Peter J. Kalis, Chairman & Global Managing Partner
Yale Law School, JD
77 (69 2Ls, 8 1Ls)
from the firm
Ed. note: This is the first installment of The ATL Interrogatories, brought to you by David Carrie LLC. This recurring feature will give a notable law firm partner an opportunity to share insights and experiences about the legal profession and careers in law, as well as about their firms and themselves.
1. What is the greatest challenge to the legal industry over the next five years?
Although I’m tempted to do a passable imitation of a legal consultant and talk about globalization, innovation and the New Normal, all of which are important, in fact the fundamental challenge facing our industry over the next five years and beyond is to preserve the Rule of Law in a world in which an increasing number of globally significant economies have no comparable tradition and in which some governments don’t respect rights of individuals and enterprises. The world, our industry and our profession would be much different if norms we associate with the Rule of Law were defined downward as a by-product of globalization. I know it’s a stretch for an audience focused during difficult times on real and immediate career challenges to shift gears and focus on a seemingly abstract concept such as the Rule of Law. The times tend to divert all of our gazes inward. But there is no one reading this who is more self-absorbed than the least self-absorbed law firm managing partner.
We all need to do a better job when it comes to talking about and vindicating the Rule of Law in our day to day lives. I know that I do. With all of the misguided talk about vocationalism in legal education, moreover, I also worry that our law schools are not pounding away sufficiently at the foundational importance of the Rule of Law or the role of U.S. lawyers, among others, as its missionaries.
2. What has been the biggest positive change to the legal profession since the start of your career?
Over the last 30 years, we’ve seen the advent of a true market for legal services in which ideas and services are sharpened through competition, law firms wax and wane based on performance, and consumers of legal services are empowered to make retention choices based on value propositions. For lawyers and law firms willing to embrace competition, and of course for clients, the development of a true market for legal services has been transformative and positively so.
3. What has been the biggest negative change to the legal profession since the start of your career?
In the last three decades, the practicing side of the profession has become more open, more scrutinized, more transparent, more competitive, more diverse, more global, more remunerative, more complex, more client-focused, more meritocratic and more interesting. What’s not to like about those trend lines? On the other hand, legal education is lost in a wilderness of self-doubt, operates with a business model that often confers upon its graduates more burdens than benefits, and as a result seems headed for a gigantic market correction. Lives and aspirations will be altered and likely not for the better.
4. What is the greatest satisfaction of practicing law?
Winning. Did I just quote Charlie Sheen?
5. What is the greatest frustration of practicing law?
Clients don’t retain you to lose, and there’s nothing more frustrating than delivering a bad result to a client who deserved much better.
6. What is your firm’s greatest strength?
We’re positioned at the critical crossroads of the 21st Century — at the intersection of globalization, regulation and innovation. With 46 fully integrated offices on five continents, we can address clients’ needs arising from the movement of people, products, services, capital and ideas across national borders. With leading policy and regulatory practices and offices in a dozen world capitals, we can address the ratchet-like interventions of governments into private markets. With leading IP litigation and prosecution practices, we can serve clients in the creation and protection of intellectual property. And, importantly, we’re fully integrated with a single profit pool, unitary governance, a single brand, no interior profit borders or firewalls, and we have all of the other operational and financial features that are emblematic of a truly integrated law firm capable of serving clients seamlessly across disciplines and around the globe.
7. What is the single most important personal characteristic for a successful lawyer in your field?
I’ve never met a single successful lawyer in any field who isn’t very smart. High intelligence is a prerequisite to success in practicing law because advising clients on how to deal with crushing legal complexity is very hard intellectual work. Of course, degrees of success can thereafter fluctuate based on levels of emotional intelligence, verbal capability, work ethic, a winning personality and so on. But you have to be very smart.
8. What is your favorite legally themed film or television show?
My Cousin Vinny. Sorry. I’m sure you wanted something more profound or trendy. But I watch “movies,” not “films,” and I go to the movies to be entertained, not to deceive myself into thinking that I’m spending a couple of hours immersed in an advanced art form on a par with literature, architecture, painting, sculpture or music. (I’m really happy that you disabled the comment function.)
9. What is your favorite legally themed book (fiction or non-fiction)?
My Mom and Dad ran a little Greek diner. I could see myself as a restaurateur. Or as a researcher for Above the Law.
David Carrie LLC is the legal search firm of choice for high profile law firms and organizations worldwide. David Carrie recruiters have a unique understanding of the motivating forces behind good placements — both from the perspective of the employer and the candidate. Our team includes attorneys who have practiced in the areas in which they perform searches. Many of our team members are former corporate executives who have been responsible for hiring lawyers for their companies. No one knows more about this process than we do. We have experienced it at every level.
Biglaw branding sounds painful, but thankfully, associates at the highest and mightiest of firms don’t have to sear their flesh with their firms’ logos. Biglaw branding is more about the image firms want clients to see when making hiring decisions, and partners are likely equally as worried about their reputations in the marketplace as their year-end profits.
The last time we spoke about law firm branding, we found out that Skadden had the most recognizable brand in the country. But we, loving rankings as we do, wondered which law firm had the best brand in the world. Luckily for us, hot on the heels of the release of the Am Law Global 100, Acritas published its 2013 Sharplegal Global Elite Brand Index.
Who’s got the best Biglaw brand on the planet? Let’s find out…
Acritas ranks Biglaw firms based on feedback from their most important clients: general counsel at companies across the globe with revenue of at least $1 billion. Here’s how the survey was conducted:
All interviews were conducted by telephone in local languages across 55 countries between January and September as part of the ongoing Sharplegal 2013 survey.
The Sharplegal Global Elite Brand Index is determined through four open-ended questions from the full survey to ﬁnd out from general counsel:
- The ﬁrst law ﬁrms to come to mind
- The ﬁrms they feel most favorable towards
- The ﬁrms most considered for multi-jurisdictional deals
- The ﬁrms most considered for multi-jurisdictional litigation.
As noted in Morning Docket, DLA Piper, the recently crowned King of the World in terms of revenue, did not take the title of the best brand. Instead, the firm that was dethroned from the seat of power on the Global 100, Baker & McKenzie, came in first place in the Acritas ranking, for the fourth year in a row.
Here are the top 10 global Biglaw brands of 2013, per Acritas (click here to see the full list):
Much of this list has changed from last year’s ranking. While B&M maintained its position (as did DLA and Allen & Overy), the rest of the top 10 shuffled around, and one of the most prestigious firms got booted from the list of the best-known firms in the world altogether. Skadden, once seated at #7 on the Acritas ranking, has landed inelegantly at #13. According to Sarah Chisman-Duffy, head of Acritas Asia-Pacific, Skadden doesn’t have a “clear vision of where it sits in the market.” Ouch. We think Skaddenites will feel better after rolling around in their billions of revenue. White & Case also fell from #10 to #11.
But Baker & McKenzie better watch its back in the global legal marketplace, because rival firms, dubbed the “rapid risers” by Acritas, are quickly catching up — their brand strength has increased dramatically over the past four years. Congratulations are due to the following firms: Kirkland & Ellis (also a rapid riser on the Am Law Global 100); DLA Piper; King & Wood Mallesons; K&L Gates; and Gibson Dunn.
Once again, this ranking speaks volumes as to which Biglaw firms are on top when it comes to client loyalty, but there are only two U.S.-based firms in the top 10 of the Acritas Global Elite (Hogan Lovells is a product of a U.S./U.K. merger). What does this say about our lawyers? Our Biglaw firms might be doing something right, but surely there’s a way to do things differently to propel additional firms to success.
As was vividly demonstrated by our recent infographic, Biglaw’s summer associate classes have undergone a major and seemingly permanent contraction. For the most part, large — arguably bloated — summer associate classes are a thing of the past. Among the Am Law 50, only eight firms are bucking this downward trend, with actual increases in the size of their summer classes since 2007. These firms are a collection of Wall Street’s oldest and most elite white shoe mainstays: Sullivan & Cromwell, Cravath, Davis Polk, and their ilk. On average, these firms were founded 112 years ago (i.e., during the McKinley Administration). The outlier here is the relative upstart litigation powerhouse Quinn Emanuel, founded only back in 1987.
Besides the durability and strength that comes with such a refined pedigree, what other trends are apparent in this great downsizing of Biglaw’s summer associate classes?
Some further observations on the decline of the giant Biglaw summer associate class:
Changes in summer associate class size by geographic region (based on a firm’s HQ or original location)
New York City: -22.5%
Ouch, Chicago. The aforementioned small group of firms experiencing growth in their summer classes are largely in New York, and would help account for the relatively smaller decrease there.
Firms which are the product of a major merger within the last decade have seen a decrease of 47.25% in the size of their summer classes. This group includes K&L Gates, DLA Piper, Dentons, and Hogan Lovells.
Practice area strength does seems to be a factor in the direction of a firm’s summer program, with firms noted for their litigation practices remaining more stable than their more corporate peers. Firms rated as “Band 1 (nationwide)” by Chambers for Corporate/M&A practice experienced a decrease of 34%. Firms in Chambers’ “Band 1 (nationwide)” for Litigation practice experienced a decrease of just 19%.
Though reduced in number, one thing still remains as true as it was in the halcyon days of the mid-aughts: summer associates are the happiest campers in all of Biglaw. Below is a comparison of ratings from the ATL Insider Survey, which asks respondents to evaluate how their firms are doing in terms of compensation, hours, morale, culture, and training. Unsurprisingly, when compared with full-time attorneys, summers give their firms decidedly higher marks on every count:
Finally, if you haven’t yet, please take a few minutes and respond to our survey here. Thanks.
Earlier this year, K&L Gates generated some (generally positive) press by issuing an unusually detailed disclosure of its firm financials. The report reflected a reassuringly conservative financial position, with zero bank debt and limited retirement-plan obligations (a trouble spot for many other law firms).
It looks like K&L Gates is keeping to its conservatism. It’s trimming its headcount in D.C. and Seattle, presumably to reduce expenses….
Here’s what we’ve heard from our sources:
As of Friday, August 30, the firm’s Document Services (DS) department will shut down in D.C. and Seattle, resulting in 24 to 30 staffers losing their jobs.
DS will now be based out of the Pittsburgh office.
Employees interested in transferring to the Pittsburgh office will have to apply for positions there.
Severance is being provided, one week per each year of employment.
UPDATE (2:00 p.m.): Actually, laid-off staffers are receiving two weeks of pay plus one week of pay per each year of employment.
This severance is not on the high side; other firms give as much as six months of severance to laid-off staffers. But some of the DS employees at K&L Gates have been with the firm for ten years or more, so they’ll be getting at least a few months of pay.
Here are additional details from a tipster:
This apparently was a last-minute decision of the powers that be in Pittsburgh. Everyone will have to be out by this coming Friday.
This is after the department hired new staff just six months to a year ago due to excessive workload.
Alas, law firms aren’t the greatest when it comes to managing their talent pipelines. Recall the firm that started laying off IP lawyers and staff attorneys just a year or so after it was recruiting them like crazy and paying referral bonuses for them.
We reached out to K&L Gates. The firm declined to comment.
Good luck to the dismissed Document Services employees. If you aren’t tied to Seattle or D.C. for family or other reasons, consider moving to Pittsburgh. Last year, Bloomberg Businessweek named Pittsburgh the 11th-best city in the United States. The idea of moving to Pittsburgh rather than away from it in order to get a job shows how things have changed in the Steel City — for the better.
UPDATE (8/30/2013, 9:15 a.m.): A bit more from a tipster:
There will be a transition team in DS in place until the end of September, meaning that the firm will keep about 6 people in the team for DS (which includes one person in the Seattle office DS). It also looks like there will be 6 people in the EDGAR team (meaning permanent staffing for the SEC filings), and they’re keeping their graphics person, who I believe will be in or under the Marketing department. Today a more definite plan will be established.
* After three years on top, Baker & McKenzie has lost its place as the top grossing firm in the Global 100. But which firm dethroned the once king? None other than… [Am Law Daily]
* Today we celebrate the 50th anniversary of Martin Luther King Jr.’s March on Washington, and yet some of the things he sought to change still remain the same in 2013. [Washington Post]
* The house always wins: Navin Kumar Aggarwal, the ex-K&L Gates partner who stole client funds to pay gambling debts, was jailed after receiving a 12-year sentence. [Am Law Daily]
* “This is like a triple-overtime win.” Merrill Lynch is making a huge $160 million payout in a racial bias case that’s been stuck in the courts for nearly a decade. Congrats, plaintiffs! [DealBook / New York Times]
* As eager young law students return to school, maybe it’s time for you to consider brushing up on the basics. Now is an excellent time to take care of those pesky CLE requirements. [Corporate Counsel]
* Career alternatives for attorneys: judicial drug mule. Following an investigation by the DEA, a former Utah judge pleaded guilty to the possession of enough Oxycodone to kill a small horse. [Salt Lake Tribune]
* Don’t even think about texting anyone, ever again, in the state of New Jersey, especially if they might be driving, because the appeals court says you could be held liable for negligence. [WSJ Law Blog (sub. req.)]
* Louisville coach Rick Pitino promised his players that he’d get a tattoo if they won the NCAA tournament. I’m hoping Peter Kalis makes the same pledge if K&L Gates makes its projected annual profits. [Huffington Post]
* Hey, Houston readers! Since I’m in town for our event tonight, I wanted to give a plug for the OKRA Charity Saloon. I visited last night and it was great — a beautiful space and all the profits go to a charity that you get to vote on (one ballot for each drink you get). An all-around great idea. So if you’re looking for a location for your next happy hour… [OKRA Charity Saloon]
* James Poulos makes a good point: it may put you horribly, horribly in debt, but education is still a good thing. [Forbes]
* Tomorrow check out our newest series: Unofficial Orientation to Law School. We will be video chatting with students, professors, and hiring managers about how 0Ls can successfully launch their legal careers. This series is presented by LexisNexis, BARBRI, and Law Preview, a BARBRI Company. [Above the Law]
* Have you ever wanted to see puppets set to the L.A. Law theme song? No? Well, after the jump you can see it anyway….
Roger Ebert passed away last week, robbing us of a great film critic and an equally insightful social critic. Ebert loved the movies and his critical ire was only raised when films failed to live up to the standards he’d set in his own mind.
But one genre of film seemed to give Ebert consistent fits — the legal movie. From drama to comedy, if the film found its way into a courtroom, Ebert was likely on the wrong side of public opinion. As a tribute to the critic, we’ve gathered some of his reviews to pass final verdict on Ebert’s understanding of the legal genre….
There may be some spoilers here if you’re the kind of person who worries about spoilers from movies made 50 years ago.
The problem here, for me, is that the conviction of Tom Robinson is not the point of the scene, which looks right past him to focus on the nobility of Atticus Finch. I also wonder at the general lack of emotion in the courtroom, and the movie only grows more puzzling by what happens next. Atticus is told by the sheriff that while Tom Robinson was being taken for safekeeping to nearby Abbottsville, he broke loose and tried to run away. As Atticus repeats the story: “The deputy called out to him to stop. Tom didn’t stop. He shot at him to wound him and missed his aim. Killed him. The deputy says Tom just ran like a crazy man.”
That Scout could believe it happened just like this is credible. That Atticus Finch, an adult liberal resident of the Deep South in 1932, has no questions about this version is incredible. In 1962 it is possible that some (white) audiences would believe that Tom Robinson was accidentally killed while trying to escape, but in 2001 such stories are met with a weary cynicism.
The construction of the following scene is highly implausible. Atticus drives out to Tom Robinson’s house to break the sad news to his widow, Helen. She is played by Kim Hamilton (who is not credited, and indeed has no speaking lines in a film that finds time for dialog by two superfluous white neighbors of the Finches). On the porch are several male friends and relatives. Bob Ewell, the vile father who beat his girl into lying, lurches out of the shadows and says to one of them, “Boy, go in the house and bring out Atticus Finch.” One of the men does so, Ewell spits in Atticus’s face, Atticus stares him down and drives away. The black people in this scene are not treated as characters, but as props, and kept entirely in long shot. The close-ups are reserved for the white hero and villain.
Verdict: Ebert’s right. I’d expected to disagree with Ebert, but his reasoning is pretty incisive. The decision to move the film off the mooring of a child’s memory renders a lot of the subtext invisible, and the film is terminally disrespectful of the African-Americans whose plight theoretically forms the basis of the legal tension. I’d never mistaken To Kill a Mockingbird for much more than the white, liberal interpretation of the Jim Crow South, but after reading Ebert’s review, I can’t unsee the substantive flaws in the film.
`My Cousin Vinny” is a movie that meanders along going nowhere in particular, and then lightning strikes. I didn’t get much involved in it, and yet individual moments and some of the performances were very funny. It’s the kind of movie home video was invented for: Not worth the trip to the theater, but slam it into the VCR and you get your rental’s worth.
Verdict: I guess Roger is right that this is the sort of movie VCRs were invented for, but only because a movie like this demands repeated viewing. Admittedly, there is a lawyer’s bias toward enjoying this film since its depiction of the courtroom is one of the more realistic (voir dire of the expert witness in front of the jury aside) in cinema. Justice Scalia has even cited the film in argument. Peter Kalis loves it. Judge Kozinski gives it a perfect score. But beyond the legal candy, the film is smart and funny, and well worth the price of admission. Ebert missed the boat on this one.
Rob Reiner’s “A Few Good Men” is one of those movies that tells you what it’s going to do, does it, and then tells you what it did.
It doesn’t think the audience is very bright. There is a scene that is absolutely wrong. In it, a lawyer played by Tom Cruise previews his courtroom strategy to his friends. The strategy then works as planned – which means that an element of surprise is missing from the most important moment in the movie, and the key scene by Jack Nicholson is undermined – robbed of suspense, and made inevitable.
Verdict: This is a film where the acting overwhelms the plot. Sure, we all know Jack Nicholson is going to botch his testimony under pressure, but that doesn’t diminish the impact of his admonition of our truth-handling capabilities.
Perhaps this review best sums up Ebert’s problem with the courtroom setting — it’s never really a surprise. By its nature, a litigation is a planned event. Even when Hollywood tries to spice it up, it can’t run away from the fundamental premise that a team of lawyers will meticulously plan a strategy that they will, most likely, carry out with some level of success. If the legal protagonists don’t plan a strategy and then watch it unfold, then they aren’t doing their job. A film has issues if the audience thinks the protagonists are bad at their jobs.
Think about the entire crew of Armageddon. It doesn’t take a Roger Ebert to know that movie sucked.
* “Do you know which state has the worst ratio of white voter turnout to African American voter turnout? Massachusetts.” Sorry, Chief Justice Roberts, but the Bay State’s top elections official begs to differ with your assessment. [WSJ Law Blog (sub. req.)]
* This retired SCOTUS justice — the first woman to ever serve on the nation’s highest court — now refers to herself as “an unemployed cowgirl.” We wonder what Justice Scalia will refer to himself as in interviews after he retires. [Sacramento Bee]
* Mayer Brown wasn’t the only Biglaw firm that had a terrible, horrible, no good, very bad year. Dorsey & Whitney’s 2012 revenue was also at a six-year low, but firm leaders think they can turn it around. [Star Tribune]
* Billion-dollar patent verdicts, so hot right now: 2012 was a “banner year” for for Biglaw firms representing winning clients, with K&L Gates leading the pack for the highest monetary award. [National Law Journal]
* “I wouldn’t want to be coming out of law school now.” Oh my God, you guys, the legal job market is still really tough for brand-spanking new law grads. This is new information that no one’s heard before. [Buffalo News]
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….
As we mentioned this morning, preliminary reports suggest that profits and revenue at large law firms were up in 2012. As we noted yesterday, some firms — e.g., litigation powerhouse Quinn Emanuel — enjoyed double-digit increases in gross revenue and net profit.
Of course, these firm financial reports, reported to and compiled by the American Lawyer magazine, are not as detailed as they could be. They certainly aren’t as detailed as the quarterly and annual reports filed by publicly traded companies, even though a fair number of Biglaw firms have revenues and profits that exceed those of public companies.
And they probably never will be, at least as long as U.S. law firms are private partnerships rather than publicly traded companies. But at least one firm is opening the door a crack and letting more light in….
Yesterday Kalis sent around a firm-wide email announcing the firm’s financial results. From his message (reprinted in full on the next page):
Although our firm’s financial performance is fully transparent to our partners, we wish to extend that transparency to all of our lawyers, including associates, and to include categories of information that industry publications have ignored. We also appreciate that such transparency afforded to over 2,000 people around the world will likely not stay within our firm family. Accordingly, the News Advisory found at the link below will also be distributed to industry and other media outlets and posted on our web site.
“We also appreciate that such transparency afforded to over 2,000 people around the world will likely not stay within our firm family.” Exactly. So instead of fighting the trend towards transparency, K&L Gates has decided to embrace it:
In the News Advisory, we not only have enlarged the scope of financial information beyond what other law firms and industry publications provide but also have substantially altered the presentation of our financial results to bring it more in line with the standards and format used in other industries. We have taken these steps because, with greatest respect to the hard-working reporters and editors who each year compile and present financial data on major U.S. law firms, it’s unfortunately the case that law firm financial reporting has become clouded with confusing, irrelevant and at times false information.
Kalis then cites the debacle of Dewey & LeBoeuf, whose misstated financials “remained undetected and unchecked over multiple years by publications in the U.S. and the U.K.” And he points out that it’s hard to tell which firms are being truly honest and which firms aren’t:
Published finances of U.S. law firms are based on data secretly supplied by law firms or other sources with little or no public accountability. We don’t know which law firms cooperated by dutifully filling out surveys, which ones did not cooperate but whose results are nonetheless presented as equally authoritative, or what the methods and sources are for determining financial results when firms do not cooperate.
After getting in a dig at what he calls the “Faux Firm 100″ — ouch, I hope Am Law’s feelings aren’t hurt — Kalis provides his bill of particulars:
Publications make no effort to adjust metrics to account for different business models of different law firms and seek instead to exploit these apples-to-oranges comparisons in order to create story lines for their magazines. Metrics expressed as averages, for example, have been rendered increasingly irrelevant in an era of radically different law firm business models and geographic footprints as well as equally divergent approaches to sharing equity ownership. Yet such problematic metrics remain central to the magazines’ approach to financial coverage of the legal industry and thus drive unfortunate and destructive behaviors within law firms.
For more on this subject, check out Bruce MacEwen’s excellent post on Adam Smith Esq., We Can Do Better. As MacEwen notes, “We are the profession that excels at disclosure, but we don’t apply that liberating discipline to ourselves.” He proceeds to explain why it doesn’t make sense to use the same metrics to evaluate all firms, considering that different firms have different strategies.
(Speaking of Bruce MacEwen and Peter Kalis, if you’re a law firm partner and would like to meet them here in NYC this coming Tuesday, read this post and request an invite to our event if you’d like.)
Kalis’s message concludes:
These and other shortcomings in the present system reflect faulty design, not lack of effort or professionalism of those who execute their reportorial and editorial missions each year. Nevertheless, until the design is improved, we believe that neither the industry nor this firm is served by contributing to the incomplete and misleading presentations of financial data relating to major law firms.
In terms of the substance of the financial results, as opposed to the fact of their disclosure, here are some highlights from the WSJ Law Blog:
K&L Gates LLP posted its 2012 and 2011 results on its website Thursday in an unusually detailed accounting that included information on the firm’s bank debt (none), its retirement-plan obligations (0.3% of revenue) and a breakdown of firm revenues by region.
Zero bank debt, and limited retirement-plan obligations. This reinforces the themes sounded last September in Peter Kalis’s vigorous defense of his firm against negative rumors.
The firm, which has roots in Pittsburgh but has grown to more than 2,000 lawyers world-wide through a series of mergers, reported revenue of $1.06 billion, a slight decline from 2011. In 2012, K&L Gates netted $320.5 million in profit and had profit per partner of $899,960 for the firm’s roughly 250 full equity partners, according to the results.
As noted by Am Law, that’s roughly similar to 2011, when profit per partner for “full” equity partners was $890,000. If you take into account all equity partners, average profits per partner grew by 1.6 percent, from $627,000 in 2011 to $637,000 in 2012.
K&L Gates also disclosed other internal numbers that most U.S. firms keep to themselves, such as the ratio of compensation earned by the highest-paid partner to the average pay for first-year equity partners: 7.9 to 1.
That’s about middle of the road. At traditional lockstep firms, the “compression ratio” generally hovers in the low to middle single-digits. At Dewey, whose demise contributed in part to K&L Gates’s desire to be more transparent, the compression ratio reached 25 to 1.
The media reaction to K&L Gates’s move towards transparency has been positive. Check out the coverage from Jennifer Smith of the WSJ Law Blog, Peter Lattman of DealBook, and Bruce MacEwen’s previously mentioned post on Adam Smith Esq.
Of course, not everyone’s on board. After K&L Gates posted its financials, we received a sarcastic text message requesting another puff piece on Peter the Great. (In terms of prior puff pieces, presumably this person was thinking of this interview and this praise of Kalis’s candor.)
After the prefatory snark, this source — who asked to remain anonymous, citing a fear of retaliation from Kalis — made a few substantive points:
What would explain the net decline in 2012 of 162 in attorney head count? (The firm cites attrition in its press release.)
How much expense lurks behind the rather small increase ($21 million) in revenues outside the Americas?
For the “Compensation Compression Ratio,” defined as the “[r]atio of the compensation of the highest paid equity partner to the average of first-year equity partners’ compensation,” who counts as an first-year equity partner? Do incoming laterals count? (That would presumably have the effect of lowering the ratio.)
The firm’s numbers are prepared under no defined system of financial reporting.
That last point doesn’t trouble me that much. First, this is all relative, and I’m unaware of any large law firm that has offered a more detailed disclosure of its financials than K&L Gates. Has Cravath issued audited financial statements prepared by a Big Four firm pursuant to GAAP?
Second, according to the WSJ Law Blog, the numbers are being audited. The firm expects the audit process to conclude this spring.
It seems to me that K&L Gates’s disclosure, even if imperfect, is a step in the right direction. Just like in the law school context, the move towards greater transparency in Biglaw is happening, slowly but surely. Some might want the pace to pick up, but that might not be a realistic expectation, given the generally gradual pace of change in the legal profession. So let’s take what we can get, and hope for even more in the future.
(You can check out Peter Kalis’s full email, as well as links to additional coverage of the K&L Gates financials, on the next page.)
* Law School Transparency? Nay, Biglaw Transparency! Peter Kalis, global managing partner of K&L Gates, just opened the kimono wide on his firm’s financial performance in an “unusually detailed” fashion. [Wall Street Journal (sub. req.)]
* Talk about a pain in the pocketbook: although profits per partner and revenues are up overall, one firm saw shrinkage of 16 percent in PPP. [Thomson Reuters News & Insight]
* The ABA is just now thinking of trying to find someone who will audit the graduate employment data that law schools release each year. Gee, it only took 15 fraud lawsuits to get the ball rolling. [National Law Journal]
* Oh my God, you guys, carrying six figures of law school debt on your shoulders is “unsustainable” in the long run, especially when your salary sucks. This is new information that no one’s heard before. [News-Gazette]
* Former U.S. Attorney Jim Letten is now Tulane Law’s new assistant dean for experiential learning. For the school’s sake, hopefully he’ll be able to control his students better than he did his AUSAs. [Tulane Hullabaloo]
* “You’re a cold-blooded murderer and I’ll stare you down until I die.” Drew Peterson was sentenced to 38 years in prison for the murder of his third wife. A sequel to the Lifetime movie is likely forthcoming. [Reuters]