Law Practice Management

Early Retirements Ahead? Report Says Law Firms Are ‘Over Partnered’

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America’s top 100 law firms reacted quickly with staff cuts and cost controls when they found themselves harder-hit by the economic downturn than smaller law firms. But more cuts are needed, according to a new report—and partner ranks should be thinned to achieve the savings.

Before the economic downturn, law firms’ partner ranks grew at a faster rate than total lawyers, according to the 2010 client advisory by Hildebrandt Baker Robbins and Citi Private Bank. The result, the report (PDF) says, is that law firms are “over partnered.”

The American Lawyer summarized the findings.

The report says the big firms realized the impact of the recession and took aggressive action to cut staff and control costs. As a result, many of the top 100 firms had higher profits per equity partner than smaller firms that weren’t suffering as much.

Looking ahead, the report predicts improved demand for legal services, particularly in areas such as mergers and acquisitions and other transactional practices. But pricing pressures will help keep law firm revenues flat or only slightly higher, according to the report.

“With revenue growth likely to be modest at best, more cost-cutting will become the norm,” the report says. “For most firms, this should include looking carefully at the ranks of partners.”

Firms are likely to address the problem with greater differences in partner compensation, “tough love” conversations and early retirements, the report says.

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