Does anyone spy the truth?

The danger in having a for profit magazine in charge of collecting and publicizing critical information is that the magazine doesn’t have any oversight audit authority to confirm that its information is accurate.

As we mentioned in Morning Docket, the big scandal of the day involved the Citi Private Bank Law Firm Group unit suggesting that as high as 22% of the top 50 firms have inaccurate profits per partner numbers listed in Am Law.

The WSJ Law Blog now has the story up. This all could be a simple matter of Am Law counting “partners” differently from Citi. But these are the perils of trying to wrest information out of an industry that values secrecy over transparency….

Again, the discrepancy between Citi’s numbers and Am Law’s numbers could be as simple as that Citi doesn’t know how to count partners:

U.S.-based law firms don’t have to publicly disclose their financial data. But many law firms choose to provide American Lawyer with their equity partner head count and net operating income, as well as gross revenue. The publication calculates a profits-per-equity-partner figure, by dividing net operating income by the number of equity partners at a firm…

The magazine said it requested the figures, but said Citi declined to provide them. It believes it may define “equity partner” more strictly than Citi does, and says that may explain some of the difference.

Defining equity partners can be difficult, especially in a world where firms are willing to use tricks to blur the line between equity and non-equity partners for the appearance of diversity.

By the publication’s definition, equity partners are “those who receive no more than half their compensation on a fixed-income basis.” Revenue per lawyer—calculated by dividing gross revenue by the total number of lawyers including partners at a firm—”is actually a better metric for gauging firm health,” said Robin Sparkman, editor in chief of the American Lawyer.

We’re not sure how Citi was counting.

But this brings up a new point: how can we be really sure of anything that is self-reported by a major American law firm? They don’t have to publicly report profitability data to the government. The ABA doesn’t ask for anything (isn’t this starting to sound familiar). Citi works for the firms; it’s not an independent organization trying to get at the truth. If you talk to enough partners, every year you’ll hear rumors about how this firm or that firm has been cooking the books to gin up a disingenuous result.

Let’s see if we can’t collect some of those rumors. Send us an email at tips@abovethelaw.com or send us a text at (646) 820-TIPS if you think there is a significant discrepancy between the real numbers and what’s been reported. Maybe this isn’t a simple counting problem. Maybe there are significant discrepancies between the secret truth and the widely reported statistics.

Hey, we’re dealing with an industry that is fundamentally unaccustomed to transparency. Who knows what will happen when you turn the lights on.

Are Law Firms Overstating Their Profits? [WSJ Law Blog]


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