Reinventing The Law Business: A 'Profits Per Partner' Emancipation Plan

What are the many advantages of not fixating on Profits Per Partner as a law firm metric?

This is a continuation of the article I published in ATL two weeks ago. My previous article gave my view that the profitability metric of “Profits Per Partner” becomes in effect a master (rather than a servant) and is destructive and a root cause of some serious problems for Biglaw. In this article, I put forth a different way of doing business.

A long time ago, we at Duval & Stachenfeld decided that we would not make partnership decisions in our law firm based on a “numbers game.” Instead, we would look at the quality of the associates, and if they were qualified, we would make them partners irrespective of the effect that had on our firm economics. We have stuck to that view rigorously.

Over time we came to some realizations:

First, we realized that doing this worked well with our core mission to “attract, train and retain talent,” because there was every reason for talent to stick with our firm since we were providing a long-term future, as opposed to “up or out,” which much of our Biglaw competition had espoused.

Second, we realized that we were benefiting from the fact that none of our core talented people were leaving the firm (other than those occasionally moving in-house or moving out of state). Yes, this sounds self-serving, but it is true nonetheless. There was simply no reason for our talent to leave as we were making sure they had opportunities for promotion and a future as partners in the firm. This also resulted in our clients sticking around too because clients typically follow the lawyers.

Third, we realized that we were making the firm “appear” a lot “less” profitable than it was, because (1) we were foolishly believing in the Profits Per Partner metric as the comparative measure of profitability among law firms (yes, we were suckered in at first like everyone else), and (2) we were increasing the denominator by making lots of partners.

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Things were going well; however, there was this question that we didn’t necessarily “look” as profitable as our competition. At first, this troubled us. We wondered if we were doing the smart thing. Should we constrict the partner base like everyone else and pump up our numbers?

After a time, we concluded: no! Instead, we went stronger with our original plan and in recent years adopted our “Profits Per Partner Emancipation Plan.” This was a plan adopted by our partnership that we simply will not run our firm with obeisance to this PPP Deity. Not happening!

What does our Profits Per Partner Emancipation Plan mean? It means, for example, that if five associates come up for partner the same year and they are all qualified, they will all make partner — period!

Let’s see this in action. At the end of 2013, we made five new partners from the group – two were non-equity partners we had hired laterally, and three were associates who had worked their way up. None of these partners had significant independent “business”; however, all were excellent lawyers and superb teammates, so this was a very easy decision. Incidentally, we added three lateral senior partners from other law firms too. We went from 15 partners to 22 partners in a mere 12 months!

What does our Profits Per Partner Emancipation Plan mean? It means that we don’t have any incentive to de-equitize or fire a partner who is struggling. Sure, someone who is having trouble being economically as successful as in the past will earn less money, but if she is talented and hard-working, then we are confident that with management support she will likely succeed in the future. We don’t ask this “talent” to leave merely because she is struggling in the short term.

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Another application of this Plan applies when we are hiring a lateral partner. Most lateral partners are scared that the projections they make to us will not be hit after they are hired. When I am interviewing a lateral partner, I tell him flat out: “I don’t care if you hit your numbers. I am not buying a practice. I am buying your talent. I am 100% sure that whatever you project won’t happen (it will be higher or lower) and it won’t happen the way you think it will happen. If you are as talented as I think, then you are a great bet for future success. However, if all we are doing is for us to buy your practice then we don’t want it.” With our Profits Per Partner Emancipation Plan, we don’t need to care about these kinds of things.

Finally, we have no incentive to guarantee compensation to anyone to help our numbers. We are free to focus on long-term matters as opposed to short-term annual result, and our partners are easily able to work as a team.

Now here comes the part I cannot prove, but I strongly believe. I believe that a law firm that artificially shrinks its denominator to raise its Profits Per Partner by effectively jettisoning talent, or losing talent due to not providing promotion opportunities for that talent, will make that law firm less profitable and not more profitable over time. In this case of artificial Profits Per Partner inflation, I think that the higher Profits Per Partner number is just a temporary illusion of increased profitability.

So that what I am saying is not in a vacuum, let me apply this to my firm and show you what I mean. This will also illustrate how tempting it is to go down the road of worshipping Profits Per Partner as the ultimate master of a law firm’s fate.

In 2013 our Profits Per Partner — including all 22 of our equity partners — was $1,001,000, a shade over $1M. And, if you are wondering, no, we didn’t play with any numbers for that extra thousand dollars; that is just how it came out.

If, however, we were playing artificial games to juice our numbers: by stretching out the time for promotion to partnership — by simply not admitting or promoting partners that did not have at least enough revenues to support $1M of profits — by not counting lower economic value practices that are valuable to the firm in other respects — then our Profits Per Partner for 2013 would be somewhere over $1,400,000.

As you can see, it is very tempting for us to juice our numbers higher. All we would have had to do is take some of the foregoing actions and our Profits Per Partner would be over 40% higher! But what would have happened then? Those talented people would likely have left – they would have tried to take every client possible – junior talent would become more likely to quit (due to there being fewer opportunities) – and law students would be no more eager to join our firm than any other firm. If you believe, as I fervently do, that the true mission of a law firm should be to “attract, train and retain talent,” this would be the direct opposite of the way to do it.

For us this is an easy decision. All we are giving up is “appearing” falsely better in a Profits Per Partner comparison table. In return, we get to keep our most important asset, which of course is our talented people.

I will end this article now the way I began the preceding article; namely, by stating that I believe that there is NOTHING more important to any law firm now than the simple mission of “attracting, training and retaining talent.” If a law firm is messing around with Profits Per Partner in a way that impedes this mission, my prediction is that sooner or later this will be a serious problem and even a major disaster for that law firm.

Whether I like it or not, my tiny little firm cannot drive the market. I have only 65 lawyers and 22 equity partners. At some point I suspect a major firm will take the plunge and also adopt a Profits Per Partner Emancipation Plan. I wonder which major firm that will be?

In my third article of this four-article series, I will give my thoughts on a subject that I think goes beyond the analysis Profits Per Partner. It is a concept I call “Embracing Volatility.”


Bruce Stachenfeld is the managing partner of Duval & Stachenfeld LLP, which is an approximately 70-lawyer law firm based in midtown Manhattan. The firm is known as “The Pure Play in Real Estate Law” because all of its practice areas are focused around real estate. With over 50 full-time real estate lawyers, the firm is one of the largest real estate law practices in New York City. You can contact Bruce by email at thehedgehoglawyer@gmail.com.