Interpretation of the Company's System

After the successive discussions on the issues, such as understanding, the main symbol, development stage and the reasons for selection of the corporatization (corporate system) of law firms, I’d like to exchange some misunderstandings concerning the corporatization (corporate system) of law firms with you this time. This topic is sensitive and practical. Originally, people are exploring the corporatization (corporate system) of law firms and different people have different opinions, and there is still no authoritative conclusion or fixed pattern, so it is far from misunderstanding strictly. However, I always feel that some viewpoints and understandings have already imprisoned our innovation ideologically and even deviated from the essence of affairs. A thing cannot be clarified until we speak it out, so let's just say it and consider it as a discussion. On this issue, Mr. LIU Yaotang once wrote Several Misunderstandings in the Corporatization of Law Firms That Need to Be Clarified and made an in-depth and incisive analysis. I quite agree with his opinion in the article. In this article, I would like to say some more points from another angle. 

Misunderstanding 1: The corporatization (corporate system) of law firms is a pseudo-proposition and there is no point in discussing it. 

Many people think that law firms provide legal services based on the personal cooperation, so the engagement in capital cooperation should be avoided, let alone doing it like doing business. With such a perspective, the so-called “corporatization of law firms” violates the basic laws of this industry and is a completely pseudo-proposition. If we want to explore and practice the corporatization of law firms, we must face this problem. First of all, it must be clear that the corporatization of law firms only emphasizes law firms’ attribute of corporate governance and management, which is not equivalent to turning law firms into companies that are no different from ordinary enterprises, nor does it necessarily deprive the industry of its characteristics and foundation. So we do not and need not overemphasize corporatization so as to neglect law firms, the main body. Secondly, law firms actually need certain capital cooperation, and the partnership system does not exclude capital cooperation. Companies, especially limited liability companies, pay attention to both capital cooperation and personal cooperation, which does not affect the personal cooperation of the law firm. In addition, it must be stressed that the corporatization of law firms does not actually emphasize capital cooperation but integration and enterprization. Therefore, the corporatization of law firms should not be suppressed under the name of “capital cooperation”. Finally, we must admit that the legal services provided by law firms are also products and need to be operated. Simple knowledge output and single superficial services will definitely be replaced by systematic, professional and team services. "Doing business" is not a derogatory term. It is the bounden duty of law firms to do a good job in the "business" of legal services. However, law firms cannot only do business but also stick to the unique principles and bottom lines of the lawyer industry, which is not contradictory. 

Misunderstanding 2: The corporatization (corporate system) of law firms is a scourge that will bring the lawyer industry into commercialization and beyond recognition. 

It is a seemingly normal conclusion to emphasize that the corporatization of law firms will lead to commercialization of the industry until it is beyond recognition. Moreover, theoretically, such possibility does exist. However, we may have overlooked two basic facts, namely: 

First, there is no large number of corporatization of law firms at present, but there are also signs of commercialization with different purposes. Some blend, some hype, some cross borders, and some manipulate. Second, the corporate world with companies as the main body is full of commercialization, but not all of them are beyond recognition. Even if there are many problems, the root cause is not commercialization, but the lack of pure commercialization, or many behaviors beyond normal commercialization. Therefore, we cannot equate corporatization with commercialization, nor can we equate commercialization with industry beyond recognition. Of course, in order to avoid this possibility brought about by corporatization, we still need to grasp several principles during corporatization of law firm. First, we need to carefully consider and even absolutely prohibit non-lawyer individuals and institutions from investing in law firms; second, we need to clarify the behavioral boundaries of law firms and lawyers themselves in terms of behavior. Third, we need to correctly distinguish between normal operation and abnormal operation of law firms and define the corresponding penalty provisions. In DOCVIT, although we are trying to promote the corporate system, we insist on that non-practicing lawyers are not allowed to become equity partners, and make it clear that law firms and lawyers are not allowed to engage in any non-legal business. We have also formulated the code of conduct for law firms in strict accordance with the Law on Lawyers and relevant regulations. These are all good prevention and responses to this problem. 

Misunderstanding 3: When judging whether a law firm is corporatized, only consider whether the distribution of its partners is point-counting system. 

Admittedly, the point-counting system has become a synonym for the corporatization of law firms, and judging whether a law firm is corporatized through the distribution mechanism has become a criterion recognized by many colleagues. This may be the biggest misunderstanding of corporatization of law firm in the field of knowledge and practice. The point-counting system is actually only a distribution mechanism and cannot be completely equated with corporatization. The essence of the corporatization of law firms lies in integration, which is symbolized by integration of resources, market, management, team and distribution. The point-counting system solves the distribution integration and also solves the other four integrations to a certain extent, which should definitely be seen as the typical representative of the corporatization of law firms. However, this is not the only choice, and the point-counting system can not absolutely be believed as corporatization. For example, if the law firm does not set up departments, such as brand department, human resources department and research and development department, and there is no real integrated management, even the team is scattered, there will be a second distribution within the team after counting points, so even it is subject to the counting points, it cannot be considered as real corporatization. On the contrary, if a law firm does not fully implement the point-counting system, but actually protects the other four integrations, we must also admit that it conforms to the essence of corporatization. Just as "the market and the plan are both just means to adjust the economy, but not the essential difference between capitalism and socialism", the calculation of points and commissions are also ways for law firms to allocate, which does not necessarily correspond to the corporatization and non-corporatization of law firms. However, we must admit that if a law firm does not have a point-counting system of distribution, but have the commission distribution throughout, it will be hard to imagine that it can really realize the other four integrations, because the absolute commission has made its integration lose its real economic guarantee and interest constraint. Therefore, we can allow some forms of commission distribution in law firms under corporatization, but a point-counting system must be adopted in the main body distribution. Moreover, we should emphasize that how to grasp the proportion of commission and point-counting depends on the firm's partner structure, core culture, development stage, long-term and short-term goals and the degree of integration of personnel and business. 

Misunderstanding 4: Egalitarianism can be easily formed during the corporatization (corporate system) of law firms, which will lead to the failure of incentives and restrictions in law firms. 

This may be another "evil spirit" of many colleagues who refuse the corporatization of law firms. The corporatization of law firms must emphasize the integration of distribution, and it is difficult to quantify the assessment of lawyers, which forces many firms to choose equity equalization and advanced synchronization after corporatization. In the end, distribution has become "egalitarianism", which does not really reflect the contribution degree and growth rate of partners. This is also the real reason why many law firms under pure commission system lose a large number of partners after corporatization transformation, or why new partners of corporatized law firms from the very beginning of their establishment hesitate and develop slowly. It seems to be an inevitable vicious circle. In fact, there are three issues worth discussing. First, in law firms under corporate system, how to determine the threshold and starting point of partners is very important. Solving this basic problem basically eliminates the "egalitarianism". There are many scientific methods that can be used here, and even many models can be developed. DOCVIT considers both history and potential in determining the threshold of partners, and pays more attention to potential. In determining the starting point (points number of partnership admission), it introduces historical deduction, weighted average, reference target, adjustment coefficient, development simulation and other methods. Second, in law firms under corporate system, the system of partner promotion is the soul. Some adopt strict "LOCKSTEP", which only focuses a coefficient of "number of years of occupation" and the promotion at the same rate on average. This is only one kind of practice. If there is strict admission and scientific grading, coupled with an appropriate delisting mechanism, it can be understandable and can even really promote integration. However, it after all gives up the chance for future adjustment and correction. In practice, DOCVIT has adopted such measures as appropriately enlarging the promotion range, scientifically designing the promotion reference coefficient, setting necessary promotion steps, and optimizing the structure of the appraisal committee, which is generally accepted by new and old partners. Third, in law firms under corporate system, the real reason for the "egalitarianism” is that the design of the distribution system relies too much on one-off distribution and takes the points number of partners as the only distribution coefficient. In order to solve this problem, in this reform of corporate system, DOCVIT has divided the distribution of partners into three levels: income generation distribution, undertaking distribution and profit distribution, and considered the combination of equity proportion distribution, instant contribution distribution and historical points distribution in the profit distribution. 

Misunderstanding 5: A corporate law firm will turn most salary-based lawyers into artisans and have a ceiling for development. 

The vast majority of law firms under corporatization have public salary teams. Moreover, most of these salary teams who are graded with relatively high professional standards concentrate on handling cases without income-generating tasks and pressure. This is the characteristic of law firms under corporatization and one of their competitive advantages. However, this also brings about another problem. Many lawyers believe that in such a mechanism, these salary-based lawyers will lose their market function and gradually become artisans, and there will be an obvious ceiling for their further development, forcing them eventually to either leave or become "vassals" of the firm partners. As a result, lawyers seem to have no usual promotion channels in law firms under corporate system. If this problem is not solved, it will certainly become another “fatal weakness” for corporatization. Actually it is not the case！ In any type of law firm, there are pro-professional and pro-market lawyers. On the contrary, in a law firm under pure commission system, since the team is mostly not public, pro-professional lawyers cannot become partners directly by virtue of their case-handling ability, so there is a real ceiling. However, in law firms under corporate system, due to division of labor and cooperation, there is room for designing the system. For example, in DOCVIT, on one hand, we have designed a system of salary partners and senior consultants after the seven-level salary-based lawyers to meet the transitional needs of professional lawyers; on the other hand, we have also specially set up a system of senior partners undertaking cases to tailor the promotion path to the top for expert lawyers. In DOCVIT, as long as you are professional enough, you can reach the top all the way! 

Misunderstanding 6: The corporatization (corporate system) of law firms will fragment lawyers' services to clients and kill their individuality. 

Many people believe that the lawyer's service emphasizes continuity and individuality, while the standardization, normalization and routinization of services are emphasized by law firms under corporatization, which will restraint the vitality of the lawyer's service, especially that the excessively fine division of labor and rigid process will fragment lawyers’ services and kill them spiritually. This is actually another misunderstanding and even a fallacy. In the lawyer service market, what we often see is the phenomenon that senior lawyers talk about cases while junior lawyers deal with cases, or a lawyer accepts all kinds of cases, which is the real deviation from the purpose of serving customers. While most of these phenomena occur to the law firm under pure commission system. In such a loose law firm, it is formed by the partners and several assistants as usual, and even if there is cooperation, it is a pickup team, and it is impossible for a partner to form a professional team in many aspects or reserve a sufficient salary-based lawyer team. Therefore, the quality of service can be imagined. The salary-based team in a law firm under corporatization can only provide quality and efficient services with the unified configuration, unified control, and unified management of such firm. Of course, the salary-based lawyers are not mature enough. To ensure the height, depth, and personalization of lawyer services, there must be a corresponding mechanism. In this respect, DOCVIT chooses the executive business partner system and the mandatory cooperation system, that is, for each case or project, regardless of the nature, a professional partner must be identified as the executive partner; in case of a cross-departmental business, the case source partner must choose to cooperate with a partner in the professional department. In this way, we will achieve a scale on the basis of specialization. Partners can do their best in terms of specialization, but in the market, they can develop all partners' businesses in all aspects. 

Misunderstanding 7: The corporatization of law firm, especially the corporate system, will complicate the regulation of the lawyer industry. 

This issue is more sensitive, but there is no need to avoid it. If the corporate system is allowed in the law firm one day, it will inevitably involve various regulations in the field of the company; it seems that there are many new management departments, such as the industry and commerce, taxation, environmental protection, and labor, which will complicate the supervision of the lawyer industry. In fact, this is a real pseudo-proposition. Firstly, in the absence of legalization of the corporate system today, in addition to the industrial and commercial departments, the law firm has accepted the management of other departments, and there is no such a saying that the corporatization suddenly complicates the supervision; Secondly, even if the law firm implements the corporate system and includes many additional management departments, it will not affect the main management by the competent industry authorities; there will be multi-angle and multi-domain management in any industry; however, the diversification of organizational forms will not change its industry nature and competent authority; Finally, after selection of the corporate system, even if there is a tendency to complicate the law firm supervision, the relevant departments should not be overly anxious if the law firm and the industry itself do not mind it. 

It is difficult to answer all the questions and confusions about the lawyer's corporatization (corporatization) even upon interpretation of such misunderstandings. 

Think over before and while taking any action! Select and insist!