As law firm culture changes, old partnership model 'is all but dead'
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Law firm culture has changed since the American Lawyer began publishing financial data in 1985.
Partners looking at compensation information realized they could make more money at other law firms, which has led to a more robust lateral market, the Wall Street Journal reports. At the same time, law firms continued to grow and offer one-stop services to clients.
“A focus on data replaced tightknit camaraderie,” the Wall Street Journal article reports. “Firms closely track how many billable hours each lawyer has logged, which clients are late on payment, and how many hours an assignment usually takes.”
In the late 1960s, the country’s largest law firm, Shearman & Sterling, had 169 lawyers, the article reports. Today, 29 law firms in the United States have at least 1,000 lawyers. The country’s largest law firm, Dentons, has 10,000 lawyers in 78 countries.
In the days of the old law firm culture, partners rarely moved, job security was all but guaranteed and partners took home roughly equal paychecks. “That model, and the culture that grew up around it, is all but dead,” the article reports.
The changes have boosted average equity partner profits. At the nation’s 100 top firms, the average was $1.88 million last year, double the amount in 2004, the article says, citing American Lawyer statistics. At eight law firms, the average was more than $4 million.
The changes are exemplified by the world’s highest grossing law firm, Kirkland & Ellis, which has paid as much as $10 million to lure star lawyers away from other law firms. While equity partners divvy up firm profits, nonequity partners generally make top salaries of $800,000.
The changes have widened the partner pay spread. The spread between Kirkland’s highest and lowest paid partners is 43-to-1. The spread among equity partners is close to 9-to-1.
That is wider that the typical partner pay spread of 3- or 4-to-1 at other top law firms.
In an effort to hold on to their own partners, some law firms are paying more money to star lawyers and widening the pay spread. The article cites a partner at Simpson Thacher & Bartlett who said the pay spread has increased from 4-to-1 to 6-to-1 in recent years. At Fried, Frank, Harris, Shriver & Jacobson the pay spread has risen to 13-to-1.
Kirkland’s use of nonequity partners is also being embraced by other law firms. In 2000, 78% of law firm partners were equity partners, according to ALM Intelligence. The number had dropped to 56% last year.