Strategic Issues in Managing Law Firm Partners

2. World Services Group 2011 North American Regional Meeting Managing Partner Discussion Strategic Issues in a Challenging Environment   

3. Partner Categories Full equity partner Partial equity partner Income or non-equity partner Recent trend of, and rationale for, higher percentage of income partners Terry Conner Managing Partner Haynes and Boone, LLP 2323 Victory Avenue, Suite 700 Dallas, Texas 75219 214.651.5604 214.200.0408

4. Basic Systems Lock step Objective or formulaic performance Subjective performance

5. Key Systemic Variables Prospective or retrospective Period over which partner’s performance is evaluated Top-to-bottom ranges Evaluation factors and weighting

6. Key Systemic Variables Limitations on maximum upward or downward adjustments in a given year “Open” or “closed” Annual or bi-annual determination. Bonus pool, or not

7. Procedure and Administration Which group evaluates compensation? How is the group selected? Use of consultants Partner written submissions?

8. Procedure and Administration Objective or “system” data reviewed Gathering information from partners on their [and others’] performance Approval of partner compensation Appeals

9. Discussion Issues

10. Reinforcing Firm Culture and Goals Business development, productivity “Beyond the numbers…” e.g., Moving work to right lawyers; leverage Teamwork and collaboration Mentoring, diversity, bar activities, community involvement, etc. Supporting an “investment” culture

11. Business “Origination Credit” “Origination” variables Challenge: motivating teamwork in eat-what-kill systems Challenge: assessing business generation in subjective systems

12. Bonus System Business case for bonuses Bonus system variables Bonus award criteria and administration Issues

13. “Transition” Slotting Lateral partners Entry-level partners Senior partner wind-down transitions

14. Other Issues Relevance of work “profitability” Geographic “scale” differences The “Tyranny of Profits per Equity Partner” Melding systems in law firm mergers Multi-national law firm compensation issues, alternatives

15. Stites University Continuous Learning T. Kennedy Helm, IIIChairman Stites & Harbison, PLLC400 West Market Street, Suite 1800Louisville, Kentucky 40202502.681.0449502.587.6391

16. Why? The traditional means of training and assimilating new attorneys don’t work Time pressure to be “billable” – Even Socrates has to meet his productivity target Clients’ demand for efficient delivery and no “OJT” at their expense – No one wants to pay for the Socratic method Diverse associate base – What if Socrates’ pupils don’t speak Greek? The law firm/associate business bargain has changed The cost of attrition is staggering Our Response: Stites University

17. Stites University: What Is It? Umbrella that covers all methods of attorney learning at all experience levels Immediate focus is on associate learning

18. What Are the Goals for Stites University? Attract and retain the best and the brightest Increase # of wins in recruiting top talent Ensure unwanted attrition is not tied to the desire for a better learning environment (saving economic & non-economic costs) Accelerate atty productivity & profitability (higher revenues earlier in career) Accelerate learning & skill mastery across a wider variety of knowledge & legal practice skill sets Increase depth of knowledge & skill Decrease write-offs & drive higher realization rates Improve client service & reduce client disruption due to unwanted attrition

19. Improve associate morale Improve leadership development Improve supervision, delegation, & feedback skills of supervising attys

20. Stronger entrepreneurial spirit backed by marketing/selling know how & superior service Wider, deeper leadership bench 360° learning culture

21. How Do We Do It? Stites University The Five Colleges • Legal Skills • Core Skills • (Litigation & Transactional) • Legal Writing/Drafting • Negotiation • Technology • Client Service • Skills • WINIT & Quality Service • Internal & External Communication • Maintaining/Growing Relationships/Trust • Client Interviewing • Client Counseling • Practice Management (files; record keeping; docketing; ticklers, etc.) • Delegation/Supervision • Teamwork • Difficult Clients • Case/Matter Management • Ethics & Professional Responsibility • Billing • Firm, Civic & Professional Contribution Skills • S&H Service & Leadership Tradition • Strategic Investment Time • Committee/SG Service • Civic Involvement • Pro Bono • Board Service • Planning & Running Meetings • Marketing & Selling Skills • Building Your • Brand • Presentation Skills • Networking • Targeted Marketing Plans • Building Relationships/Trust • Selling the Invisible • RFPs & Client Pitches • Cross-selling • Business Intelligence • Strategic Conference/CLE Attendance • Contact Follow-up • Ownership, Leadership & Management Skills • Law Practice Economics • How the Firm Works • Receiving & Delivering Feedback • Self Management • Managing Stress • Time/Priority Management • Leadership Skills • Management Skills • Strategic Planning • Ownership Benefits & Responsibilities • Risk Management Industry & Practice Specific Skills

22. Stites UniversityHow We Teach & Learn the College Skills • Work Assignments • Assignment Process • Task Lists • Pro Bono • Feedback • Task/Project Based • Annual Evaluations & Reviews • In-house programming • By Exp. Level & Practice Area • SG Mtgs. • SWIFT • Mthly/Qly Lunch & Learns • Electronic, self-paced/just-in-time • Orientation/ • Academy • SA • FA • Lateral • New Members • Academy One (Y2) • Academy Two (Y4) • Academy Three (Y6) • Leadership • Firm Retreats • Outside CLE • NITA • Other • Mentoring/ • Coaching • Group • Training Teams • Individual • Lex. Mentoring Program • Nash. Mentoring Pilot Group

23. Stair-Stepped Curriculum Curriculum based on competencies/skills needed at: Entry EOY2 EOY 5 EOY 7 Competencies/skills progress to “making partner” Evaluation process integrated with progress in developing the competencies

24. By EOY 7 College of Client Service By EOY 5 • Consistently exceeds internal & external client expectations for quality service • Consistently inspires confidence of internal & external clients • Demonstrates proficiency handling difficult clients • Demonstrates proficiency delivering “bad” news to clients • Demonstrates familiarity w/& working knowledge of team management in case/matter setting • Demonstrates proficiency interviewing & counseling external clients re complex matters • Consistently takes appropriate ownership & adds value to client matters • Demonstrates proficiency facilitating client understanding of legal issues • Demonstrates mastery handling all but the most complex written or oral communications w/external clients, including client interviewing & counseling • Takes active steps to demonstrate client & industry specific knowledge by anticipating client needs & understanding the business context in which legal matters are occurring • Demonstrates proficiency delegating to & supervising junior associates • Demonstrates mastery delegating & supervising AA, paralegals, & staff • Demonstrates mastery of individual time & priority management • Demonstrates mastery using ticklers, docketing document & file organization to ensure matters are handled timely & info is located quickly • Proactively & professionally addresses internal & external client service errors • Exhibits professional & ethical behavior, including ability to address potential conflict or professional responsibility issues w/guidance of appropriate attorneys • Knows how & when to make referrals, including within our firm networks • Captures time effectively & releases time according to firm policy • Billing entries rarely require edits or trigger additional inquiry by attorneys or clients Client Service Skills Development • Consistently exhibits behavior supporting quality service & 10 Imperatives • Consistently inspires confidence of internal clients, including cross-office clients • Takes appropriate ownership & adds value to client matters • Proactively & professionally address internal & external client service errors • Demonstrates proficiency handling written or oral communications, including client interviewing & counseling • Demonstrates proficiency facilitating client understanding of legal issues • Demonstrates understanding of specific client’s business & industry • Knows how & when to make referrals, including within our firm networks • Exhibits professional & ethical behavior, including ability to address potential conflicts and professional responsibility issues w/guidance of appropriate attorneys • Demonstrates familiarity w/& working knowledge of delegation & supervision of junior associates • Demonstrates proficiency delegating & supervising AA, paralegals, & staff • Demonstrates proficiency with individual time & priority management • Demonstrates mastery using ticklers, docketing, document & file organization to ensure matters are handled timely & info is located quickly • Captures time effectively & releases time according to firm policy • Billing entries rarely require edits or trigger additional inquiry by attorneys or clients By EOY 2 • Understands basic concepts of quality service; quality of work & communication supports 10 Imperatives • Inspires confidence of internal clients • Proactively & professionally addresses internal client service errors • Smoothly handles client contact & basic client communications, written or oral • Exhibits professional & ethical behavior; recognizes potential conflicts & professional responsibility issues & brings them to appropriate attorneys attention • Demonstrates familiarity w/& working knowledge of delegation & supervision techniques; delegates & actively supervises administrative assistant. • Demonstrates familiarity w/& working knowledge of individual time & priority management • Demonstrates proficiency using ticklers, docketing, document & file organization to ensure matters timely handled & info located quickly • Captures time effectively & releases time according to firm policy • Billing entries require few edits & entries meet client requirements

25. Stair-stepped Curriculum College of Contribution Firm, Civic & Professional Contribution Skills Development By EOY 7 • Demonstrates a willingness & ability to continue the S & H tradition of leadership & service to the profession & community • Demonstrates mastery planning & using investment time strategically • Demonstrates a strong & consistent commitment to internal investment in the firm through active, reliable, and thoughtful contribution • Demonstrates willingness & ability to assist in the training & integration of less experienced attorneys • Has a leadership position in the community, industry, or bar • Demonstrates a strong commitment to civic involvement & community service • Demonstrates proficiency w/non-profit board member responsibilities • Demonstrates proficiency planning & running effective meetings • Demonstrates a commitment to pro bono service by meeting the firm’s recommended hours of service By EOY 5 By EOY 2 • Demonstrates proficiency planning & using investment time strategically • Demonstrates a willingness & ability to follow through on internal firm commitments • Demonstrates commitment to internal firm investment through active SG or committee contribution • Demonstrates a willingness & ability to assist w/ad hoc firm projects • Involved w/community, industry, or bar & is on a path to leadership • Demonstrates familiarity w/non-profit board member responsibilities • Demonstrates familiarity w/& working knowledge of planning & running effective meetings • Invests in & supports pro bono efforts • Demonstrates familiarity w/& working knowledge of planning & using investment time strategically • Demonstrates willingness to support firm goals by participating in firm recruiting, attending firm functions, & working on firm activities • Demonstrates familiarity w/how to get involved in bar or civic organizations by beginning to engage in those activities • Demonstrates an understanding of the firm’s commitment to pro bono by engaging in & supporting pro bono efforts

26. By EOY 7 College of Marketing & Selling Marketing and Selling Skills Development • Attracts or demonstrates the ability/potential to attract new clients that are able to pay firm rates • Consistently incorporates targeted marketing & selling in ongoing activities • Demonstrates familiarity & growing comfort w/the “ask for the business” • Demonstrates proficiency understanding what clients seek & how they choose attorneys • Acts upon & works w/appropriate attorneys to capitalize on cross-selling opportunities • Demonstrates proficiency uncovering cross-selling opportunities and collaboratively works to expand the firm’s business • Demonstrates proficiency w/the RFP & client pitch processes • Demonstrates mastery working a room • Demonstrates proficiency connecting with people • Gathers, analyzes & uses business intelligence to identify & qualify prospects in support of individual, SG, & firm goals • Maintains a robust internal client network across offices • Develops & uses an individual marketing plan aligned w/SG & firm goals • Strategically uses industry conferences/CLE to extend & maintain external network • Consistently uses strategic follow-up w/external contacts By EOY 5 • Demonstrates familiarity with & working ability to read people • Gathers, analyzes & uses business intelligence to support individual & SG marketing efforts • Demonstrates familiarity with & working knowledge of what clients seek & how they choose attorneys • Demonstrates familiarity w/uncovering cross-selling opportunities • Demonstrates a working knowledge of RFP & client pitch processes • Develops & actively uses an individual marketing plan aligned with SG goals • Actively grows a robust internal client network within & across offices • Demonstrates proficiency working a room • Strategically uses industry conferences/CLE to extend external network • Consistently uses strategic follow-up w/external contacts By EOY 2 • Develops & uses an individual marketing plan • Actively grows a robust internal client network within their office • Demonstrates familiarity w/& basic ability to “work a room” • Actively building an external network of contacts through event follow-up • Understands importance & basics of “Getting Known” & taking active steps to do so • Understands basic marketing & selling concepts & the differences between each type of activity

27. By EOY 7 College of Ownership, Leadership & Management Ownership, Leadership & Management Skills Development • Demonstrates familiarity with & working knowledge of common leadership principles • Demonstrates familiarity with & working knowledge of different leadership styles • Demonstrates working knowledge of strategic planning at the SG & firm level • Demonstrates proficiency providing direct, respectful, candid feedback (positive & constructive) • Demonstrates proficient knowledge of law firm economics based on individual productivity & familiarity w/basic metrics of law firm & SG profitability • Demonstrates proficient knowledge of firm organization & management structure • Demonstrates willingness & working ability to mentor/coach junior associates • Aligns professional activities to SG & firm goals & strategic plan • Demonstrates mastery of stress management strategies & can work well under pressure • Demonstrates mastery soliciting, receiving, and acting on feedback • Demonstrates mastery navigating SG work allocation processes By EOY 5 By EOY 2 • Demonstrates mastery navigating SG work allocation processes • Demonstrates proficient knowledge of firm strategic plan • Demonstrates proficient knowledge of firm organization & management structure • Demonstrates proficient knowledge of law firm economics based on individual productivity • Demonstrates proficiency soliciting, receiving, and acting on feedback • Demonstrates proficiency with stress management strategies • Demonstrates familiarity with & working ability delivering direct, respectful, candid feedback (positive & constructive) • Demonstrates familiarity with & working knowledge of emotional intelligence competencies (self-awareness, self-management, social awareness, relationship management) • Demonstrates proficiency navigating SG work allocation processes • Demonstrates working knowledgeable of firm strategic plan, including diversity action plan • Demonstrates working knowledge of firm organization & management structure • Demonstrates familiarity with & working knowledge of law firm economics based on individual productivity • Demonstrates familiarity with & working knowledge of soliciting, receiving, and acting on feedback effectively • Demonstrates familiarity with & working knowledge of stress management strategies • Understands the associate evaluation & review process

28. By EOY 7 College of Legal Skills Litigation Skills Development • Demonstrates overall quality lawyering & practice excellence through outstanding technical skills, judgment, oral skills, savvy, and advocacy • Demonstrates industry specific/practice niche substantive knowledge & litigation expertise • Demonstrates ability to develop comprehensive case strategies in complex matters, & translate expertise in one area to other areas of litigation practice • Writes clearly & persuasively, drafts effectively, & analyzes multifaceted legal issues & complex factual situations efficiently & accurately • Demonstrates ability to lead & manage the work of others in litigation matters • Acts as 1st Chair at trial or as active leader of trial preparation team • Demonstrates proficiency drafting appellate briefs • Demonstrates proficiency taking & defending expert depositions • Demonstrates proficiency with evidentiary motions, including Daubert motions • Demonstrates proficiency using firm litigation technology • Demonstrates mastery taking & defending lay witness depos • Demonstrates mastery conducting: • ¤ client & witness interviews • ¤ basic negotiations, including settlement neg. • ¤ mediations / arbitrations • Demonstrates mastery preparing: • ¤ case management & case discovery plans • ¤ case reports & evaluation • ¤ lay witnesses for depositions • Demonstrates mastery drafting: • ¤ sophisticated settlement documentation • ¤ sophisticated jury instructions & motions in limine • ¤ dispositive motions • Demonstrates mastery handling & drafting: • ¤ complaints, answers, & affirmative defenses • ¤ routine discovery motions • ¤ case-specific written discovery • ¤ trial preparation & documentation • Demonstrates mastery of: • ¤ civil & evidentiary rules • ¤ document production, privilege, & e-discovery • ¤ appellate rules By EOY 5 • Demonstrates ownership of case matters by: • ¤ proactively advancing the matter, developing strategy, proposing solutions, etc. • Demonstrates industry specific/practice niche substantive knowledge & litigation expertise • Acts as 2nd Chair at trial or as active participant on trial preparation team • Argues motions & pleadings w/confidence & high % of positive results when expected • Drafts complex documents requiring little revision • Demonstrates familiarity with drafting appellate briefs • Demonstrates familiarity with taking & defending expert depositions • Demonstrates familiarity with & working knowledge of evidentiary motions, including Daubert motions • Demonstrates familiarity with & working knowledge of firm litigation technology • Demonstrates proficiency taking & defending lay depos • Demonstrates proficiency conducting: • ¤ client & witness interviews • ¤ basic negotiations, including settlement negotiations • ¤ mediations / arbitrations • Demonstrates proficiency preparing: • ¤ case management & case discovery plans • ¤ case reports & evaluations • ¤ lay witnesses for depositions • Demonstrates proficiency drafting: • ¤ sound settlement documentation • ¤ dispositive motions • ¤ sound jury instructions & motions in limine • Demonstrates proficiency handling & drafting: • ¤ complaints, answers, & affirmative defenses routine • ¤ discovery motions • ¤ case-specific written discovery • ¤ trial preparation & documentation • Demonstrates proficiency with: • ¤ civil & evidentiary rules • ¤ document production, privilege, & e-discovery • ¤ appellate rules By EOY 2 • Handles routine litigation matters without necessity of close supervision • Drafts basic documents requiring little revision • Demonstrates mastery of docket management, calendaring, PDA, & mobile technology •  Demonstrates familiarity with: • ¤ propounding case-specific written discovery • ¤ arguing motions & pleadings • ¤ drafting sound settlement documents • ¤ drafting sound jury instructions & motions in limine • ¤ taking & defending lay depositions • ¤ interviewing & taking witness statements • ¤ conducting client interviews • ¤ preparing case management & case discovery plans • ¤ preparing case reports & evaluations • ¤drafting appellee & responsive briefs • Demonstrates familiarity with & working knowledge of: • ¤ complaints, answers & affirmative defenses • ¤ routine discovery motions • ¤ essential terms & conditions of settlement • ¤ basic negotiation principles & strategies • ¤ basic trial preparation steps & documentation • ¤ document production, privilege, & e-discovery rules • ¤ appellate rules • Demonstrates familiarity with civil & evidentiary rules • Demonstrates familiarity with ADR options

29. By EOY 7 College of Legal Skills Transactional Skills Development By EOY 5 • Offers sophisticated structuring advice re technically complex transactional & business matters without close supervision • Demonstrates mastery providing advice & implementing the choice, formation, & organization of major types of business entities • Structures and negotiates the terms and conditions of transactions and supervises the work of others in preparation of business documents • Demonstrates mastery creating due diligence plans & supervising investigations performed by others • Demonstrates mastery closing complex transactions & effectively supervising others on significant transactions • Demonstrates ability to effectively counsel organizational clients on all major issues relevant to business ventures • Demonstrates proficiency leading negotiation of legal terms of complex transactions by preparing client & adversary goals & risks, developing & executing complex negotiating strategies; inspires client confidence in substantive role played in negotiation • Demonstrates mastery negotiating in complex situations through effective preparation & use of information, deep understanding of adversary’s perspective, & the effective use of risk, price, timing, & parties’ perspectives to resolve issues • Demonstrates mastery handling unusual transactional matters with minimal to no supervision • Demonstrates understanding & mastery of the governance, corporate finance, & tax treatment of major types of business entities, as well as trusts & tax-exempt organizations • Demonstrates mastery handling routine business & transactional matters • Demonstrates mastery drafting basic business & RE documents • Demonstrates mastery and confidence in applying ethics rules to transactional practice By EOY 2 • Demonstrates proficiency handling unusual transactional matters w/out close supervision • Demonstrates understanding & working knowledge of the governance, corporate finance & tax treatment of major types of business entities, as well as trusts & tax-exempt organizations • Accurately prepares drafts & effectively conducts negotiation of terms and conditions of complex business documents, including: • ¤ commercial RE develop. Transactions • ¤ business organizational documents • ¤ corporate finance documents • ¤ commercial credit agree. + ancillary docs • ¤ stock/asset purchase agree. + ancillary docs • ¤ private equity financings • Demonstrates mastery handling due diligence investigations & effectively manages others efforts • Demonstrates proficiency & increasing effectiveness negotiating in complex situations through effective prep & use of info, deep understanding of adversary’s perspective, & the effective use of risk, price, timing, & parties’ perspectives to resolve issues • Demonstrates mastery of basic negotiation situations • Demonstrates proficiency closing significant transactions, requiring only modest supervision • Demonstrates proficiency counseling organizational clients faced w/complex issues in areas including: • ¤ entity governance • ¤ bankruptcy & creditors rights • ¤ contracts & UCC • ¤ RE & land use law • ¤ environmental law • ¤ corporate finance & tax • Demonstrates mastery handling routine business & transactional matters • Demonstrates mastery of choice, formation & organization of major types of business entities • Demonstrates mastery drafting basic bus. & RE docs • Demonstrates mastery and confidence in applying ethics rules to transactional practice • Demonstrates proficiency handling routine business & transactional matters w/out close supervision • Understands & demonstrates working knowledge of the choice, formation, & organization of major types of business entities, including: ¤ corporations ¤ general partnerships ¤ limited partnerships ¤ registered LLPs ¤ LLCs ¤ PSCs ¤ PLLCs • Effectively uses firm transactional resources & forms to prepare initial drafts • Demonstrates proficiency drafting basic business & RE documents, including: ¤ real estate conveyancing docs ¤ business organizational docs ¤ commercial lending docs ¤ merger & acquisition docs • Demonstrates proficiency participating in transactional due diligence & analyzing investigation results • Demonstrates understanding & working knowledge of basic negotiating levers & techniques • Demonstrates understanding & working knowledge of steps & components to close a transaction: ¤ authorization ¤ third party consent & approvals ¤ substantive agreements ¤ closing mechanics & funding ¤ basic due diligence • Demonstrates familiarity w/& working knowledge of basic areas of law to counsel organizational business clients • Demonstrates familiarity w/& working knowledge of ethics rules as applied to transactional practice

30. Stites Academy Launched in 2010 Associate Academies Academy I for Y2 & Y3 associates April 2010 Academy II for Y4 & Y5 associates June 2010 Academy III for Y6 & Y7 associates November 2010

31. Value Post Recession and Alternative Fees Alan T. RogersManaging Partner Balch & Bingham LLP1901 Sixth Avenue North, Suite 1500Birmingham, Alabama 35203205.226.3486205.488.5819

32. Association of Corporate Counsel 26,000 Members 10,000 Organizations 75 Countries 52 Chapters Founded 1981

33. PROBLEM ACC believes that many traditional law firm business models and many of the approaches to lawyer training and cost management are not aligned with what corporate clients want and need: Value driven, high quality legal services that deliver solutions for a reasonable cost and develop lawyers as counselors (not just content providers), advocates (not just process-doers) and professional partners.

34. Problems: Wants/Needs: Traditional law firm business models Traditional approaches to lawyer training Traditional approaches to cost management Value driven, high quality legal services Deliver solutions Reasonable cost Develop Counselors (not just content providers) Develop Advocates (not just processors) Develop Professional Partners

35. Mission Promote Dialog Develop Methodologies & Metrics Create Tools Enhance Awareness

36. Goals National Dialog Tool Kits Recognition by Senior Management Client Community Law Firms training, retaining talent Mutual satisfaction, pride, and identified leaders to promote change Better Alignment Clients & Firms

37. ACC Value Index Understands Objectives / Expectations Responsiveness / Communication Legal Expertise Predictable Cost / Budgeting Skills Efficiency / Process Management Results Delivered / Execution Ratings: 1 (Poor) ------- 5 (Excellent)

38. AFA’s Survey of 453 General Counsel: “Value based fee arrangements are becoming institutionalized and will likely increase steadily year over year.”