnership needs them to maintain those economies of scale, let alone the awkward negotiations with the bank to replace capital.

It is at this point, when the situation is still redeemable with some effort, that managing partners should consider mediation. By this I don’t mean the normal commercial or workplace mediation, which would be used for employee issues. Rather, it would be a cross between the two: the mediator would not be judgmental, nor would he impose any solutions. He would adopt the role of a facilitator.

Mediation is ideally suited to resolving partnership disputes. The parties are commercially minded, want to achieve a settlement and the success rate for partnership disputes is much in line with the 80 to 85 per cent of the norm, if not higher.

However, mediation is often only treated as a tool in a managing partner’s armoury after a partner has left or been expelled, with litigation underway or imminent and the cost consequences of both parties having instructed solicitors.

It is no use adopting a sticking plaster approach, as this will remedy matters in the short term but the old grievances will very soon appear. The partners have to accept that there need to be changes, that they need to draw a line across what has happened in the past and that they need to move forward.

On some occasions, the differences will be incapable of resolution. In that situation, it is far better that the parties realise this at an early stage and, before they have become intransigent, negotiate a commercial and practical resolution so that the outgoing partners can leave without causing disruption to the ongoing business.

It may be the case that the managing partner has realised that a partner can no longer remain within the partnership, but needs to get the underperforming partner and other partners who support him to realise that the situation cannot continue.

A maverick partner

Some of the facts of the following '¨story have been altered to protect '¨the parties involved.

There was a seven-partner firm in '¨the Cheshire, UK area which, historically, had been a friendly partnership with a happy workforce. One partner had always been a maverick: he had not complied '¨with office procedures but he was a '¨lateral thinker and, more importantly, '¨a work winner.
But then there was a fallout between the maverick partner and the managing partner. The maverick partner subsequently began to fall out with his other partners over various issues.

It was discovered that the maverick partner had problems at home and the partners believed that he had become clinically depressed. Attempts to assist the maverick partner were rejected, being seen as an improper interference with his life.
The maverick partner was fed up with the bureaucracy of the firm, he did not believe he was fully appreciated or given enough support, he talked openly to the staff – creating disharmony – and then handed in his notice.

A mediator sat down with all seven partners in confidence to get a real feeling for the partnership and its issues. As the mediation was without prejudice and confidential, all partners could openly speak their minds without fear of upsetting people or feeling that they ran the risk of earning black marks.

A review was subsequently '¨undertaken of various systems and procedures within the office (which all acknowledged was a positive step) and partners relocated to different offices to '¨try to break down barriers.
New reporting systems were introduced which involved greater communication to the staff, an '¨assistant was identified to help the maverick partner with his workload and '¨promises were made by all partners, '¨who accepted and agreed the new partners’ behavioural framework.

The outcome was that the partnership remained intact, the barriers that had been causing the problems were removed and new procedures and systems were introduced which benefited the firm as '¨a whole.

mark.whittell@cobbetts.com