Partner Profits

The Dewey nightmare continues for non-settling partners.

Many former partners of now-defunct Dewey & LeBoeuf signed up to join the “Partner Contribution Plan” that was hatched during the law firm’s bankruptcy case. The gist of the Plan: pay a certain sum (which varied from partner to partner) into the pot, and win a release from any future Dewey-related liability.

The main appeal of the Plan was finality, a way of putting the entire Dewey debacle in the rearview mirror. And that appeal was strong: more than 400 ex-partners agreed to the Plan, which freed them up to focus on their post-Dewey lives at new firms.

But a minority of former partners refused to sign on. A lawsuit filed last week against one ex-partner reveals what lies in store for them….

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Biglaw firms have a problem. They can’t get their senior partners to retire. Or to pass along their clients to younger partners fast enough.

The reasons for this unwelcome phenomenon are straightforward. First, today’s Biglaw senior partners are making too much money. Would you retire if you were making seven figures and billing 1200 to 1500 hours a year? Of course not. Especially if you are helping to support your children. Or in this age of the 70-year-old rainmaker, a grandchild’s “education” as a communications major at the top party school in this year’s rankings.

Kidding aside, I know that many senior partners have very valid reasons for continuing to maintain their Biglaw practices. But that does not mean that what works for them at an individual level is what is good for Biglaw as a whole. In fact, I think the “sticky senior” issue is the greatest long-term threat to the continued viability of many Biglaw firms….

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Let’s not mince words: Patton Boggs is stuck in the muck. In the most recent Am Law 100 rankings, the firm showed a 15 percent decline in profits per partner — one of the biggest dips in the entire survey, contrasting with the modest growth that most of Biglaw enjoyed. Gross revenue also fell, by 6.5 percent.

The Am Law 100 rankings looked at 2012 performance compared to 2011 performance. Perhaps things have improved for Patton Boggs in 2013?

Alas, no. While many firms have resorted to voluntary buyouts or layoffs of support staff this year, few have laid off lawyers (at least not openly). But Patton Boggs has already been through two significant, open and notorious rounds of layoffs in 2013 to date, affecting not just staff but lawyers as well.

How is Patton Boggs trying to save itself, and will its plan work?

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On this conservative analysis, an associate is bringing $640,000 in revenue to the firm while costing only $340,000, meaning that each associate has a surplus value to the firm of around $300,000/year.

On this model, a partner in a leveraged firm (i.e., four associates per partner), could make $1.2 million in a year without billing an hour.

Samuel Blatchford, breaking down the economics of associate compensation in Ramblings on Appeal. (That’s assuming an associate billing a mere 2000 hours/year, which many associates should have hit by August.)

It was just two weeks ago that we told you about the merger talks between Patton Boggs and Locke Lord. At the time, we wondered about redundancies between the two firms’ offices. We thought that “most jobs” would be safe, considering the fact that there were only three overlapping locations.

Well, it looks like we were dead wrong. Guess which firm just laid off both support staff and lawyers?

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As noted in Morning Docket, Citi’s quarterly review of the financial landscape facing law firms just came out. The surface level verdict is — as it has been for some time — slow and steady, with a bunch of red flags.

The firms are happy to see positive revenue growth, even if it’s only 2.7 percent. I mean, other industries aren’t so lucky. But when the industry is a few years into the “New Normal” and analysts are still pointing to the same failings, it’s hard to feel too optimistic.

Let’s look at the other highlights of the report:

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The year-end Biglaw management machine is starting to grind into motion. The compensation committee is starting to look at the numbers for individual partners — to decide who will be rewarded and who will be de-equitized. And the firm’s A/R collections crew is starting to pressure the partnership to get bills out the door and talk to clients about what will be paid by year’s end. The associate bonus committee? If one still exists, is must be having a hard time reserving conference room space to meet.

The end of the year is a serious time for law firms. For many individual lawyers in Biglaw, it is the time of year when their die may be cast, in terms of compensation, lateral movement options, or even their continued employment. As anyone who follows Biglaw knows, we are living in interesting times, with many firms navigating choppy seas in terms of client demand, financial performance, and expense management. And at many firms, there has never been a wider gulf between the rank-and-file partner and firm management when it comes to the ability to make or influence decisions about the firm. Partners at many firms are often clueless about what the firm is doing and why, to the extent that partners are asked to vote on lateral candidates or even mergers based solely on the “reassurances” and “enthusiastic outlook” of management.

The net effect of this divide between management and the partnership? An increasing sense among partners that they are simply assets of legal “brands” rather than owners or even stewards of a professional enterprise. For many, it is a bit of a hopeless feeling, especially when they consider the Biglaw options down the street, which usually present the same level of management opacity to the putative “owners” as their current firm. But just because management likes to tell the partnership to “leave the managing to us, you just focus on building your practice” does not mean partners aren’t entitled to information — even if it’s just the personal views of the managing partner on certain issues.

Here are five questions for your managing partner. The topics are varied, but the answers given should give partners a good sense of both their relative standing within their firms and the values that drive the business decisions of their leadership….

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Let us give thanks to all the talented attorneys who leave Biglaw partnerships to serve as federal judges. First, this type of public service, often made at significant financial sacrifice, is in the legal profession’s finest traditions. Second, by throwing their hats into the federal judicial ring, these nominees let us ogle their personal finances — a subject of keen interest, and one that’s less than perfectly transparent.

Last month we used a pair of Ninth Circuit nominations to gain insight into partner pay at Munger Tolles & Olson. Today we use a D.C. district court nomination as a vehicle for looking at profits per partner at two other elite law firms, Baker Botts and Covington & Burling….

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* The Supreme Court might have dismissed the Oklahoma abortion case as improvidently granted, but not to worry, because the high court may yet get the chance to abort a woman’s right to choose in this new case from Texas. [New York Times]

* Wherein Justice Scalia seems highly concerned about toupees: yesterday, Supreme Court justices put their fashion sense to the test when trying to determine what ought to count as clothing under the Fair Labor Standards Act. [WSJ Law Blog (sub. req.)]

* The Senate is forging ahead with the Employment Non-Discrimination Act, but the bill will likely fail in the House because discrimination on the basis of sexual orientation is still cool with John Boehner. [CBS News]

* Wherefore art thou, ladness? According to the latest PricewaterhouseCoopers survey, profits per partner at top firms in the U.K. are behind profits per partner in the U.S. America, f**k yeah! [Businessweek]

* Bill de Blasio, the Democratic candidate in the NYC mayoral race, apparently has “deep ties” to Gibson Dunn, the firm behind Citizens United. Gather round, conspiracy theorists. [International Business Times]

* An InfiLaw school is changing its name to Arizona Summit Law. How kind to tip law students off to the fact that even if they climb all the way to the top, there’s nowhere to go but down. [National Law Journal]

Certain firms are, in my opinion, routinely underrated in the Vault 100 rankings of law firm prestige. One of them is Williams & Connolly, currently #16, which strikes me as a top 10 firm. Another is Munger Tolles & Olson, which is all the way down at #34.

Munger is an amazing firm. Its attorneys work on major matters, including great pro bono cases, and its lawyers boast incredible pedigrees, with more Supreme Court clerks than you can shake a gavel at (wooed by $300,000 signing bonuses). At the same time, MTO gets top scores for diversity. These commitments to diversity and pro bono helped propel Munger to the #1 spot in the American Lawyer’s A-List rankings, which measure overall firm fabulosity (based on revenue per lawyer, pro bono work, attorney diversity, and associate satisfaction).

In light of all this, I’m still wondering why Munger doesn’t fare better in the Vault rankings (for whatever the Vault rankings are worth, and you’re free to argue about that). Perhaps MTO is hurt by its relatively small size and tight geographic focus, with offices in just two cities, Los Angeles and San Francisco. Or perhaps prestige is tied partly to partner profit, and Munger doesn’t hunger enough for money.

How much do MTO partners earn? Financial disclosures for two younger Munger partners, both nominated to the Ninth Circuit, shed a little light on this question….

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