Pulling Away from the Pack – or Powering with Arithmetic?

Last Friday, The Recorder published an article about FY 2012 Am Law early results:  “Revenue Growth Modest at Many Firms, But Profits Surge.”   Bylined by Julia Love, the article discussed several ways law firms can try to improve their top line performance when revenue stalls, including thinning their ownership ranks.  Three California firms whose FY2012 equity partnership ranks contracted and whose profits per equity partner (PPEP) showed double-digit increases were highlighted. 

Shrinking law firm ownership is an old tradition

 

The arithmetic potential to improve a firm’s PPEP by reducing the number of equity partners at that firm is obvious and significant.  But it’s far from a new trend.  Firms have been thinning their ownership ranks for over 20 years.  In FY1990, Am Law 100 equity partners constituted 32.8% of all Am Law 100 lawyers.  By FY2000, that metric declined to 27.5%.  And by FY2011, it was down to 22.3%. 

As legal industry metric wonks know, Am Law’s leverage metric also measures the extent of law firm ownership, but is calculated differently – as the ratio of all non-owner lawyers to each owner lawyer (equity partner).  In FY1990, the Am Law 100 collective leverage was 2.05 to 1.  In FY2000, it was 2.63 to 1.  And in FY2011, it was 3.49 to 1. 

How low will law firm equity partnership ranks go? 

I’ll confidently predict that if nothing happens to modify this trend, by FY2020 equity partners will constitute no more than 18% of Am Law 100 lawyers.  Stated another way, in FY2020 the Am Law 100 lawyer population will have at least 4.56 non-owner lawyers for every equity partner. 

If those predictions take away your breath, consider the accounting firms:  In FY2011, leverage at the Big Four was already 10.6 to 1, as reported by Accounting News Report.

Some uses of this competitive intelligence 

As ow iHow you absorb the above information and patterns, consider their import to your firm’s and your competitors’ choices about growth, management and business development models.  For instance: 

1.       How will this continuing trend of shrinking firm ownership affect your firm? 

2.       How will this trend impact your firm’s efforts to increase equity partner diversity? 

3.       What unintended consequences might this trend precipitate? 

4.       To what extent have specific firms’ PPEP been “enhanced” through rapidly shrinking ownership ranks? 

5.       When you factor out those PPEP “enhancements,” how do you interpret individual firms’ actual performances? 

6.       Put another way, which firms are truly pulling away from the pack, and which are simply leveraging the power of arithmetic? 

7.       Between now and 2020, what new business models might your firm or some of your competitor firms create to differentiate themselves and go to market more effectively? 

8.       How could you compete effectively against those new models? 

As Am Law releases more early FY2012 firm results, I’ll be discussing them here. 

Am Law 100 and 200 FY2011 Financial Results Rolling In

‘Tis the season again of big law firm financial reporting. Am Law Daily’s doing a great job this year of collecting and collating Am Law 100 and 200 firms’ FY 2011 financial results by maintaining an interactive chart of results as those are reported.

Thank you, Am Law Daily.

FY 2010 Update: 52 US Law Firms Report Financial Performance

Below are some preliminary basic 2010 financial performance data for 52 large US law firms, as their results have been reported in the legal and mainstream press. The firms are ordered by profits per equity partner (highest to lowest).

The American Lawyer will publish the final 2010 performance data for the Am Law 100 on May 1 and for the Am Law 200 on June 1. Before then, I will try to revise and publish here at least once more the preliminary results for as many firms as I can locate.

As always, if you find any errors in the table below or would like to add a firm’s performance data, please let me know by commenting here or at agibson@annleegibson.com.

Final point -- I realize the following table looks fuzzy, but if you click on it you will see a clearer version.  

FY 2010 U.S. Law Firm Financial Performances ... Trickling In

Like many law firm watchers, I’ve been gathering information about US law firms’ financial results from reports in the legal press. To date, I’ve collected the following info about gross firm revenue and profits per equity partner and am sharing it here with readers. The firms are ordered by profits per equity partner (highest to lowest).

If you find any errors in the table below or would like to add a firm’s performance data, please let me know by commenting here or at agibson@annleegibson.com. I will continue to review press reports and update these results from time to time.

Two-thirds of Am Law 200 have CI units

A recent survey of Am Law 200 law firms reveals that nearly two-thirds (64%) of those firms now have CI units, more than I had realized.

The CI units at these firms report to:

Marketing - 59%
Library - 33%
Marketing and the library - 8%

Consistent with surveys I’ve seen over the last three years, this latest information comes to us via Law Firm Inc.’s sixth annual survey of law firm librarians. A couple of cogent articles about the survey findings and librarians’ CI roles appeared recently in that publication, both reported by Alan Cohen:

Survey: CI on the Rise at Firm Libraries
Survey Says Librarians Like Their Jobs but Are Displeased With Vendors

The articles spotlight librarians’ enthusiasm for competitive intelligence work, although their CI role is growing slowly: CI took up 9% in library staff time in 2007 compared to 7% in 2006.

The survey also reports that at those firms responding to the survey the CI group reports to marketing at 38% of the firms, to the library at 21% of the firms, and to both marketing and the library at 5% of the firms. I assume the other 36% of firms responding do not have CI units.

If I interpret these findings correctly, this means approximately two-thirds (64%) of Am Law 200 firms now have some kind of explicit CI unit. That’s more firms than I’d imagined had taken the CI plunge.

As the saying goes, “First quantity, then quality.”

I’ll take that challenge!