Reinventing The Law Business: Making Partner -- Doing The Math

Why are large law firms so stingy when it comes to making new partners?

Many years ago in college I was a math major. Today I remember absolutely none of it; however, I remember why I liked it. It is because, if you don’t mess up your calculations, math tells you the truth.

Today, much has been written about the concept of “making partner” for an associate. I believe there was an article (I don’t remember where) that talked about the fact that at some firms 100 first-year associates are hired and the long-term process of “making partner” is like the Hunger Games (affiliate link), where associates are winnowed out until only a very few actually make the cut at the end.

The thought that some of the most brilliant people in our country would work themselves incredibly hard in high school to get into a great college – then work themselves even harder to get into a top law school – then work themselves even harder still to land a job at a top law firm – only to play the Hunger Games against other people who are as brilliant as they are for nine years to “make partner” defies logic. Why would any super-smart person do that? It also defies logic why major law firms, which have achieved the holy grail of any industry (namely, the ability to attract the greatest talent in the world), would squander (winnow) that talent away.

I will put those questions aside for the moment (and maybe address them in later articles) and here just talk about the math of “making partner” — and how there is really no reason for either of the foregoing issues to exist….

As I mentioned in my past four articles, many of the major law firms are caught in a Profits Per Partner trap. I did my best in these articles to describe and espouse a way out of that trap by suggesting a Profits Per Partner Emancipation Plan. Here is another (even easier) way to get out of the trap.

Let’s start by analyzing what happens if a senior associate makes partner at a major law firm.

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A senior associate earns about $375,000 nowadays at a major law firm (including bonus and all relevant costs) and, according to the surveys I have seen, bills out at about $725 per hour and bills about 1750 hours. If I subtract roughly 15% for discounts and write-offs (which is what I believe is roughly average for major law firms according to these same surveys), this means that the associate roughly earned profits for the firm of about $700,000.

Let’s make this associate a partner. If her compensation as a junior partner rises to, say, $550,000 (which is a rough guess for the compensation for a first-year partner at major law firm, since I do not actually have that data), her billing rate rises to, say, $850 per hour, and the 1750 hours billed stays roughly the same, then this associate is now generating about $715,000 for the remaining partners (i.e., the partners who elected to have this associate become a partner).

This means that the cost to the existing partners of making an associate a partner is negative! Indeed, the existing partners make $15,000 more money if this associate becomes a partner!

However, of course the Profits Per Partner number for this major firm would drop in this hypothetical since the denominator has increased. So if this associate is highly talented, the tradeoff becomes incredibly pronounced:

Promote talent and make more money overall but take a small hit to Profits Per Partner

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or

Fire talent and make less money for the sole reason of keeping Profits Per Partner high

Is my math wrong? I don’t think so.

I see how Biglaw got into this Profits Per Partner pickle, but it just makes no sense to me to winnow out your talent in order to make…. less…. money? I really like our Profits Per Partner Emancipation Plan, which means we don’t have any incentive to do anything but make talented associates into partners.


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 close to 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.