The always intrepid Lee Pacchia of Bloomberg Law invited me to come by and talk about the quarterly reports on the State of BigLaw just released by Citi Private Bank and Wells Fargo’s law group.
We also got off on the topic of whether lawyers can really be “entrepreneurial,” and what I fear may be a strategic dilemma brewing for certain firms caught between the imperative of ever-escalating PPP and the need to retain broad capabilities within the equity partner ranks.
Take a look:
Mr. MacEwen, you said, “I think there’s a little bit of a strategic dilemma for law firms. . . . One way you can [keep profits per equity partner up] is to cut the equity ranks if revenue and income are otherwise flat, which they are. But every time you cut equity partner ranks — presumably they were equity partners for a reason, and that reason would have something to do with client service — you’re cutting your capability. If clients are demanding more from law firms, and they are, and you’re cutting capability to maintain profits, I don’t know how this story ends.”
I think the situation is more complex for the large firms, because only in a few fields do they have just one or two partners who practice a specialty. A firm that does, say, M&A work might have eight or ten equity partners who can run a transaction, with 15 to 50 associates who work for them. When deal flow is cut in half, the firm has no work for half of those lawyers. We know in retrospect that firms in that situation started by cutting the associate ranks, thus reducing the equity partners’ leverage. But now with eight or ten equity partners who can run a deal, and half the associates, the labor cost per deal is higher because the firm’s labor mix has a higher proportion of partners than it used to. Ultimately, like the game of musical chairs, the partners without their own deal flow get left out in the cold.
A wiser alternative might be to keep more of the now-supernumerary partners and accept the fact that until business improves some of their work is going to be lower-value; they will be doing work that associates used to do, at a lower billing rate, and reduced income. They’re still likely to be more productive than the associate.