Biglaw, Money, Partner Issues, Partner Profits

Buying In: The Biglaw Report Cards

Financial reports for Am Law 100 firms are starting to trickle in. What to make of them? Anonymous Partner opines.

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The 2012 Biglaw numbers are starting to trickle in. The American Lawyer (and the rest of the legal press) follows a near-uniform format in reporting them. Revenues — up or down x percent. Profits per partner — slightly to moderately up (if your executive committee was unable to generate higher profits, via financial sophistry or good-old de-equitizations or stealth layoffs, I am very sorry). Revenue-per-lawyer, slightly up. Feel-good comment by managing partner. Slightly passive-aggressive commentary by a “legal consultant.” Repeat, on a daily basis for about a month, until the Am Law 100 (and “interesting” Am Law 200 firms as well) is covered.

As a partner, you obviously hope your firm is reporting good news, even though the likelihood of that news reflecting on your personal situation is pretty low for most Biglaw partners. No one wants to be associated (or own the obligations of) a loser, and when everyone is proclaiming “modest” or “respectable” growth, the peer pressure can be tremendous. Especially where the Biglaw death spiral is a recognized phenomenon, and firms who report poor performance in a generally positive climate are quickly judged negatively, like a figure skater stuck doing double lutzes when everyone else is knocking out triples. Outliers, for good, but mostly for bad, stick out, and their ignominy is frequently paraded on these pages. With bonus Lat commentary for additional effect.

I for one, enjoy reading this kind of reportage…..

It’s partly for the voyeuristic value, especially for firms where I know people. It’s always fun to play the “guess what my peers are making at firm X game.” But more importantly, it’s a kind of competitive intelligence, one that I argue is necessary for any partner in Biglaw to acquire. This is less true for senior partners, since they have a reasonable expectation that their firm will outlast them into their impending retirements, and more true for partners like myself, who must worry not only about the future of the firms holding our buy-in money, but about the long-term future of the entire Biglaw enterprise. Longer horizon, more to worry about.

So having at least a general sense as to how “Biglaw is doing” is pretty important, and in the absence of solid information, quasi-press releases about firm performance are what we have to work with. As I have mentioned before, a good percentage of partners know very little about the true financial performance of their own firm — due either to disinterest on the partner’s part or a autocratic management style by their firm’s leaders. Either way, your rank-and-file partner, if asked as to the state of business, will generally respond by personalizing the question — “I’m busy” or “Things are picking up.”

(Biglaw practice tip: never admit to a lack of work, as anything other than the most temporary condition — think a bit of steak lodged in tooth, only there because you have not yet had the opportunity to hit the bathroom with some floss. That big deal or case is coming in the door — tomorrow. You will contribute to the firm’s successes in handling that matter. Back to the column.)

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Because of a lack of information, our hypothetical partner is completely unaware that half of his firm’s Southeast offices are empty at 4 p.m. for lack of demand. Or that while he claims to be busy, his real estate partners in Chicago are working ceaselessly on a multi-month project involving annexing large swaths of abandoned Detroit buildings for use as future Biglaw back-offices (an accelerating trend). Either way, his information is lacking. And that is intra-firm. Basically, you need to be on the accounting staff or the executive committee to have a real shot at knowing your firm’s true performance. Big rainmakers can also be “in the know,” particularly at eat-what-you-kill shops. For everyone else, it is “come to the partner meeting, and listen to our spin.”

To figure out what is really going on outside your firm, the Biglaw report cards that are now being issued are really your best bet. I’d rather have the information in real-time, as in upon release, than wait for the annual compilation of the results to appear as the much-heralded “Am Law 100 or 200.” I imagine I am not alone, with many recruiters and prospective laterals (no doubt feeling very undervalued by the firms at year’s end) are frantically looking to generate demand for lateral movement at this time of year. For those “already in talks,” public disclosures of prior year firm performance can be an important factor in a decision whether or not to actually move. There is a bit of “spouse-pacifying” and “cocktail-party effect” to the latter phenomenon, as everyone wants to be able to justify their move by regaling listeners with details of their new firm’s “killer year” just past.

Ultimately, most Biglaw participants and observers agree that information on Biglaw’s true financial performance is not really easily obtained. And what is reported out to the legal press is “massaged” to appear as good as possible. So while the Biglaw report cards that we see have some value, they must be viewed a bit skeptically, and the astute observer needs to engage in a bit of quote-parsing to get a real sense of how a firm “feels” about their immediate past performance. Likewise, one needs to evaluate any one report card in the context of the “rest of the class” for the exercise to really offer much in the way of actionable knowledge. But some information is better than no information. Of course, we could always try and eke more information from “Biglaw’s Banker” and his ilk. Those guys and gals really get to see whether a firm’s checkbook is balanced.

Of course, due to client-Biglaw relations overload from my four-parter In-House Insider interview, I have not even tried to think what clients think when they see these rosy financial reports from their law firms. Is that a problem?

What information would you like to see in Biglaw report cards? Let me know by email or in the comments below….

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Anonymous Partner is a partner at a major law firm. You can reach him by email at [email protected].

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