Partner Profits

Katherine Forrest: Why isn't her net worth higher?

As I’ve previously mentioned, one of my favorite parts of the judicial nomination process is the attendant financial voyeurism. Judicial nominees are required to make detailed disclosures about their finances, allowing us to learn about their income and net worth. For example, thanks to her nomination to the Supreme Court last year, we got to learn about Elena Kagan’s net worth.

Last week, the Senate Judiciary Committee released financial disclosure reports for several of President Obama’s recent judicial nominees — including antitrust litigatrix Katherine B. Forrest. Forrest has been nominated to the mind-blowingly prestigious Southern District of New York, perhaps the nation’s finest federal trial court. As a highly regarded lawyer who has won numerous awards and accolades (listed in her SJC questionnaire), Forrest will fit right in if confirmed to the S.D.N.Y. — a superstar among superstars.

The fabulous Forrest currently serves as a deputy assistant attorney general in the Department of Justice’s antitrust division. She joined the DOJ last October — a commendable public-service commitment that required her to relinquish her partnership in one of America’s mightiest and most prestigious law firms, Cravath, Swaine & Moore. When she left to pursue government service, Forrest had been a Cravath partner for over 12 years (since 1998), and had been with the firm for about 20 years in all (since 1990).

At the time of her departure for the Justice Department, Katherine Forrest had been taking home hefty paychecks for decades. First she was an associate at Cravath, which pays its people quite well, in case you hadn’t heard. Then she was a partner at the firm (reportedly one of the most well-liked and most powerful younger partners) — from 1998 to 2010, a period in which average profits per partner at CSM routinely topped $2 million and occasionally exceeded $3 million. And remember that Cravath is a lockstep partnership with a reported 3:1 spread, meaning that the highest-paid partners make no more than three times as much as the lowest-paid partners. So it’s not possible that she was earning, say, $400,000, while other partners were earning millions (which can be the case at firms with higher spreads).

In light of the foregoing, what is Katherine Forrest’s net worth, according to her Senate Judiciary Committee financial disclosures? Not as much as you might expect….

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Last week’s Am Law 100 list revealed publicly a trend that partners at big law firms have been feeling acutely: The largest law firms have de-equitized partners in the last two years in an unprecedented way. In the words of one of the articles, “Equity partner head count alone slipped 0.9 percent last year, after dropping 0.7 percent in 2009.” That trend may undermine the business models of some law firms.

Law firms have many and varied business plans and compensation systems. But one reasonable way to run a firm is to market your most marketable lawyers — concentrate business development in the folks best able to develop business. For that model to work, however, all partners must trust the institution. De-equitization reduces the necessary trust and may kick the stilts out from under this business model.

Here’s how the model works. If a potential new client asks your firm to respond to an RFP for litigation matters, you turn to your half-dozen heaviest-hitting litigators and decide which one will be offered up as the lawyer to lead the new engagement. You know that, if you’re invited to a beauty contest, the heavy-hitter will clinch the deal, because he’s clinched so many deals in the past.

If you read in today’s Wall Street Journal that the plaintiffs’ mass tort bar has just put another industry under seige, you spring into action. Pull together the firm’s marketing materials, identify lawyers with relationships in the relevant industry, draft up outlines of motions to dismiss and oppositions to class certification, assemble an outline of key issues and proposed responses, and then have your relationship lawyers call and email their client contacts, offering to have one of the heavy-hitters meet with the client to explain the firm’s capabilities. The heavy-hitter takes it from there.

If a corporate lawyer gets a serious litigation nibble, the corporate lawyer will naturally advise the head of litigation about the opportunity, so the firm can make an appropriate pitch. The head of litigation asks one of the heavy-hitters to lead the charge.

If a client asks a junior partner in the commercial trial department about the firm’s ability to defend a multi-billion dollar case, the junior partner reports up through the ranks. The firm puts together a response that proposes a talented litigation team to handle the case — led, of course, by one of the heavy-hitters.

This approach to running a firm isn’t crazy. To the contrary: Institutionally, this system makes a lot of sense. You offer up your most impressive lawyers to handle the most important opportunities, land the business, and distribute that business among the masses to keep everyone busy. Collectively, everyone at the firm benefits.

Enter de-equitization….

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Profits per partner numbers are out and they confirm what we’ve all suspected: 2010 was a really good year to be a Biglaw partner. The Am Law 100 reports that 2010 PPP rose 8.4%. That’s a significant improvement over 2009, when PPP rose only 0.3%

Kind of makes you wonder what the hell firms were thinking when they initially tried to give the same crappy 2009 bonus in 2010.

Gross revenue also went up 4% (kind of — more on that below), that’s compared to a 3.4% decrease in revenue in 2009. However you crunch the numbers, Biglaw had a better year in 2010 than it did in 2009.

If you managed to stay in Biglaw. Some of these gains can be traced directly to Biglaw’s willingness to shed people, including equity partners, in order to keep the numbers up…

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It’s definitely a good Friday over at Akin Gump. The firm just announced spring bonuses.

Better late than never. We’ve been receiving complaints from financially achin’ Akin associates for weeks. Earlier this month, for example, one Akin Gump lawyer complained about the firm not paying spring bonuses despite robust profits in 2010 (profit per partner of $1.6 million, compared to 2009′s $1.5 million).

So Akin Gump partners had a good year in 2010, and now they’re spreading the wealth. Let’s take a look at what they’re doing with spring bonuses….

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You know associates are pissed when they end their emails to Above the Law with lines like this one, from a message we received last night:


Jacob Riis photographs associates at one Biglaw firm

That’s what happens when you tell your associates that they’re going to get paid significantly below market and like it.

Several firms have not yet announced spring bonuses, and associates at these firms are annoyed. But there are only a handful of Biglaw firms that cut associate salaries back during the recession and have not yet brought their people back to market-level base compensation.

One of the firms that is lagging behind the rest of the market had an “all associates” conference call yesterday, during which management tried to explain why associates were being underpaid and undervalued by the firm.

Let’s just say that not everyone felt like a winner

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We’ve previously discussed the trend of partners leaving Biglaw to launch their own firms. We’ve seen a lot of this action in New York and D.C., home to such well-regarded boutiques as MoloLamken, started by former Shearman & Sterling and Baker Botts partners, and BuckleySandler, started by former Skadden partners.

It’s happening out on the West Coast, too. In the fair city of Seattle — one of my favorite places in the entire United States, especially when it’s not raining — about half a dozen partners are leaving K&L Gates to start their own shop. One Queen Emerald City tipster described this news as “the most exciting thing that has happened here since Kurt Cobain died.”

UPDATE (4/5/11): The official press release about the new firm, Pacifica Law Group, appears after the jump.

Who are the lawyers that are leaving, and why? Let’s find out….

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This week, Seyfarth Shaw announced the arrival of two construction litigators from Howrey, David Mancini and James Newland Jr. The two partners have been on the Seyfarth website for a while, as we noted last week, but Seyfarth made it official on Monday with a press release.

The other big news this week at Seyfarth: payment of bonuses. Alas, this news isn’t being as warmly received as the Howrey partners.

“Very individualized and below market as usual,” said one source. “No mention of spring bonuses either.”

A second tipster was even more angry….

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And now is the time on Above the Law where Elie gets to say “I told you so.”

About five months ago, I mentioned on this site that making $250,000 a year does not make you rich. People got angry with me for saying that. In the comments and around the internet. Apparently stating an obvious fact in a society that is dealing with a widening gulf between the haves and have-nots is controversial.

But at least I confined my financial musings to people in the six-figure range. A new report from Fidelity Investments says that people who are sitting on seven figures of wealth don’t feel rich until they have about $7.5 million.

[Throat-clearing noise.]


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* Johnson & Johnson will have to fix several factories after an agreement with the FDA prompted by massive product recalls. This still doesn’t explain why my bottle of Tylenol may contain tree nuts. [Bloomberg]

* Charlie Sheen hammered out a custody agreement With Brooke Mueller. That’s nice. [People Magazine]

* Texas may consider a law that would make losers pay attorneys’ fees. Easy, New York Mets. Not all losers. Just those who lose lawsuits. [New York Times]

* A discussion of the legal complaints lodged against the Wisconsin Legislature for Wednesday night’s votes. You know who’s not complaining? This guy. [Wisconsin State Journal]

* A former assistant attorney general from Maine was sentenced yesterday in a child porn case. This is definitely the year of the assistant AG. [ABA Journal]

Happy Birthday Nino

* Not all people living in Idaho are racists, duh. Some are gangsters from Boston. [New York Times]

* Law firm profits and productivity were up in 2010, while demand was flat and revenue was modestly up. Someone named Dan DiPietro and someone named Gretta Rusanow tag-teamed a report all about it. [Am Law Daily]

* A former McGuireWoods partner pleaded guilty to falsifying a tax document. [ABA Journal]

* Linda Greenhouse wishes Justice Scalia a happy 75th birthday. Sort of. [The Opinionator / New York Times]

Mel Gibson

* Mel Gibson has reached a plea agreement in a battery case involving his ex-girlfriend. #losing #BeaverBlood [Associated Press]

* Meanwhile, Lilo isn’t accepting her plea deal. No ma’am. Not for all the Texas booger sugar in the world. Well, maybe for all the Texas booger sugar. But that wasn’t really offered. [New York Post]

* A look at Jowls McRaisinhead’s Arlen Specter’s move to solo practice. [Legal Intelligencer via WSJ Law Blog]

* The Wisconsin Senate passed sweeping curbs on collective bargaining yesterday. The protesters are still howling, but I wonder how loud they’ll be when Pinkertons shove batons in their faces. That’s not actually happening. I just have a fairly violent and anachronistic imagination. [Reuters]

* House Republicans have gone meta in promising a defense of the Defense of Marriage Act. [Los Angeles Times]

* State Senator Carl Kruger, of Brooklyn, will turn himself in on corruption charges today. Big up to Crooklyn. [New York Times]

* Coach Sweater Vest’s hilarious understanding of attorney-client privilege is hilarious. [The Lantern]

* Profits per partner at Kirkland & Ellis topped $3 million in 2010, and the firm boosted its revenue even though it shed some lawyers. I Can Has Spring Bonus? [Am Law Daily]

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