Biglaw, Partner Issues, Partner Profits

Small Class Sizes, Partner De-Equitization, and Increased Profits on the Biglaw Horizon

The new normal is depressingly flat.

First the good news. American Lawyer surveyed managing partners at Am Law 200 firms and 80% of them said they were optimistic (“somewhat” or “very optimistic”) about the future profitability of Biglaw firms.

The bad news? An ever shrinking group of people will experience the benefits that future. Managing partners are feeling good because they are cutting staff, hiring fewer associates, paying minuscule bonuses, and even de-equitizing their fellow partners.

It must feel good to be a gangsta. It probably feels less good to be gang banged…

The survey shows that managing partners believe the Biglaw world has changed and we’re not going back:

Sixty percent of the 124 respondents to the Law Firm Leaders survey said that the downturn has produced a fundamental shift in the legal marketplace, and a smaller proportion–32 percent–said that the downturn had caused their firm to adjust its business model.

The most jarring example of this change is in the area of leverage: Clearly, the days of ever-expanding first-year classes are a thing of the past. More than 87 percent of respondents said that 2011’s incoming class will be the same size or smaller than their (usually already reduced) 2010 class.

American Lawyer also interviewed managing partners who said that the lower leverage shouldn’t be a problem, because there are so many unemployed associates out there that firms can quickly staff up if they have to.

So, even if you are an unemployed law graduate, know that your mere existence is still creating downward pressure on the market. Umm… thanks.

Meanwhile, it’s not just associates who are feeling the pinch. Managing partners are also enjoying their powers of pushing out dead-weight partners:

The move toward lower head counts is also affecting partners. Almost 70 percent of our respondents said that they plan to ask partners to leave in 2011, and 31 percent said that their firm plans to deequitize partners. “This was happening even before the Great Recession, but these trends were exaggerated during the downturn,” says consultant Joel Henning of Joel Henning & Associates. Reducing the size of the equity ranks is an easy way for firms to get a competitive edge by improving their profits per partner—and to clear out dead wood.

“Deequitizing partners is a passive-aggressive way for firms to tell partners they don’t add value to the firm,” Henning says. “Asking them to leave is just a more direct way to do it.” When demand is slack and firms battle over market share, nothing’s off the table. “Firms have less tolerance now for bringing partners along who aren’t contributing,” says Goodwin Procter chairman and managing partner Regina Pisa. “There’s no such thing as life tenure.”

You’ll notice that “being a good lawyer” doesn’t seem to count as “contributing.” Keep that in mind when building your Biglaw career: bringing in business = good, being an excellent attorney = less important.

The best quote comes from Morgan, Lewis and Bockius chairman, Francis Milone:

Milone puts it more bluntly: “Law firms have cut expenses as far as they could,” he says. “If you can’t come out on top now, you’ve got a big problem.”

It’s a bottom line business. And managing partners will cut who they have to cut to make the numbers work out.

The New Normal [American Lawyer]

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