Are nonequity partners at risk? 43% of surveyed law firms say they have too many
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Law firm leaders responding to an Altman & Weil survey are optimistic about market demand, even as they express concerns about overcapacity.
Leaders in 32 percent of the law firms surveyed said market demand has returned to prerecession levels, while leaders at 41 percent of the firms expected demand to return in the next few years, according to the survey (PDF) and an Altman Weil press release. Leaders of 320 U.S. law firms with 50 or more lawyers participated in the survey, including 45 percent of the nation’s top 200 firms. The Am Law Daily (sub. req.) covered the results.
On the down side, 61 percent of the firm leaders said overcapacity is diluting firm profitability. In firms with 250 or more lawyers, 74 percent of their leaders said overcapacity was a drag on profits. “Despite painful cuts made during the downturn,” the report says, “many firms are still grappling to right-size their workforces.”
In 63 percent of the law firms, partners aged 60 or older control at least one quarter of total firm revenue, but only 31 percent of law firms have a formal succession planning process.
Study co-author Eric Seeger, a principal at Altman & Weil, told the Am Law Daily that “very senior partners aren’t retiring.” Even if they were, he said, nonequity partners at many firms aren’t prepared to take over for the older partners, who have longstanding relationships with clients.
According to the study, nonequity partners “continue to present a particular dilemma for law firms.” Though many firms see the value in a nonequity tier, in many firms the tier “has become a warehouse for underperforming lawyers,” the report says.
Forty-three percent of the law firm leaders surveyed said they have too many nonequity partners. At firms with 250 or more lawyers, 67 percent of the leaders said they had too many nonequity partners. The study suggests that law firm implement an “up or out policy” for these partners.
