When Compensation Creates Culture

Georgetown Journal of Legal Ethics, The, Winter 2006 by Saunders, Paul C

When Compensation Creates Culture

"Eat what you kill" is a slang expression used by lawyers to describe compensation schemes for law firm partners that are based on the business that they generate. The alternative to an "eat what you kill" compensation scheme is a "lockstep" scheme, in which partners are compensated equally regardless of the business they bring in or their performance.

Eating what you kill is not particularly appetizing for lawyers (to say nothing about diners) because it places enormous pressure on them to generate "business," whether in the form of new clients or new work from existing clients. Those who do not "kill" enough do not "eat."

In Eat What You Kill,1 Professor Milton Regan uses the tragic case of John Gellene, a convicted former partner in the prestigious New York law firm of Milbank, Tweed, Hadley & McCloy, to comment on the ethical issues raised by "eat what you kill" compensation. He describes the pressures that Gellene, a young partner with a relatively thin practice as a bankruptcy lawyer, faced when he was asked to represent Bucyrus in a major bankruptcy proceeding and realized that if he fully disclosed the fact that his firm not only represented Bucyrus, but two of its creditors as well, his firm would be disqualified and he would have lost the "kill." Gellene opted to try to hide the conflict (a "mistaken judgment," he subsequently called it),2 and when it was inevitably discovered, he tried to hide it from his partners as well. Gellene spent thirteen months in prison for his "mistaken judgment."

The title of Regan's book suggests that Milbank's "eat what you kill" partner compensation system was the cause of Gellene's misfortune.3 While it cannot be gainsaid that Milbank's new compensation plan played some role-perhaps even a large role-in Gellene's decision not to disclose the potential conflict that his firm faced, other factors might have led to his misconduct. Gellene was a young partner and this was a substantial assignment that would be highly visible and could propel him to a higher inner circle. Furthermore, it could offer him redemption from an earlier transgression that caused the firm to place him in an "of counsel" status for nearly a year and to deduct a year of his seniority: it seems that although Gellene was a member of the New Jersey bar, he never completed the paperwork for admission to the New York bar. For nearly ten years, he practiced law in New York without a license. Gellene was reinstated to the partnership nine months after he was finally admitted to the New York bar. While the firm took some action against him, one could argue that Millbank's failure to terminate Gellene for a serious transgression sent him the wrong message.

To be sure, holding on to this plum assignment would be something that any young, ambitious, somewhat precarious partner would want to do. But it seems unlikely that Gellene decided to violate what was a clear bankruptcy rule requiring full disclosure-a violation almost certainly to be discovered-merely to make more money, become part of the inner circle, or right a prior wrong. The risk-reward equation seems out of whack. The prosecutor at Gellene's criminal trial attributed Gellene's misconduct to the fact that he is a habitual liar: "[he] lies about his bar membership for nine years . . . then he lies again about his federal bar membership."4 "This is a defendant who lies about big things and he lies about small things."5

Solo practitioners "eat what they kill" every day. No one would suggest that there is something about this compensation structure that would lead solo practitioners to be less than completely ethical and honest. If John Gellene had been a solo practitioner, he might have behaved just as he did as a law firm partner, not because the compensation method led him in that direction, but perhaps because the prosecutor was right-Gellene is a habitual liar.

In light of market forces in which there are too many lawyers chasing too few clients, "eat what you kill" compensation schemes are probably here to stay. Thus, Professor Regan is right to question whether it is possible to "find ways to harness or constrain market forces to promote ethical ideals."6 He suggests a number of possibilities, including formal conflict reviews or committees, full-time ethics advisors, ethics training, second reviews of firm opinions, partner review of audit letters, peer review procedures, and the like.7 Indeed, most large firms already have many of these techniques in place. But Regan goes one step further and demands more from law firms: "[t]he organization must foster an ethos or culture that emphasizes the importance of ethical behavior."8

This is where an "eat what you kill" compensation scheme and culture runs into difficulty. Such a culture makes rainmaking or business generation the highest priority and rewards it commensurately. The most ethical non-killer imaginable starves. Gellene would not have been rewarded, at least not in a monetary way, had he disclosed the potential conflict and caused his firm to be disqualified from a lucrative assignment. Holding on to the assignment at all costs was perceived to be a greater good.