Here are the numbers:
- Equity partners grew from 32,900 in 2002 to 33,400 in 2012, or +2%
- Non-equity partners grew from 9,700 in 2002 to 20,700 in 2012, or +112%.
No, I didn’t see that coming either: At least not to that extreme degree. When you stack this up against the total change in headcount in NLJ 250 firms, you find:
- Equity partners in 2002 were 32,900 out of 102,533 total lawyers, or 32.1%
- In 2012 they were 33,400 out of 126,293, or 26.4%—down 18% in relative share.
- Non-equity were 9,700 out of 102,533 in 2002, or 9.5%
- And by 2012 had grown to 20,700 out of 126,293, or 16.4%—up 73% in relative share.
First let’s talk about why this might be happening and then let’s talk about the ramifications.
I nominate the following suspects:
- Clients are increasingly pushing back against paying for associates, but seem more willing to pay for partners. The realization rates on the average hour of partner billing time is higher than the realization rate on the average hour of associate billing time, and clients like the “aura” of advice and attention from a partner.
- Non-equity partners are:
- cheaper than equity partners
- easier to “make”
- and easier to un-make, and even to get rid of.
- In the late 1980’s and early 1990’s many firms—about 80%—switched from single-tier (equity partners only) to two-tier (equity and non-equity). This was typically undertaken on the belief that doing so would increase leverage and hence profitability for the remaining equity partners. The story the numbers tell on that score is actually rich and complex and it’s not at all clear that higher profitability was ultimately served by this switch (consider simply that the firms with the highest year-in-year-out profitability are still single-tier), but quite a switch it was. Still, introducing the new breed into the mix—non-equities—was seen and felt, accurately, to be a marked departure from decades and decades of prior custom, so it probably took the passage of time before growing the ranks of the non-equity class substantially was even in the cards.
The result is simple: We see many firms moving from a pyramidal to more of a diamond-shaped personnel-structure model, with proportionately fewer full equity partners and young associates in the mix, and higher headcount in the middle ranks. This seems eminently rational and, indeed, seems to be responsive to clients’ expressed preferences for more experienced lawyers whose rates are still kinder and gentler than the real meat-eating go-to partners at the very top. I understand.
Now, the ramifications.