Partner Profits

DLA Piper Changes Partnership Structure

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The economy is in the toilet and law firms are scrambling to adjust. Usually this means “firing associates,” but DLA Piper has done something really interesting and brought changes to the partnership instead of firing associates:

Some 275 “income” partners who don’t have an ownership stake will be invited to join the ranks of 300 equity partners, provided each makes a capital contribution that could range up to $150,000, according to legal industry sources.

Look, for all we know associate layoffs could be right around the corner at DLA or any other Biglaw firm. But almost doubling the number of equity partners means that profits per partner will be squarely in the hands of each individual partner to generate business.

Legal industry recruiter John Cashman of Major Lindsey & Africa LLC says DLA’s move is unprecedented and likely to turn up the heat on attorneys to bring in clients — a crucial factor in partner compensation.

“It’s very clear to their (junior-level lawyers) it’s either up or out: We want business generators or worker bees. They want to send that message,” Mr. Cashman says.

Real cost savings for DLA after the jump.


Obviously, the firm should generate some immediate cash just from the capital contributions alone. But the real savings for DLA come from not having to pay bloated salaries for non-equity partners:

By raising funds from a new crop of equity partners and compensating them with a share of the profits, DLA would eliminate income partner salaries and trim payroll costs and borrowing needs. Its main lender, Charlotte, N.C.-based Wachovia Corp., succumbed to excessive subprime mortgage lending this fall and was taken over by San Francisco-based Wells Fargo & Co.

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Less eating, more killing!

This move acknowledges one fundamental point that many law firms seem to miss: partners, not associates, are responsible for generating enough business to keep the firm profitable and full of work.

Instead of scapegoating associates, it looks like DLA Piper has taken a hard look at the underlying business model.

For now.

… Of course, you can only tighten a belt so much. Eventually, many more firms might have to start cutting some fat.

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DLA Piper makes seismic shift in partner structure [Chicago Sun Times]

Earlier: DLA Piper Chicago Cancels Christmas/Staffers

Happy Time at DLA Piper

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