Center for Contract and Economic Organization
Center for Law and Economic Studies
The traditional American corporate law firm, long an oasis of organizational stability, in recent years has been the subject of dramatic change. The manner in which firms divide profits, perhaps the most revealing aspect of law firm organization because it displays the balance the firm has selected between risk-sharing and incentives, has changed in a critical way. From a long standing reliance on seniority that emphasizes risk-sharing, profit division is shifting to a system based on the productivity of individual partners that emphasizes incentives.1 With what seems to be only a short time lag from the change in how profits are divided, a second pillar of traditional corporate law firm organization is under assault. The "up-or-out system"--the long dominant career pattern by which employee (associate) lawyers are either promoted to partnership or fired-also appears to be changing. From a structure in which there were only two categories of lawyer-partner and associate- firms are creating new categories of employee lawyers, some with labels more euphemistic than others-permanent associate, staff lawyer, special counsel, non-equity partner, junior partner. Whatever the label, all flout the traditional career pattern by retaining associates who are not promoted to partner.2
Ronald J. Gilson & Robert H. Mnookin,
Coming of Age in a Corporate Law Firm: The Economics of Associate Career Patterns,
Stan. L. Rev.
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