Edwin Reeser

Use of the verein structure: all the Biglaw cool kids are doing it. Okay, well maybe not the coolest kids, at least if “cool” is tied to profits per partner and prestige. But there’s no doubt that the verein structure is spreading rapidly throughout Biglaw.

This is partly because firms that use the verein form are fond of combining with other firms. If the talks between Dentons and McKenna Long bear fruit, the resulting entity will surely be a verein, like Dentons and its constituent firms.

But does the verein structure present ethical problems for the firms that employ it? Two observers of the legal profession believe it does….

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Partner, can you spare a dime?

Last week, we discussed the first part of an interesting essay by former managing partner Edwin Reeser that appeared in the ABA Journal. Today we’ll tackle part two.

Are you still depressed after reading in-house lawyer David Mowry’s recent reflections on the legal profession? If so, maybe stop reading here and come back later.

But if you’re willing to wallow, on this Friday the 13th and Yom Kippur, venture beyond the jump….

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PPP: pennies per partner?

Former managing partner Edwin Reeser is one of my favorite analysts of the legal profession (or industry, as the case may be). He recently wrote an interesting and thoughtful piece for the ABA Journal with a great title: “Law firms in the Great Recession: looking for change in all the wrong places.”

I’m a sucker for a good double entendre. Here, “looking for change” has at least two meanings. First, there’s “change” in the sense of reform. Second, there’s “change” in the sense of “spare change,” reflected in the sad way that law firm are rifling through the couch cushions — de-equitizing partners, laying off associates and staff, and cutting other costs here and there. These marginal steps have helped keep profits per partner up in the wake of the Great Recession, but they’re no recipe for winning the future.

So what should Biglaw be doing to promote long-term success?

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Put your new firm under the magnifying glass.

Ed. note: This is the latest installment in a series of posts on lateral partner moves from Lateral Link’s team of expert contributors. Today’s post is written by Elizabeth Katkin, a Senior Director at Lateral Link, where she focuses on partner and practice group transitions and developing strategic relationships with top international firms and companies in the Middle East and Europe.

Do you have one or more of the following frustrations with your current law firm? Inadequate overall or relative compensation. No platform to support or develop your practice. Feeling shut out of management decisions — or even having a voice.

Perhaps you are just beginning the search for a new firm, or perhaps you know where you are headed next — a place with a great footprint, support in the practice areas you need, and a group of lawyers that feels like a good fit. In the world of law firm management today, you already know that what you see is not always what you get. It is essential to gauge the financial and management health of a firm before you move, both to ensure your happiness and viability at the firm and to ease your exit in the event that there is trouble in paradise.

Here are five things you should understand before giving your withdrawal notice to your current firm:

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The sky is not falling for the world of large law firms. But could Biglaw be a frog in boiling water? We can’t rule that possibility out just yet.

The latest report on law firm performance, focused on the first six months of this year, shows some signs of weakness. The numbers aren’t awful, but if Biglaw continues to travel down this path, it won’t wind up in a good place….

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The new data on Biglaw’s performance in the first half of 2013, mentioned earlier in Morning Docket, shouldn’t surprise anyone. For the first half of 2013 (January through June), when compared to the same period in 2012, gross revenue is up slightly (by 1.5 percent), average hours per lawyer are down slightly (by 2.5 percent), and expenses are up slightly (by 3.5 percent). This is a pretty typical report card in the “new normal” — up a little on this metric, down a little on that metric, and overall basically running in place.

But the survey, from Wells Fargo Private Bank’s Legal Specialty Group, did contain a few interesting tidbits — including depressing information about partner productivity….

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In discussing the recent news of Akin Gump overhauling its partnership capital structure, I sounded some generally positive notes. I echoed the thoughts of Akin Gump’s chair, Kim Koopersmith: “We thought it made sense to have everybody have skin in the game.”

But there are less sanguine ways of assessing the situation. Are the non-equity partners who will be converted into equity partners putting skin in the game, or are they getting skinned?

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One of the more amusing law firm nicknames belongs to Weil Gotshal & Manges. As we noted a few years ago, some refer to the firm as “We’ll Getcha & Mangle Ya.”

Alas, the nickname is less funny in the wake of yesterday’s big layoff news. The firm announced it will be cutting 60 associates and 110 staffers from the payroll. Despite the generous six-month severance for associates, some probably feel like their legal careers have been mangled. The firm also plans to reduce the compensation of about 10 percent of its partners (roughly 30 out of 300, some income and some equity partners).

Let’s take a closer look at the layoffs and try to make sense of them….

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We have partner profits on the brain here at Above the Law. Earlier today, we wrote about a law firm that instituted a 20 percent holdback on partner pay — a move that was met with anger by some.

In that story, we noted the “continued expansion in the gap in power and pay between what we’d call ‘super-partners’ — partners in firm management and major rainmakers, who are often one and the same — and rank-and-file partners.” You can see this yawning chasm in the disparities in partner pay that exist within the same firm. As partner turned pundit Steven Harper has argued, partners aren’t true “partners” when they are paid and treated so differently.

New information from the American Lawyer shows how extreme some of these gaps between partners have gotten….

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One firm just started pocketing 20 percent of partner pay.

Many lessons can be drawn from the collapse of Dewey & LeBoeuf. We’ve learned, for example, that it’s dangerous to have a law firm name that’s highly susceptible to puns. (Dewey know why that is? Howrey going to find out? Heller if I know.)

Another lesson: avoid excessive dependence upon bank financing. When a firm starts to spiral downwards, that spiraling can be accelerated by a bank calling a loan, not renewing a credit facility, or otherwise taking steps to protect itself that, while reasonable for the bank, can be damaging to the firm.

Firms have responded by turning to their partners for more financing. An increasing number of firms are issuing capital calls to partners or requiring high capital contributions.

So perhaps we shouldn’t be surprised to learn that one law firm has instituted a new policy of withholding 20 percent of partner pay….

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