5th Anniversary Check-in and Reflections for MLC
This month is the 5th anniversary of MLC. I was going to say the time flew by – and that’s kind of true – but it also feels like we’ve been doing this forever.
I had a moment of nostalgia reflecting back on our firm’s very first blog post where I explained what I thought I was trying to start when I left another great law firm to launch this. The thing that jumped out to me most (other than my discomfort about the firm’s name which continues today…) is how it was… just me. And it was just about… starting a law firm.
I barely have any memories of doing this by myself and, when I think about what we’ve been doing here, I hardly ever think of it in terms of “building a law firm”. My amazing teammate, Michelle joined a couple of months after the post and, from my perspective, co-founded the firm that exists now and what I consider the true project here.
From when Michelle joined on and we started hiring, the mission of the firm expanded beyond just serving the progressive nonprofit sector aligned with our values and with a flexible approach to billing (though that’s all still present), to being to at least as focused on using our skills as legal professionals to create the freedom to establish a workers’ cooperative that values, empowers, and pays everyone (founders, attorneys, non-attorneys) as equal partners, and prioritizes a dignified, democratic workplace.
I’m also realizing that I haven’t written as directly about our structure and project as I’ve thought (referenced it from time to time, but never as the main focus). So now feels like a good time to reflect on what it is, the strengths and challenges of a cooperative structure, and what we’re always fighting for it to be.
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The Goal: You may have gathered from variousblogposts and convoluted charts over the years that we harbor some skepticism about capitalism and philanthropy. And that philosophy has been reflected not only in the impact we try to have externally but in the workplace and economic environment we have tried to create internally.
When we expanded the firm, the goal was always to pursue a “non-extractive” structure. In other words, a structure where the value created by the company is returned to the workers that make up its community, instead of distributed to (i.e. extracted from the community by) a small number of founders, owners, partners, shareholders, or investors (i.e. people who claim profits because of their position in the hierarchy or access to capital, instead of their contribution of labor).
We have also tried to detach from traditional concepts of ‘market compensation’. I repeatedly (perhaps annoyingly) quote the maxim from my (sort of, not really) namesake that says “from each according to their ability; to each according to their need”.
In other words, we all do our best to contribute to the common goal, and we use the revenue we generate to take care of each other as people, instead of as revenue sources, making our compensation much less tied to what people are “worth” in the marketplace than other companies. While there are differences in compensation based on role, education, and experience, in order to make sure people feel rewarded in their development and that we can attract the level of talent we need to be successful, that differential is capped to prevent the inequalities of the market from infecting how we take care of each other.
All great things to say, but all harder to implement in practice – we don’t claim perfection. Far from it. There have been lots of ups and downs and challenges in terms of figuring out what it is fair, and I expect that will always continue. But these goals remain the core of what we are doing here, even more all the stuff about being a good law firm for nonprofits (though I genuinely think we are doing great there too).
Being part of a company that is trying to achieve these goals and forming a community around these principles, and managing to keep that going five years in, is by far the most proud of any work I’ve contributed to in my career, as an attorney or otherwise. As a result, the birthday present I’m giving myself is the opportunity to be long-winded on this blog about all the things I’m excited about and like to talk about.
The Legal Structure: If you’ve read this far (and I’m not betting on it), you’re presumably curious about what it actually means for a law firm to be a cooperative. (If you’re a true nerd about this or want to start your worker co-op law firm, here’s a copy of our Bylaws). Well, here’s how we’ve tried to do it so far in terms of making it work within the legal regulation of law firms and cooperative principles.
1. We are not literally a cooperative cooperation. That is because California only permits two types of business structures to operate as law firms: limited liability partnerships or law corporations (taxed as either a C-corp or S-corp for tax purposes) – cooperative corporations are not included. Between those options, we chose a law corporation and selected C-corp classification for tax purposes, in order to give us the flexibility to design the custom shareholding and profit-sharing perspective described below.
2. We also cannot literally have everyone be an owner or on the Board. In California, non-attorneys cannot be directors, officers, or shareholders of a law corporation, and somewhere between a quarter and a third of our team are typically non-attorneys. We deal with this by making ownership/directorship as broad as possible (every attorney hired is automatically invited to directorship after a 1-year “candidacy period”) and by the Board delegating everything that can be delegated within the bounds of professional responsibility (most business decisions) to the “Employee Council”.
3. Employee Council is a committee of every employee, whether attorney or non-attorney, and regardless of how long they have been here. Our Employee Council meets every month and makes nearly all of the decisions that company leadership typically makes: salary scale, hiring decisions, company policies, business strategy, etc. Of course, democracy and power are complicated things, and it takes more than just declaring democratic governance to make it true. But in a world of hierarchical, oligarchical workplaces, I think we’ve fashioned something genuinely and uniquely democratic.
4. Being a cooperative doesn’t mean anarchy or decentralization. We still have management. Michelle and I effectively operate as COO (Managing Paralegal) and CEO (Managing Attorney), respectively, and we’ve had the incredible support of our Legal Director, Charli Cleland, as part of our management team over the past year and a half. Together, we develop a strategy and vision to advocate to the Employee Council and to implement what the Employee Council ultimately decides.
5. Once someone is a director, they are also offered share ownership – an equal amount of shares as every other director. So every attorney who has been here at least a year has the opportunity to be an equal owner of the firm and an equal vote at board meetings for anything that needs to go to the Board, instead of Employee Council. Though, because we don’t believe in extraction by ownership, ‘owner’ means something different here. One of the conditions of our Bylaws and Shareholder’s Agreement is that owners do not get any distributions of profits. Instead, there is a set profit distribution scheme in our Bylaws to ensure that everything goes to our employees and to our mission, such that ownership is a “non-economic” relationship. (That makes being a shareholder and a director pretty unattractive, especially when you realize that lawyers have to enter into limited guarantees of a corporation’s liabilitiy. To incentivize people to become both in spite of that, we do offer a $3k stipend per year to directors).
6. Technically, there are two classes of shares: Class A shares (that I hold and that others are eligible for after 7 years) and Class B shares (what everyone else starts with). Both share classes have the same amount of power – the only catch is that to change the Bylaws (e.g. to get rid of the cooperative and profit sharing structure), both classes would have to approve in separate votes. I often analogize this to how there are always “two keys” in movies to launch the missiles. To “nuke” our cooperative structure, it would take both distinct sets of attorney-owners to ‘turn the key’ – hopefully to make it as hard as possible to change the structure. Convoluted? Sure. But it has served to lock in our structure and make it very difficult to end the cooperative structure.
7. All of this is about protecting the role of Employee Council and profit-sharing. We have a strict formula applied to profit-sharing. Employee Council agrees on an operating reserve – currently roughly 3 months of operating costs. Every six months, we distribute out whatever is in the bank in excess of that reserve as follows:
70% to all employees on a 1-person, per share basis – all full-time employees get exactly the same share.
20% to MLC Collective Fund, a 501(c)(4) we set up as our impact arm, and which has used its profit distributions to fund grants to support undocumented immigrants, educational programs, legal defense funds, and other organizations as voted on it by its Board (which is also employees of our firm).
The last 10% is distributed however Employee Council decides – in some distributions, we have voted to do merit bonuses voted on by everyone, sometimes we just add it to the 70% payout, and maybe in the future we’ll find other creative ways to use it.
And that’s it – that’s the legal structure we have created in order to try and make this law firm as collectively owned, both in terms of money and power, as possible.
The Challenges of Being a Cooperative Law Firm
That’s s the gist of it in terms of legal structure, but it leaves out all of the other interesting conversations that come up in our Employee Council meetings on how to enact our values while also making sure there’s a stable business in place to make it all possible.
Over the years, those challenges have included:
How much of a reserve to maintain in the company bank accounts for operations, instead of distributing out as profits. Balancing getting profits out to the team vs. having enough in the bank to not stress out if there’s a slow stretch.
How to charge our clients and balance what’s fair to them and what’s fair to the group. How do we balance our interest in having profits to distribute to all employees with our interest in making sure that our services remain affordable to the clients we want to serve the most?
When and how to hire new people into the structure – how to fit them into our pay scale in a way that is respectful of their work leading up to joining, while also respecting the experience and contributions of people already here.
Whether to have a billable hour requirement. Everyone hates billable hours and hates billable hour requirements even more. Ultimately, we decided that in a fully remote setting, it was necessary to make sure we were all contributing fairly, so we ultimately adopted one (a pretty friendly as law firms go: 90-110 hours per month)
On that point, how to hold each other accountable as employees and “co-owners” of the firm? Balancing the desire to be a supportive workplace for everyone and the need to work well enough and profitably enough that we can sustain in order to provide for everyone. A cooperative does not immunize you from all the usual challenges of being a business and an employer. And while the radical transparency we follow ultimately does a lot of great things for the business and the culture, it can make uncomfortable situations even more uncomfortable.
How to maintain our “flatter than most” salary scale while also making sure people who have spent years developing their education and experience feel valued and want to stay, given other potentially more lucrative opportunities?
How do we stay connected as a remote community? We all have Zoom fatigue – is remote communication enough to be the kind of community that we need to form the foundation of a cooperative?
These are all hard questions, but I am so grateful for the wonderful group of people I have to ask and argue about them with. The alternative of ‘just being a law firm’ and focusing on just trying to pocket as much as money as possible would be far harder to tolerate and less likely to attract the thoughtful, kind, and brilliant people I’m lucky to enough to work with. I had a version of this post that heaped praise upon them individually, and what they’ve helped us build (e.g. our employment team at MLC Employment, our multi-state charitable registration service at MLC Compliance, the 501(c)(3) we launched in response to this administration in Defending Equity Initiative, our Blog, and just a whole lot of great day-to-day work.
But for now, I’ll just encourage you to check our Team page and get to know some of them. I have been very fortunate to be able to do so over the last five years and look forward to hopefully continuing to do so over many more years.
