Biglaw, Partner Issues

This Biglaw Firm May Demote Partners To Boost Profits

Which firm is considering shearing the ranks of its equity partners?

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fired noteUnproductive partners can be a real drain on a Biglaw firm’s profits, and one firm is reportedly searching for a way to take care of its problem in this area. Which firm is considering shearing the ranks of its equity partners?

That would be Shearman & Sterling.

As learned by Legal Week and confirmed by the Am Law Daily, the firm may soon demote some of its equity partners in order to boost its profitability. Shearman global and regional managing partners will likely meet today in New York to discuss the terms of the de-equitizations. It is expected that partners in “less profitable practice areas and regions” will be hit the hardest.

This is how partners at the firm feel about the situation, according to Legal Week:

“There is a desire within the partnership to make sure that every equity partner is in fact putting in the time and effort and driving the business,” said a current Shearman partner, who requested anonymity in order to speak freely about firm matters.

Another partner said: “It wouldn’t surprise me if Asia or the US were affected by any changes. I don’t think it’s any secret that most firms struggle to make money in Asia unless their partners are on some sort of salaried structure. It’s no secret the firm has struggled with underperforming partners and areas. There are real challenges at the firm.”

Although the firm may be desperate to sack its unproductive partners, Shearman’s partnership agreement requires that a supermajority of 75 percent of equity partners approve a partner’s removal — which is a “major problem for the firm,” per one anonymous partner. If the firm is unable to forcibly remove a partner from equity status, they either can be de-equitized by consent (which we imagine is a rarity), or have their compensation cut by as much as 25 percent annually (yikes!).

Although the firm saw profits per partner fall by 4 percent in 2015, it adopted Cravath’s new salary scale in June. Thus far, demand for legal services in 2016 has been flat, per anonymous firm sources. That being said, it won’t be terribly surprising if Shearman & Sterling culls its herd of equity partners in January. Best of luck, partners.

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‘There are real challenges at the firm’: Shearman equity partners face demotion in profits push [Legal Week]
Shearman & Sterling Partners Face Possible Demotions [Am Law Daily]

Staci Zaretsky is an editor at Above the Law. Feel free to email her with any tips, questions, or comments. Follow her on Twitter or connect with her on LinkedIn.

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