Managing Profits By Cutting Partners and Practices Is No Longer Viable
Firms will be hard-pressed moving forward to manage profitability through changes to the partner tiers; instead, Hugh Simons argues, they will have to change partner behavior.
April 19, 2021 at 06:00 AM
5 minute read
There's a paradox at the heart of the legal marketplace: clients are taking work away from traditional outside counsel and yet premier law firm profitability is at an all-time high. The resolution lies in the number of equity partners. In the decade following the 2007-08 Global Financial Crisis, while the number of in-house lawyers in the United States grew by 50%, the number of U.S.-based lawyers in the Am Law 100 was flat and the number of equity partners declined.
The drop in equity partners didn't come about by stopping promotions (indeed, promotion rates held constant); rather, firms shed their less-profitable practices and partners: they dropped inherently low-leverage flanker practices, pared back international operations, corrected promotion and lateral-hiring mistakes, and transitioned out less commercially capable partners within high-profit practices. Per-partner profitability rose just as would a student's grade point average if one dropped the classes with weaker results. In essence, the effect of external pressures on profitability was offset by changing the composition of partnerships.
Looking at the decade ahead, firms are caught in a pincer. On one side, premier firms are in segment retreat, i.e., serving a segment of the overall market that's shrinking as clients take work away from traditional firms and give it instead to alternative service providers (including in-house counsel) who are growing in number, quality and sophistication of the services they can deliver. On the other, partners have become accustomed to, and expect, profitability growth; failing to grow profits risks having the more commercially capable partners decamp to rivals.
This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.
To view this content, please continue to their sites.
Not a Lexis Subscriber?
Subscribe Now
Not a Bloomberg Law Subscriber?
Subscribe Now
NOT FOR REPRINT
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
Law Firms Mentioned
Trending Stories
Featured Firms
Law Offices of Gary Martin Hays & Associates, P.C.
(470) 294-1674
Law Offices of Mark E. Salomone
(857) 444-6468
Smith & Hassler
(713) 739-1250