If you’re a law firm managing partner, the captain of a Biglaw ship, have you done all that you can to make sure your vessel is as seaworthy as possible? You don’t want your ship to suffer the fate of the S.S. Dewey.

Some steps are easy and obvious. Conduct layoffs of unneeded associates, whether openly or stealthily. Offer buyouts to surplus support staff (or lay them off, if feeling less generous). Usher underperforming partners towards the exit, to lower the denominator for your profit per partner figure; keeping PPP high reduces the likelihood of crippling defections and helps you attract star laterals.

Those are the basic moves, which everyone is doing. For something that’s a little more challenging, a maneuver that might even impress the East German judge in its level of difficulty, you can play with your partnership capital structure….

For starters, you can issue a capital call to your partnership, which an increasing number of firms are doing. More capital from partners means less dependence on outside sources of funding (like banks, who can make life difficult for you if you hit a rough patch; again, see Dewey).

But if you’re feeling more ambitious, you can revamp the partnership capital structure itself, to get your hands not just on more capital but on more capital from more people. Here’s a report on what Akin Gump is up to, from the WSJ Law Blog:

The firm is revamping its partnership structure, moving from a system where some partners are salaried while others hold ownership stakes into what the firm calls an “all-capital” partner system, where every partner contributes pays in and gets an equity stake….

The changes at Akin Gump will take effect in January 2014 and were announced on Monday evening, the firm said.

“We thought it made sense to have everybody have skin in the game,” Akin Gump chair Kim Koopersmith told Law Blog. “It was overwhelmingly viewed positively by our income partners. They like the idea of having a stake in the firm, and the ideas of advancement and success feel more attainable in a consistent partnership.”

As you may recall, DLA Piper made a similar move back in 2008, requiring capital contributions from former “income” partners. Cynical observers viewed it as an effort by DLA to get more money in the door (although here at ATL, we were not cynical; Elie Mystal called it a “really interesting” move and praised DLA for taking “a hard look at the underlying [Biglaw] business model”).

What’s going on in Akin’s case? It’s hard to say, since we don’t have access to Akin’s full financials, but the firm told the WSJ that the capital infusion was not the motivation for the move.

Regardless of motivation, the outcome could be good. There’s much to be said in defense of partnerships composed entirely of equity partners; all-equity partnerships tend to be more stable, collegial, and cooperative than two-tier partnerships. For more extensive discussion of the virtues of single-tier partnerships, see our interview with former Kirkland & Ellis partner Steven Harper, or read his excellent book, The Lawyer Bubble (affiliate link).

Many of the changes instituted by large law firms over the past few years have caused industry observers to mourn the Biglaw of yore. These changes — easing out non-superstar partners, dismissing associates and staff, cutting back on future hiring, tightening up on office expenses — are part and parcel of the “new normal.”

But a move towards all-equity, single-tier partnerships, whether motivated by economic need or not, is different. It’s a shift towards the “old normal,” the traditional approach to partnership, in which everyone must pay to play. It makes sense in the current economic climate — in which firms simply cannot support “bloated” partnership structures, however defined — and it could be a trend worth celebrating in the end.

(For additional detail on the Akin Gump changes, flip to the next page, where we’ve reprinted a statement the firm sent to us about its shift to an all-capital partnership structure.)


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10 thoughts on “Akin Gump Overhauls Its Partnership Capital Structure

  1. successful troll says:

    I offer this advice to any Akin Gump associates hoping to make partner: check you email — otherwise Steve Pesner might loudly announce your firing while traveling on an Acela train.

  2. (Not That) Bill O'Reilly says:

    That’s all well and good, but I need someone to explain to me why this capital restructuring is obviously racist.

  3. jimbo says:

    Mr Latty Boy, you devil you. ELEVEN (!) irrelevant internal hyperlinks in this post. Legendary stuff. I am especially impressed by your ability to hyperlink a post from this morning. Just pure brilliance.

  4. Pol Pot says:

    David,

    Have you seen Elie? We were supposed to meet and go visit O.J. in prison, but I haven’t heard back from him. My Debtor’s Prison said that O.J. was on butt rest, so if you see Elie tell him we won’t be seeing O.J.

    Also, tell him my friend Adolf Eichmann wants to meet him. Turns out they have a lot in common (you know the whole murdering Jews is cool if its for a larger ideology thing).
    — Brother Number One

    • Guest says:

      I’d actually like to know whether David is embarrassed by the statements that are made by his employees. Or is David’s plan to just enjoy the additional traffic to the site and wait for the furor over Elie’s disgusting statements to die down………..before Elie posts another offensive, traffic-generating article?

      This is what you’d envisioned when you went to Yale Law?

  5. Blake Turner says:

    David, I suggest your concede your Managing Editor position to a more exciting writer. This article is painfully boring and mentions nothing about RACEISM.

  6. BlackstoneMN says:

    Elie Mystal called it a “really interesting” move and praised DLA “a hard look at the underlying [Biglaw] business model, which now includes free pizza and nachos for all the hard-working bar failures in the copy center and mail room.”
    -First draft

  7. Order_of_the_Coitus says:

    Lat’s got tiger blood today! I predict that the day soon shall arrive when Lat’s articles consist solely of orange text that hyperlinks to other ATL balderdash.

  8. JoePesci says:

    It looks like what AG is doing is just making non-equity partners into Of Counsel. I can’t understand how non-equity partners or ‘of counsel’ can be called partners anyway. I work mainly with LLCs not LLPs, but the way I understand it, neither non-equity partners nor of counsel are partners in the LLP–either you have equity in the LLP, or you don’t. If you contribute capital to the LLP and get capital points, you are a partner, if you don’t, you aren’t. You can make someone a Managing Partner (or have a class of partners who are all Managing Partners who may manage the firm) with additional management duties, but the voting in a NY LLP is by capital points, you can’t modify it in the operating agreement, and capital distributions are by points, not by your job title. You can’t, for example, just distribute profit to Managing Partners, you have to do it equitably by % points. At least with an LLC you can, however, have Managing Partners who can vote on how to run the firm, and then have Investor partners who can’t vote on routine management issues. But distributions and significant votes have to be done by % points. Of Counsel are just employees with a profit performance bonus, and non-equity partners can’t vote if they didn’t contribute capital to the LLP, in which case they are not ‘partners.’ Fun fact: NY allows you to name a Managing Partner in the LLC Certificate of Formation (so it can’t be changed without amending it), but Delaware does not.

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