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When Should Origination Fees End?

Origination fees are an important motivator, because they give lawyers incentive to generate business for their respective firms.  But when origination fees are granted in perpetuity, they can actually depress business development -- a point made by Tom Collins at More Partnership Income, as well as by Larry Bodine at The Law Marketing Blog.

So what's the problem with perpetual origination fees?  After all, but for the rainmaker's business, the other firm lawyers would be out of work.  Perhaps that's true, which is why rainmakers deserve some compensation.  But perpetual origination fees go overboard, with deleterious consequences:

Continuing origination credit bestows territorial ownership.  It puts a fence with a non-trespassing sign around a client or a reference source. Doing that impedes business development by getting in the way of cross-selling and team selling.  It spells double trouble if the rainmaker has settled into a rocking chair mode, living off of his or her prior accomplishments. It is not unlike the practice of assigning an exclusive territory to a salesperson or dealer in the commercial world.  Exclusivity can work if the salesperson is aggressive and effective, but territory sales results go down the tubes if the salesperson becomes ineffective.  That happens.  It happens for a host of reasons, including changes in the individual’s priorities, sickness, age, or the diminishing marginal attraction of money. 

Still, according to a survey of 170 midrange law firms, 81 percent of law firms do not impose a sunset on origination credit.  Neither Collins nor Bodine offer any explanation; I can only surmise that the rainmakers who benefit from perpetual origination credit prefer to retain this system, and have sufficient economic leverage to to do so successfully.

And what about origination credit for associates?  At Above the Law, David Lat reports that Kramer Levin associates who bring business to the firm receive seven percent of all fees collected, whether or not they're involved in the matter.  And in the comment section, many more tipsters chime in about origination credit policies at other firms.

Posted by Carolyn Elefant on November 14, 2007 at 05:04 PM | Permalink | Comments (1)


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