Biglaw, Duane Morris, Money, Partner Profits, Skaddenfreude

Skaddenfreude: Firm Finance Voyeurism

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While we’re on the subject of money, check out this article, by Gina Passarella for the Legal Intelligencer, concerning law firm finances. It’s quite enlightening.
If you think of a big law firm as doing nothing but spinning off mountains of cash to its partners, think again. Cash flow can be a two-way street. Many firms require their partners to make hefty capital contributions during the time that they’re partners, to finance firm operations and growth:

[A]n equity partner at a large firm is typically expected to place between $400,000 and $1 million in capital contributions with the firm over the lifetime of his partnership. The firm then withholds, for example, 5 percent of each paycheck until the partner reaches the required amount. At that point, the partner has fulfilled her capital contribution obligations unless the firm decides to increase the requirement, [Altman Weil consultant Ward Bower] said.

Generally, when a partner leaves the firm, the capital contributions are dispersed to them within a set period of time or in a lump sum, Bower said. Some firms, however, could tie up the capital contributions over a period of years, Attorney Career Catalyst founder Frank D’Amore said. That could be a “silent” way of making it more difficult for a partner to leave, he said.

So when you read about astounding profits-per-partner in the American Lawyer, don’t automatically assume that the partners get to take home every dime. At Duane Morris, for example, the firm takes four percent a year out of each equity partner’s pre-tax income for capital contributions. At Pepper Hamilton, equity partners generally kick in around 19 to 20 percent of their budgeted income toward capital contributions. A fifth of your paycheck is nothing to sneeze at.
But Biglaw associates, don’t pity the partners just yet. Many firms have no capital contribution requirement, financing their operations using debt (in the form of loans taken out by the law firm as a whole). Other firms finance their operations out of current income. And even at firms with sizable capital contribution requirements, the partners still take hoome way more than you do.
(Does this depress you? Well, cheer up. If you play your cards right, someday YOU might be the partner in the corner office, taking home a high six-figure or low seven-figure income.)
Firm Finances: Your Views May Vary [Legal Intelligencer]

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