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The Effects of Subjectivity and Pay Transparency on Client Capture in Large Law Firms

Fri, April 28, 3:55 to 5:35pm, Hilton Miami Downtown, TBA

Abstract

This paper examines how two fundamental elements of the compensation system used to allocate profits among equity partners in large law firms, use of subjectivity and profit allocation transparency, interact to affect law partners’ willingness to follow their client’s wishes in potential violation of professional and ethical standards (i.e., client capture). We interviewed 56 corporate law partners working in large Canadian law firms. The interview includes a vignette describing a hypothetical situation involving a triangle of relationships between themselves, another relationship partner, and a major client that provides business to multiple lawyers in the firm. The interviewee, as the partner providing the legal advice, is advised to follow the client’s wishes by the relationship partner who is primarily responsible for managing the firm’s relationship with that client. Our findings suggest an interaction effect between the use of subjectivity and transparency in the profit allocation system. We find that pay transparency decreases client capture when less subjectivity is perceived to be used but pay transparency increases client capture when more subjectivity is perceived to be used. Analyses of the interviews suggest that pay transparency in combination with less subjectivity increases the perceived economic independence of partners, which may explain the decrease in client capture. In contrast, pay transparency in combination with more subjectivity increases the sensitivity of partners to perceived economic interdependence with fellow partners, which may explain the increase in client capture. Implications of our results are discussed.

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