Biglaw, Partner Issues

A Step Backwards For Financial Transparency In Biglaw

A leader in transparency falls back into the pack.

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Closing the gates on financial disclosure?

In the legal world, as well as the world more generally, the trend is in favor of transparency. Technological advances, including but not limited to social media, make it much easier to share information — and much harder to hide it.

Here at Above the Law, we help bring greater transparency to the often opaque legal profession. This enables lawyers and law students to make more informed decisions about their legal careers and their lives.

But the move towards transparency does not proceed uninterrupted. A few steps forward are sometimes followed by a step backward. For example, the ABA is thinking about requiring less rather than more disclosure from law schools when it comes to graduates’ employment outcomes (a move that it’s currently reconsidering, after significant criticism and public outcry).

A similar development is happening in the world of Biglaw: K&L Gates, a firm that has long prided itself on financial transparency, is now moving in the opposite direction. After four consecutive years of publicly posting its financial statements, the firm has closed the gates on such disclosure.

An observant reader pointed out to me that K&L Gates posted its 2015 financials in March 2016, along with a press release. For 2017, we’re now in August, and the firm has yet to post its 2016 financials.

And don’t expect it to post them — ever. We reached out to the firm, which responded through a spokesperson: “K&L Gates did not issue a press release with its financial results for the 2016 financial year, and instead provided financial results for the year directly to Am Law.”

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But sharing financial information with Am Law is not the same thing as sharing it with the public — including firm clients, employees, and recruits. The Am Law 100 rankings contain only specific pieces of information, such as revenue per lawyer and profits per equity partner, and do not offer the comprehensive picture of a firm’s financial health that full financial statements do.

Why did K&L Gates previously disclose its financials? Here’s its explanation, from the firm website page entitled “Our Financial Transparency”:

At K&L Gates, we believe that open and honest communication regarding a law firm’s financial health is an essential part of building strong and durable relationships with clients.

In an effort to achieve greater transparency, in 2013 our global law firm voluntarily disclosed a detailed account of the firm’s 2012 financial results, a first among U.S.-based law firms. In keeping with our commitment to release this information on an annual basis, we repeated this disclosure for the next three years. This dedication has led our firm to possess one of the most transparent business models of any law firm in the world.

Whoops, scratch that! During the time that I was writing this story, the firm took down the “Our Financial Transparency” page. Not so transparent! (But you can see what the page used to look like via Archive.org.)

Was K&L Gates’s move away from “open and honest communication” driven by a desire to hide bad news? The firm conducted significant layoffs in February 2017, which is never a good sign, and suffered high-profile partner departures in 2016. But when you look at the firm’s financial results as reported in Am Law, K&L Gates actually had a fairly good 2016: revenue grew by almost 11 percent, revenue per lawyer grew by 13 percent, and profits per partner grew by 17 percent, breaking the $1 million mark.

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It’s worth noting, however, that future years might not be so golden for K&L Gates. Its 2016 results were helped by a large, one-time contingency fee award of $210 million. So perhaps it was smart to cut back on disclosure this year, despite a strong 2016, in anticipation of an ugly 2017 (and maybe beyond).

And here’s another possibility: perhaps reduced transparency is part of the post-Peter Kalis era. The iconic Biglaw leader ended his two-decade tenure as leader of K&L Gates this past February, and he was a driving force behind the firm’s transparency. Check out this YouTube video of Kalis (while you still can), The Importance of Transparency, or read this great 2012 memo of his, in which he shut down negative rumors about K&L Gates with detailed data about firm finances.

It seems that Kalis’s successors, firm chairman Michael Caccese and global managing partner James Segerdahl, don’t share their predecessor’s commitment to candor. Maybe this will be good for K&L Gates — or maybe it won’t. As Justice Louis Brandeis famously observed, “Sunlight is said to be the best of disinfectants.”

Earlier:

DBL square headshotDavid Lat is the founder and managing editor of Above the Law and the author of Supreme Ambitions: A Novel. He previously worked as a federal prosecutor in Newark, New Jersey; a litigation associate at Wachtell, Lipton, Rosen & Katz; and a law clerk to Judge Diarmuid F. O’Scannlain of the U.S. Court of Appeals for the Ninth Circuit. You can connect with David on Twitter (@DavidLat), LinkedIn, and Facebook, and you can reach him by email at dlat@abovethelaw.com.

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