Towards the end of 2023, multiple major professional firms announced redundancies. Most held back from full-scale partnership restructurings, but salaried partners are more easily expendible.

So I was intrigued by the news in the Financial Times that Cravath finally bit the bullet and created salaried partners.

Long ago the “Cravath model” became the standard organizational and economic structure for elite partnerships across many professional sectors.  So it's a big deal when Cravath changes such a fundamental part of its model, to bring it into line with its more aggressive competitors.

Over the past couple of decades, the salaried partner position has acted as a liminal space in partnerships. Firms over-recruit graduates in boom times. When the market turns, these now mid-level professionals aren't able to sustain their own book of business. But they are still useful for executing work generated by the equity partners.

Moving the “not ready for partnership” professionals into the liminal space of the salaried partner is a way of delaying tough economic and organizational decisions. But it messes with the basic risk management principles of up-or-out. It solves a short term problem but creates bigger organizational problems in the long term.

Ultimately the economic and organizational model of a partnership is a finely-tuned system and any change to one part of it will have unintended consequences for the rest of the model. It's complicated, which is why the intricacies of this model, and the consequences for culture, reward, governance, and leadership, have formed the basis of my research and advisory work for many years.

So, congratulations to the newly created salaried partners at Cravath. You've made it, but only up to a point, and not quite. And if you are a salaried partner elsewhere, good luck.

Life in liminal space is never comfortable. So just hope it doesn't last too long.