We have written before about the profession’s seeming disconnect between how people perceive the typical law firm, in terms of lawyer career-level distribution, and reality. The perception, from history, is that of a relatively small number of partners on top of a largeish associate base: The totemic pyramid. The present-day reality is a relatively smaller cohort of associates, a vastly expanded intermediate tranche of non-equity partners, and a top tier of equity partners shrinking in proportion over the past two decades: Our “diamond.”
We’ve often noted that we feel competent at economic analysis but not at psychological insight, so I leave it to you to spin a theory or two about why we seem so enamored of the pyramidal paradigm, but new data just released by ALM Intelligence show just how radically this distribution has changed over the past two decades. Their sample set of firms is the AmLaw 100, but if anything had they included the second 100 the transformation would have been even more striking, and we have every reason to believe data would show the same migration were it expanded to the Adam Smith, Esq. equivalent of the “Wilshire 5000 Total Market Index” of law firms.
Some visuals make the point:
Shall we review?
- Equity partners as a share of all partners from 78% to 56% (call it three out of four to one in two), or down 40%;
- Non-equities as a share of all partners from 22% to 44%, or up 100%.
Not shown in this particular article but readily available from other sources is that non-equities are now approaching parity, in headcount, with associates.
Is this a good thing, a bad thing, or just, as they say, a “thing thing?”
Whatever we say next is guaranteed to provoke letters to the editor, so let’s just offer a few observations about pro’s and con’s.
The primary question is, “Why does your firm have non-equities [assuming, strongly odds-on, that it does]?”
- We instituted the non-equity tier as a “second gate” from associate to equity.
- Promising associates who’ve demonstrated they’re skilled practitioners and actually enjoy practicing law (read: they work hard) are promoted to non-equity rather than shown the door;
- Where, with “partner” on their business card and the full marketing resources of the firm behind them, have [3-7 years] to demonstrate whether they can actually develop substantial business of their own, in which case
- They are promoted to full equity
- Or else they don’t go up, they go out.
- We have a small handful of non-equities who are deeply adept at niche, but required, specialties which will never, by their nature, generate business but which provide essential support to our strategic core practices (tax is the classic example).
- It’s a temporary way-station for incoming laterals we need to prove out or for others entering or re-entering the firm after a career hiatus; and after that it’s again up or out.
- They are “service partners” in the truest and finest sense: They serve clients well, are experienced and thoroughly up the learning curve, their rates are relatively sane, and everyone needs a strong bench of solid players. We don’t expect them to be rainmakers.
- And we are superb at resource allocation so they don’t bottleneck associates’ getting the experience they need.
- It’s a parking lot for B-/C+ players.
- They have high realization and decent rates so they make money for us,
- all the while creating a stout roadblock to senior associates getting exposure to the kind of work they need to advance professionally
- (that is to say, we do resource allocation in a haphazard, improvisational, and thoroughly unprofessional manner)
- “We have that many non-equities?! How did that happen?”
- Management can’t stand having awkward conversations.
Wherever your firm comes out on these questions, ask yourself whether the compelling data on the growth of non-equities, at the relative expense of associates and equities, means leverage is dead. Because if leverage is receding like the tide, you may have to re-examine the model of how you translate revenue into profit. Now that is an interesting business challenge.