Biglaw reporting season continues. But this year we have an interesting twist: K&L Gates decided to share (covered by Lat and Bruce MacEwen, among others). Thankfully, the sharing is not of the “we overstated our revenue by a couple hundred million, and owe a bunch of old and retired partners way more than that anyway” variety. Rather, the firm released financial information that goes a little beyond what you see in your typical Biglaw firm reports (which I previously discussed).
While I have seen the firm hailed as courageous in some quarters, I am reluctant to declare this a huge leap forward towards Biglaw financial transparency. For one, there are other firms that put out even more complete “annual reports,” like Allen & Overy (thanks to an ATL commenter for that reminder), a firm that seems to be hanging on to a lockstep compensation model for partners. Second, as Lat pointed out, there are even internal sources within K&L Gates asking the types of questions that the firm’s “enhanced” report does not answer.
Personally I find a few things about this whole to-do interesting and a bit frustrating….
On the one hand, the firm does deserve credit for releasing more information that its peers — especially since it did not wait for a boffo year to trumpet its performance. In fact, it looks like 2012 was a treading-water type exercise for the firm financially. That stable performance, however, seems to have masked a heck of a lot of turnover, even for a mega-firm. I have yet to see the memo announcing that Biglaw is adopting a Jack Welch-type yearly culling of its bottom 10 percent staffing model for attorneys. Maybe that is the next announcement. We know culling happens in some measure, and with declining demand for Biglaw services, maybe firms will be emboldened to highlight their “revenue management” skills a bit more.
But the market is not ready for that kind of brutal honesty yet. Instead, we see heavy pushing of a “we are the anti-Dewey” line by K&L Gates — not a terrible strategy, by the way. Remember, one of the surest (if not the only remaining) ways of capturing market share nowadays is via laterals. I am talking new clients. Bringing one in the fold is challenging for firms. Most young partners do not have the sales skills or reputations to bring new clients in yet. Mid-level and senior service partners — forget it in this environment. And rainmakers are busy playing defense most of the time. So laterals are often the great hope.
If we were talking about a political campaign, K&L’s “News Advisory” would need a “paid for” advertising disclaimer at the bottom. The firm clearly wants prospective laterals to see it, read it, and tuck away the knowledge that there is an option out there in mega-Biglaw for them. At a firm that is unafraid to embrace the challenging environment, and is not scared to put out information publicly about how they are coping. While getting some front-page play in the Biglaw press in the process.
Now the cynic in me wants to downplay the impact of this enhanced financial reporting. Forget about the numbers a second. (Dewey aside, I think the outside auditing angle is really minor — I just don’t see a firm even trying to cook the books nowadays. It is easier to shut the place down than to try and futz around faking financial performance.) In my mind, the bigger disclosure that K&L Gates makes happens whenever Peter Kalis opens his mouth publicly to take about the strategic direction of the firm. Because he is one of Biglaw’s most prominent “Chairman Maos,” and his firm is large and profitable enough to move the needle should it decide to merge again for example, or invest wholeheartedly in becoming the biggest player in one of its markets.
Ultimately, even a Biglaw aficionado like myself does not really care too much about K&L’s revenue ups or downs (at bottom it is just another Biglaw firm that enjoys healthy profit margins but faces a lot of competition), or even their equity-partner compensation spreads. (But it is cute that they chose to focus only on equity partners, as a really obvious way of making the spread look moderate. Is an 7.9:1 really that much better than a 15:1? I don’t know the actual spread there, but to me, once you get over a 5:1 spread, just admit you pay by performance rather than seniority and move along.) It is another Biglaw firm, and gets put in the bucket of potential future employer. That’s it. The questions that partners are asking these days are more pointed. Especially since your average Biglaw partner is as far as someone with that title has ever been from the management and day-to-day operation of their firm.
When I think about transparency, I want to know whether or not my firm is willing to invest in my practice area. Or what I need to do in terms of performance to move into the inner circle. Or whether I ever have a shot of getting groomed for a leadership position. Or where our new clients have been coming from, and whether our long-time clients are happy with our services. As Biglaw firms get bigger, and management more centralized, it is hard to feel optimistic that internal transparency will improve much. And for most of us just trying to make a living, additional external transparency by Biglaw firms is likely to be valued more like a Google earnings report than something very useful. For an industry strangely obsessed with telling the world how much we pay and get paid, there is still a long way to go — especially when supposed “owners” feel like they only get a quick peek through or over the gates at the real action.
Would you want to see more firms to become more transparent in the manner that K&L Gates just tried? Let me know in the comments or by email….
Anonymous Partner is a partner at a major law firm. You can reach him by email at [email protected].