Partner Profits

Law Firm Merger Mania: Opinions on Orrick + Akin

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Yesterday we discussed the merger talks that are currently taking place between Akin Gump and Orrick. We solicited your views on a possible combination, and we received some interesting feedback (in the comments and by other means).

Let’s start with the happy stuff. Here are some positive takes on an Orrick / Akin merger, from the comments (yes, positivity in the comments — it happens):

  • “I have been at both firms and I believe it would be a good fit both geographically and practice-wise. Orrick is almost all about finance, and finance is one key area that Akin lacks real depth.” [FN1]

  • “#1 Vacuum company in America + #1 brand of cocktail shrimp = unstoppable legal force.”

But it’s not all vacuums and cocktail shrimp, sunshine and puppies. Insiders with knowledge of both firms also identified downsides to a possible Orrick / Akin merger….

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A Hot New Trend: Leaving Biglaw to Start Your Own Firm

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People are talking about an interesting Slate article entitled “Leaving Big Law Behind: The many frustrations that cause well-paid lawyers to hang out their own shingles.” It’s currently the most-read piece on the site. But it’s actually quite similar, even down to some of the sources, to an article that appeared a few days earlier in Crain’s New York Business:

A lawyer’s hourly billing rate used to be a badge of pride — the higher the number, the more valuable (and supposedly brilliant) the lawyer. But over the past 18 months, a strange phenomenon has been sweeping the legal arena: Partners at major law firms are quitting because they want to be able to charge less for their services.

This is, of course, not a new development. Kash and I wrote about it in a December 2009 cover story for Washingtonian magazine, in which we interviewed a former member of the $1,000-an-hour club who left a large law firm and started his own shop so he could offer clients better value. But all the recent coverage — in Crain’s, Slate, and elsewhere — suggests that the trend is picking up steam.

Which kinds of lawyers are leaving Biglaw to hang up their own shingles? Why are they doing it? And how’s it going for them?

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How Much Do Retired Wachtell Partners Make?

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Wachtell Lipton is one of the nation’s most prestigious and most profitable law firms. The lawyers who work there, especially the partners, are some seriously smart cookies.

So perhaps it shouldn’t be surprising that a former Wachtell partner has gotten the best of his ex-wife in contentious divorce proceedings. Leigh Jones of the National Law Journal reports:

It may have been the result of some crafty legal maneuvering by a Wachtell, Lipton, Rosen & Katz partner, or it may have simply been part of his tempestuous marriage to a “European Playmate” nearly 30 years his junior. Whatever the reason, the now-retired partner has thwarted a second bid by his ex-wife to invalidate a prenuptial agreement and collect a share of the annual retirement payments that he receives from the firm.

The Appellate Court of Connecticut, in a decision released on Thursday, affirmed a divorce judgment between retired Wachtell partner Peter McKenna, now 72, and Roberta Delente, a one-time model from Brazil who was working for an agency called “European Playmates” when the couple met in 1997. She was 32 at the time.

The divorce judgment left Delente, from whom McKenna sought a divorce less than a year after their wedding in August 1999, with virtually nothing from the marriage.

Let’s cut to the question that everyone is curious about: How big is McKenna’s (retirement) package?

UPDATE: And how hot is Roberta Delente? We’ve added a photo — as well as a link to the appellate court’s opinion, but that’s less exciting — after the jump.

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Law Firm Survey Confirms All the Depressing Stuff You Already Knew About the Business of Biglaw

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In April and May of this year, the Altman Weil consulting firm surveyed the leaders of 787 law firms with 50 or more lawyers about the state of the legal industry. After receiving responses from 218 of them (a 28% response rate), Altman Weil crunched the data and compiled it in a big law firm survey, which it published earlier this week.

The survey came out a few days ago and has been covered extensively in various legal news outlets. But we weren’t in any great rush to write about it, since it doesn’t contain much to get excited about: many of the findings are (1) gloomy and (2) unsurprising.

To turn the Nixon Peabody theme song on its head, these days it seems that “everyone’s a loser” in the world of Biglaw….

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Ghosts of Thacher Proffitt Get SNR Denton Off on a Sour Note

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Now that both partnerships have voted, the merger between Sonnenschein and Denton Wilde is a done deal. But the ride between now and the effective merger date of September 30th could still be bumpy.

The first bump is coming from Thacher Proffitt & Wood. As TPW was dissolving, Sonnenschein scooped up 100 lawyers from Thacher Proffitt. The partners involved received significant compensation packages.

According to The Lawyer, those well-compensated partners are now thinking of leaving Sonnenschein, before the merger…

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Orrick Will Abandon Publishing Profits Per Partner Next Year

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Are profits per partner the appropriate metric to measure law firm success? It’s been a long time since firms seriously looked at the question. I didn’t know my Skadden from my Sullivan back when American Lawyer founder Steve Brill first started shining a light on the black box of top American law firms back in 1987.

For as long as most of us can remember, PPP has been the definition of law firm financial success. And despite all of the pressure on the law firm business model over the past couple of years, PPP seems as resilient as ever. We can scream about the billable hour, we can change the nature of associate compensation, but there aren’t a lot of people giving us a better statistic than profits per partner to talk about when it comes to the success of the law firm business model.

That could be changing. This afternoon, Orrick, Herrington & Sutcliffe announced it would not be reporting PPP numbers next year.

What will replace it? We talked to Ralph Baxter, Chairman and CEO of Orrick, about what — if anything — can or should replace our fascination with PPP…

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Are Am Law 100 Firms Ever Going to Change?

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Am Law Daily has what can only be termed a frightening headline today:

The Am Law 100 2010: Too Big to Fail?

Nooooo! Haven’t we learned that “too big to fail” is terrible? It’s bad for our economy when things are too big to fail — too often, too big means too inefficient to change:

Carrying dozens of offices through the worst recession in a generation might sound like a prescription for disaster. But heads of The Am Law 100′s most geographically diverse firms say that their business model is not only alive, but robust.

Have we learned nothing from everything that’s happened? Do these firms really think that the entire legal recession can be blamed on so-called “entitled” junior associates who had the audacity to accept the money firms were willing to pay them?

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A Grim Report From Female Lawyers, Including De-Equitized Partners

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The American Bar Association is currently holding its Women in Law Leadership Academy in Philadelphia; prior to the conference, they surveyed female partners in regional and international firms. Harder for women than figuring out what they’re allowed to wear is becoming a partner. (Though there are signs that’s changing.)

Apparently, female lawyers must go elsewhere to be appreciated. Forbes summarizes:

According to the study, the majority of women who had made partner had to attain the position by making a lateral jump to another firm–few were promoted from within.

Once you make partner, it’s hard to stay one. Almost eight percent of the 700 female partners surveyed reported being de-equitized. How come?

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The Am Law 100 for 2010: ‘It Could Have Been Worse’

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Today is an exciting day. As we noted earlier, the Am Law 100 rankings for 2010 have been announced. This is a big deal — the Biglaw version of the U.S. News law school rankings.

You can access the various charts via this portal page. Aric Press and Greg Mulligan summarize the results:

It could have been worse. That’s the best that can be said for the performance last year of The Am Law 100, the top-grossing law firms in the nation. Three of the four key categories we’ve measured for 25 years — gross revenue, head count, and revenue per lawyer — fell, while profits per equity partner (PPP) barely increased by 0.3 percent, or $3,463, to $1.26 million.

So PPP was basically stable in 2009 — not a bad result given the continuing economic weakness last year. Perhaps law firm partners are better business managers than they get credit for?

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Here’s One Way To Reveal Your Firm’s Non-Equity Partners

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It’s one of the few things still shrouded in secrecy at most firms: which partners have equity in the firm and which don’t. Actual partners, of course, get a share in the firm’s profits, and are part of the PPP calculations reported by Am Law. Non-equity partners get the partner honorific, but in actuality they’re often just glorified senior associates, at least when it comes to matters like salary and major firm decisions. (Of course, this varies from firm to firm.)

Being a non-equity partner can be nice. You generally don’t have to toil on management committees or get caught up in partnership politics, and you may be less personally exposed to financial fallout should the firm’s fortunes sour (assuming the equity partners made personal guarantees on loans). But being a non-equity partner is also like being a stepparent that the children don’t respect. You don’t have any real power and don’t get to reap the full rewards from your investment and care.

Women and minority groups have tried to put pressure on firms to reveal partners’ equity or non-equity status when it comes to diversity reporting. But firms have resisted, saying that they don’t want to stigmatize non-equity partners. Angela Onwuachi-Willig sums it up on Concurring Opinions:

Over the past two years, the National Association for Law Placement (NALP) has tried to obtain information regarding the breakdown of equity and non-equity partners by gender and race at law firms. The majority of NALP’s law firm members refused to hand over the information, and NALP eventually gave in on February 12.

The Executive Director of NALP, [James] Leipold, indicated that most firms cited privacy concerns for not divulging the details of their equity and non-equity partnership breakdowns. According to Leipold, small firms especially worried that providing such information would allow non-equity partners to be easily identified and stigmatized.

Well, Delaware firm Young Conaway Stargatt & Taylor has revealed who its non-equity partners are, though it did so by accident. The firm’s controller needs a little lesson on the use of “bcc”…

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New York Profits Making a Comeback

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Cravath Swaine Moore LLP logo small.JPGIt’s a been a beautiful week in New York City. The sun is shining and Biglaw partners are making it rain. Am Law Daily reports some great news from Cravath:

Cravath, Swaine & Moore joins the exclusive ranks of New York firms that achieved a significant jump in both revenue and profits per equity partner (PPP) last year. The firm’s revenue rose 7 percent to $569 million; PPP increased 8 percent to $2.7 million, according to our reporting.

This is wonderful news compared to what was coming out of Cravath last year:

Cravath’s 2009 results are an optimistic change from a disappointing 2008 when reveue fell 13 percent and PPP plunged 24 percent, as we reported last year. Despite this rebound, the firm’s numbers remain below the high water mark of 2007, when revenue reached $610.5 million and PPP soared to $3.3 million.

But Cravath isn’t the only New York titan that received good news this week …

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What’s Wrong With Howrey? Profits are Down and Partners Will Be Axed.

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Howrey logo.JPGIt’s been almost a year since a Biglaw firm dissolved, so don’t expect any more lights to be turned off because of the recession. But an article in Legal Week announces that Howrey is facing some difficult times:

Howrey is set to cut up to 10% of its partnership over the coming months in the wake of a 35% drop in profits per equity partner (PEP) during 2009.
Between 25 and 30 partners are expected to leave Howrey over the next few months as part of the restructuring, with the majority of the cuts set to fall in the US. Up to three partners are expected to leave across the firm’s European offices.

That’s a huge number. How do you say “trail of tears” in partner-speak? We’ve seen lots of firms lay off 10% of their associates, but we haven’t seen this kind of forced partner exodus.
How times have changed. It wasn’t all that long ago that Howrey was acquiring partners in bunches from other failed law firms.
Now the firm appears to be struggling. Am Daily suggests that these lateral hires are part of the reason for Howrey’s current troubles:

Ironically, the acquisition of high-profile laterals–including a construction group from the now-defunct Thelen and Gary Bendinger, whose lucrative client list includes KPMG and other auditors–created internal client conflicts that hurt some partners, according to two sources familiar with the matter. In an interview Thursday, [managing partner Robert Ruyak] acknowledged as much, but said that firms routinely make such trade-offs in planning for the future.

How bad is it at Howrey these days?

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