Law Firms
Profits Drop at 12 of 15 Top Firms
Posted Apr 30, 2009 6:11 AM CST
By Debra Cassens Weiss
Last year was a tough one for the nation’s 15 most profitable law firms. Twelve saw declines in profits per partner, and some of them were steep.
Cravath, Swaine and Moore saw a 13 percent drop in revenue and a 24 percent decline in profits per partner. It was worse at Cadwalader, Wickersham & Taft, which saw a 14 percent drop in revenue and a 30 percent drop in partner profits.
The American Lawyer notes the declining profits and says 2009 is expected to be worse. In its view, the elite 15 law firms face an uncertain future. Some of the firms’ financial clients have collapsed, and many others are slashing costs, the story notes. Transactional and financial work is down, and companies hiring the firms for litigation are pushing for lower fees.
“What has the world come to when Cravath, Swaine & Moore has a terrible year?” the American Lawyer asks. “The recent boom that made so many on Wall Street so rich has been revealed for what it was: a shiny but fragile bubble kept aloft in part by false assumptions, wild expectations and, in some cases, fraud.”
In the boom years, from 2003 to 2007, law firms were enjoying huge increases in profits per partner, the story says. They rose 59 percent at Cravath, 61 percent at Sullivan & Cromwell, 82 percent at Debevoise & Plimpton, and 91 percent at Wachtell, Lipton, Rosen & Katz.
The year 2008 put an end to the phenomenal increases. Despite the drops in partner profits last year, the figures are still at a “lofty level” for the elite 15, the story says. For most of the firms, profits per partner were above $2 million in 2008.
But pressure to keep partner profits high could lead to associate layoffs, a move resisted at many of the elite firms, according to the article. Said one management-level partner, “At some point you have to be at the right size relative to your business."
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Comments
B. McLeod
Apr 30, 2009 7:09 AM CST
Like Ozymandias, King of Kings. Look on their works, Ye Mighty, and despair.
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V.A. Carney
May 1, 2009 6:41 AM CST
Now ask if anyone outside those places gives a tinker’s damn.
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john
May 1, 2009 6:59 AM CST
I care, I needed a laugh this morning.
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bg
May 1, 2009 7:12 AM CST
“What has the world come to when Cravath, Swaine & Moore has a terrible year?” I ask myself that question every morning. Then I wake up and go to work at my nice secure job at firm beneath the Journal’s notice.
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Lily
May 1, 2009 7:19 AM CST
On the other hand, firms like Irell & Manella had their most profitable year ever.
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Nicole
May 1, 2009 7:24 AM CST
Me too, John. It certainly gave me a good laugh. Guess we’ll see a spike in partner suicides soon.
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DCEsq.
May 1, 2009 7:46 AM CST
This is rather sad, that an article like this one makes it to the top of this ABA publication - for a moment I thought that I had accidentally subscribed to the Wall Street Journal. I looked in vain for a similar article noting how PUBLIC law firms (i.e. state attorneys’ offices) were suffering the effects of state budget cuts. But, alas, there was no such article. Even assuming the journalistic utility of this article it is, once again, shoddy ABA work. A reported decline in profits of 24 to 30 percent may seem cataclismic but the simple question goes unasked: 24 to 30 percent of WHAT? Would this article take on a different tone if it were reported that these very lawyers made $2 million instead of $2,245,000 in profits for the year? And would it take on a decidedly different tone if these very lawyers decided to fire associates in order to recouperate, say, the hypothetical $245,000 lost from their wallets? This article is an example of either the frequent lazy journalism displayed by this publication or its blatant slant in favor of lawyers who treat this profession as a big business. It is morally indefensible. But it seems that we must look to other sectors of the profession for moral inspiration.
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Donald
May 1, 2009 8:02 AM CST
I agree generally with the sentiments expressed by those who have already posted. Frankly, I don’t care about those firms or how their profits have been impacted.
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Harry
May 1, 2009 8:28 AM CST
So it’s news that these firms continue to rake in healthy profits? While so many others are laying off, delaying associate starts (even cravath!).
absurd.
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Nathaniel
May 1, 2009 11:33 AM CST
Well stated, DCEsq. Like the clients that supported them, these firms enjoyed aburd and unwarranted profits. Am I suppose to cry when their gravy train has come to an abrupt stop?
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Andy the Lawyer
May 1, 2009 11:51 AM CST
I’m still waiting for the blizzard of biglaw partners leaping from their skyscraper offices because this year they can only afford a pre-owned Bentley.
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Doug
May 1, 2009 12:53 PM CST
“For most of the firms, profits per partner were above $2 million in 2008. But pressure to keep partner profits high could lead to associate layoffs” Incredible!
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Karen
May 1, 2009 12:57 PM CST
What I find “funny” is the American Lawyer’s description of these firms as “elite”. Why are these firm elite? Because they are big and make a lot of money by billing their clients ridiculously high hourly rates?!
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JimmyR
May 1, 2009 1:20 PM CST
DCEsq - “moral inspiration?” You’re looking here for “moral inspiration?” Try going to church instead. You might hear about the 7 deadly sins. I think envy is one of them.
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Bill Hodes
May 1, 2009 1:24 PM CST
I too was dying to know when we would learn what the dramatically reduced profits were. When I learned that these poor souls were down to their last 2 million (per year), I had two reactions. One: cry me a river. Two: could the ABA check its membership surveys and let us know what percentage of members make under $200,000? $100,000? $50,000?
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Louis
May 1, 2009 2:13 PM CST
Apparently the “elite” law firms haven’t figured out what the partners at my firm have - cut loose a bunch of associates, freeze the salaries of those that remain, reduce their bonuses and raise their billing rates. Voila! Fewer people to pay, the one’s left don’t get as much money and they earn more money for the partnership. Can you say pyramid scheme?
That said, I still make a nice income, have tolerable work hours, enjoy the work I do, live entirely debt-free, have interesting clients, like most of the partners and don’t have to wear a suit - ever (I’m not a litigator). It seems to me like a perfect symbiotic relationship…for now.
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DCEsq.
May 1, 2009 4:07 PM CST
I regret that JimmyR has apparently misunderstood my reference to “moral inspiration.” I would direct my colleague to the nearest dictionary to look up the term “sarcasm.”
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Reaperowlish
May 1, 2009 4:54 PM CST
“This is rather sad, that an article like this one makes it to the top of this ABA publication - for a moment I thought that I had accidentally subscribed to the Wall Street Journal.”
Can’t agree with this point any more, I had even checked the address to make sure of it~~sigh~
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soloandlovingit
May 3, 2009 8:41 AM CST
I’m making more $$ than ever! Of course i’m only a lowly solo practitioner in general practice :(
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Loquitur106
May 4, 2009 7:04 AM CST
For all of the “surprise” from those who could “care less”, it seems quite clear that many do care. Otherwise, why waste the time to post—or better described “rant”? Regardless of what you think about big firms, they employ a LOT of people (attorneys, staff, vendors, etc) and are a major factor in our economy. Many families depend on these firms. And even if you think the salaries are exorbitant, they come with high personal costs to the lives and familes of those who work there. When you consider that even the overpaid first year associate making $160,000 anually is actually being paid $80/hr (assuming a 2,000 hour year) that’s really not exorbitant at all for what they must do to earn that check. (But they are overpaid when you consider that the current model has engendered a sense of entitlement amongst these new lawyers who don’t seem to undertand that wages as earned, not just given because you show up). Therapists, plumbers, electricians, accountants, and other service providers make $80/hr. And many of them don’t work 60 to 70 hours per week with no time for family or friends. Granted, the billable hour model needs to be revised, but the idea of compensating someone well in exchange for making major personal sacrafices is neither new nor ridiculous. I am sure most of the posters complaining don’t understand this because they don’t work big firm jobs—a place from which its so easy to criticize. But, try walking a mile in my shoes (I usually bill over 2,500/year and even at my $250,000 a year salary, that’s $100/hr and still not really enough when you considering that its important hours of my LIFE that I am giving up to get it). But, its my salary that pays for the nanny who helps take care of my children and, if I didn’t make what I make, she’d be out of a job. As it has long been said—if you aren’t part of the solution, you are part of the problem. Stop complaining!
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bac59447
May 4, 2009 9:46 AM CST
Interesting response from Loquitur but I think he (or she) missed the point. Most of the posters aren’t necessarily complaining about the salaries—most of us have given up on curbing the insatiable greed of most big firm partners and the associates willing to sell their souls for a chance at the brass ring. Nor does anyone begrudge you your 2500 billables although I think your average public defender, solo practitioner or small firm associate would see your 2500 and raise without breaking a sweat. The point is that a drop in profits from obscene to merely excessive is not news to anyone outside of perhaps Jaguar and Lexus dealerships. And the notion that you have to make these salaries to keep employed armies of nannies, maids and butlers is a bit “noblesse oblige” if not trickle down. I can’t say for sure but I imagine a lot of those nannies and maids would trade those jobs for one that pays real wages, has medical benefits and a pension. And if none of this makes any difference to those partners at least they could consider this—this simply is not news worth reporting in a major newspaper because of the miniscule numbe of people actually affected.
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DougR
May 4, 2009 10:30 AM CST
Loquitur106—One could argue that you are part of the problem and are actually having an adverse impact on the job market. If you and other lawyers like you only billed, say, 1700 hours per year, then:
1) you would still be able to afford a nanny, but would also be able to have a life outside the office; and
2) there would be enough legal work available to employ 50% more lawyers, who would also be able to employ nannies and have lives outside the office.
Get a life and stop hogging all the legal work!
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Tax Attorney/CPA
May 4, 2009 1:55 PM CST
“Therapists, plumbers, electricians, accountants, and other service providers make $80/hr. And many of them don’t work 60 to 70 hours per week with no time for family or friends. “
Loquitor - accountants make $80/hr? Really? I don’t think so. Just because the CPA bills $200.00/hr. doesn’t mean he makes $200.00/hr. Most accountants fresh out of school make around $40-50K. Tax Managers - with several years of experience - can pull down $140-200K.
And ‘don’t work 60-70 hours per week?’ HA! Ever hear of tax season? It runs January -April, where 80 hour weeks are short weeks. Oh, and there’s another one in Sept-Oct (corp returns and extensions) as well. In between you’ll average 60 hours a week, no matter where you work. And if you’re in private accounting, count on giving up entire weekends at least once per quarter in addition to all of the above.
Please stick to what you know.
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