Tag Archives: Legal Headhunter

Evolving Partnership Economics: The Equity and Non-Equity Models Are Starting to Blur

The “partner” title holds undeniable cachet in law firms. Elevation to the partnership is treated as a key professional milestone. But in the current law firm landscape, the fact that a lawyer has been designated a partner often conveys very little about the economic arrangement between that lawyer and the firm. A few firms have a single tier of partnership, but the majority have at least two. In some firms there are as many as four tiers, each with a different set of benefits and obligations.

The traditional equity model

In simpler times, partnership meant equity partnership. If you made partner, you received an ownership interest in your firm and the right to vote on firm governance matters. In exchange for that equity interest, you were required upon joining the partnership to contribute a lump sum of capital. The firm held onto your contribution for the duration of your partnership tenure, and upon your retirement from the partnership, you sold your interest back to the firm and reclaimed your capital. As for annual compensation, longer tenured partners typically took home a larger slice of the pie than the newly elevated, but no partner was paid a fixed salary. As the general fortunes of the firm rose or fell, all members of the partnership rode the wave together.

At a few major law firms the traditional model remains largely intact. Firms like Cravath and Debevoise are the purest examples: they continue to have only equity partners and to pay lockstep, seniority-based partner compensation. Firms such as Davis Polk have done away with lockstep compensation but still feature an all-equity partnership. However, firms committed to awarding equity to every partner comprise a shrinking minority of the legal industry.

The non-equity alternative

As early as the 1970s, some law firms began to introduce a bifurcated partnership model: there were equity partners and non-equity partners (sometimes described as income partners or non-share partners). Non-equity partners did not become owners of the firm, did not have full voting rights, and were not expected to contribute capital. Instead, they effectively were paid a salary. Becoming a non-equity partner meant you received the “partner” title but not the partner economics.

In some firms, the non-equity partnership tier was pitched as a stepping stone to equity partnership. The intermediate non-equity tier was a conceit designed to lengthen the track to true partnership while providing some social capital in the interim. It enabled lawyers who were effectively still senior associates, as traditionally defined, to market themselves externally as “partners.” Delaying the elevation of some senior associates to equity partnership by a couple of years may have been helpful for firm economics in the short term, but there is always the next generation of associates rising through the ranks. So the notion of non-equity partnership as simply a way station on the track to the equity tier was never especially credible, and before long, non-equity partnership became a common terminal status for many lawyers.

Blending equity and non-equity

The distinction between equity and non-equity partnership has become increasingly blurred at many firms. For example, several firms in the Am Law 100 now require non-equity partners to contribute capital. This is sometimes sold as a means of giving non-equity partners “skin in the firm game.” But in a world where only a small proportion of non-equity partners are likely to ascend to the equity ranks, one can understand why non-equity partners would be unenthusiastic about the capital contribution trend. They are being required to bear a burden of equity partnership with no guarantee of receiving the corresponding benefit.

Some firms are creating multiple partnership tiers (sometimes called compensation bands), with each tier featuring its own combination of rights and obligations that may not neatly correspond to either the equity or non-equity models. Perkins Coie has four tiers. The lowest tier is similar to the standard non-equity model, in that partners in that tier are paid a straight salary. The higher tiers are differentiated both in the level of compensation offered and in the voting rights afforded to the partners in the tier.

As the economic models of partnership have grown increasingly complex and differentiated, so have the implications for current and potential partners. In our next installment, we will explain how non-equity partnership can be a superior option for lawyers in certain scenarios.

So You Want to Lead Your Firm? Be Careful.

Global Chair. Head of Litigation. Office Managing Partner. Those are some nice sounding titles, right? In a profession that emphasizes prestige and status, it isn’t surprising that many high-achieving partners aspire to lead their firms. For a partner who has achieved success at each rung of the Biglaw hierarchy, the pinnacle of leadership may seem like a natural next conquest. But if you’re in a position to reach that pinnacle, you should ask yourself two questions before accepting the appointment. First, why do I want this job? Second, is the timing right?

Realities of law firm leadership

Successful law firm partners are accustomed to interacting with powerful corporate executives. Watching their clients run companies or in-house legal departments naturally encourages some lawyers to think, “hey, I could do that!” And what better way to prove it than by chairing their firm?

It’s important to recognize that the power wielded by a Managing Partner is materially different from that of a CEO. Companies are fundamentally hierarchical organizations, and although the most effective CEOs will inspire employees to align with the CEO’s vision, the reality is that a CEO can act unilaterally where necessary. Reporting lines are clearly delineated, and team members who resist directives from senior leadership are unlikely to last long. Moreover, employees who quit are rarely in a position to take a substantial portion of the company’s business with them.

Compared to a CEO, a Biglaw Chair is generally in a weaker position to drive change unilaterally. We can all think of examples of exceptionally powerful Managing Partners—often these are founders of their firms with their names on the letterhead. But in the more typical case of a partner who rises up the ranks to assume the role of Chair, the experience of leadership is more herding cats than giving orders. Partners are owners, and they feel entitled to a real say in the firm’s direction. This is especially true of the rainmakers, whose power is reinforced by their ever-present ability to take their book of business elsewhere. In contrast to the efficiencies of hierarchical corporate structures, law firm leadership entails a slower, more collaborative, and constrained process.

Another notable difference between CEOs and Biglaw Chairs is that Biglaw leaders frequently are not the highest-paid members of their firms. CEOs are generally assumed to have outsized responsibility for the financial performance of their companies, and their outsized compensation reflects this. In a law firm, the dynamic is different. A Managing Partner plays an important role in ensuring smooth operation of the firm, but revenue is generally credited principally to the decentralized business development efforts of individual partners. (Recall the analogy we recently drew between law firm partners and franchise owners.) Outsized compensation is earned through rainmaking, not through leading the firm in an administrative capacity.

Before agreeing to become Chair, you would be wise to take a step back and reflect on why you aspire to firm leadership. It is a challenging job, and compared to practicing full-time, you aren’t likely to earn a premium for assuming a top leadership post. Make sure you look beyond the title when assessing the desirability of these roles.

Pitfalls of an early rise to the top

Presuming you are under no illusions about what leadership will entail and you have decided that you want the role, the second critical issue is timing. Star partners often ascend to the top of their firms as soon as the opportunity presents itself. This makes perfect sense on one level—who knows if you’ll get a second chance at a later date? But if you are offered the opportunity to lead your firm as a mid-career partner, it’s important to think through the potential pitfalls.

The main risk is that you’ll come to the end of your leadership tenure and will be poorly positioned to resume your practice. If you expect chairing the firm to be your last job, you don’t have to worry about giving up your book of business. But if you take on the leadership role as a mid-career partner, with the expectation of practicing for another decade on the back end, you need to be mindful of the difficulties of reintegrating into full-time practice.

The nature of the risk depends on whether the Managing Partner role is a full-time job. If you are expected to devote your full attention to leadership, you will necessarily have to hand over your practice to other partners. And if you do that, you shouldn’t expect to get it back several years down the line. Transitions of this sort tend to be sticky: by the time you return to the scene, your clients will be accustomed to dealing with those other partners and may not see a benefit in switching back to you. In an era in which firms increasingly prioritize profitability above all, you will struggle to return to your pre-leadership position of strength without a robust book of business.

If your firm expects you to continue to practice part-time while in leadership, the risk of losing your client relationships is mitigated, but your practice may still be impaired. Your competitors will be focused solely on building their books, whereas you will be distracted by your firmwide responsibilities. Remember: fancy titles are nice, but your long-term value to the firm derives from your ability to grow and maintain your practice.

You should assume that taking on the Chair role is effectively a retirement plan. If that makes you uncomfortable, it’s probably best to delay the job for now.

Parents in Law Firms: Taking Stock of Pandemic Burdens and Retention Risks

Being a parent in Biglaw has always had its challenges, but we saw these challenges rise to new heights during the pandemic, especially for women.  Even in the best of times, the legal industry has had an uninspiring record of retaining and promoting female lawyers: the National Association of Women Lawyers’ 2020 survey found that just 21% of equity partners were women.  But with many women in law straining to maintain intense practices while bearing the brunt of a pandemic-induced increase in childcare demands, even that modest progress may be in jeopardy.

On a personal level, I experienced these struggles first-hand, and I don’t even practice law anymore.  With two young children at home, two working parents, and little to no outside childcare help (the nanny market is almost as crazy as the lateral attorney market, but that’s another story), I found myself drowning in unchartered waters (hello e-learning)!  Even when splitting the days with my husband so we could both work part-time, it was virtually impossible to get any work done while trying to balance the unreasonable and insatiable demands of my children.  Thankfully, things have normalized a bit since the start of the pandemic, and for the first time in over a year, we are finally in a place where we have somewhat of a routine and the kids are out of the house for most of the day.  But I will never get that 15 months of my life back, and neither will the thousands of other attorney-parents.  It’s hard to quantify the career damage actually caused by COVID-19, but we do have some data which shines some light on this issue. 

The toll on careers

A recently released American Bar Association survey gives some indication of the impact of pandemic stress on women and parents.  The survey was administered in October 2020 to over 4200 ABA members, of whom 43% identified as female.  It revealed that female respondents were significantly more likely than men to have taken on additional childcare during the pandemic (on top of the already unequal load that they were bearing pre-pandemic).  Women were also more likely to report that, relative to a year earlier, they found themselves thinking more often that it would be better to work part-time or not at all.  42% of female respondents said they more often or much more often thought it would be better to work part-time, not full-time.  37% more often or much more often thought it would be better to stop working.

These effects were particularly stark for parents of the youngest children.  53% of women with children age 5 or younger reported thinking it might be better to work part-time than full-time.  If these parents are having doubts about maintaining their current practices, the threat to firms’ future gender diversity at the senior levels could be significant.  After all, these women are the future of firm partnerships—if the firms can retain them.

How are law firms responding?

Some firms have stepped up to provide parents with additional resources during the pandemic.  In particular, firms have sought to ease some of the burden of online schooling, with support such as paying for tutoring sessions and loaning hardware for employees’ children to use.  Firms have also bolstered internal peer support networks and sponsored sessions with external well-being coaches.

Going forward, firms may wish to consider making some of those measures permanent.  Respondents to the ABA survey requested assistance such as back-up childcare and tutoring support, stipends to help defray childcare and elder care costs, parental support workshops, and adding more months of paid parental leave that can be taken to cover childcare gaps.

To the extent parents remain on the fence about whether to stick with their legal careers, firms will need to think creatively about retention strategies.  One obvious target for improvement is flex-time and part-time work arrangements.  These are hardly new concepts, but prior implementations have been uneven at best.  Too often, parents—and especially women—receive the implicit message that taking advantage of these programs will permanently damage their career trajectory.  This reduces participation and makes those who do shift to a more flexible schedule stand out even more.  Even in situations where part- or reduced-time schedules are implemented, it’s often the case that these attorneys end up working full-time hours, without the full-time salary, further disincentivizing these types of arrangements.  

Law firms need to commit to changing the culture around these programs and demonstrating that careers can thrive both during and after a stint of modified workload.  If the pandemic has taught us one thing about work, it is that there are multiple ways to achieve the necessary output.  Firms should extrapolate from the pandemic experience and embrace a range of flexible models.  Not only is this the humane thing to do, but it’s also a smart competitive move in a tight talent market.  Firms should be eager to continue to capitalize on all of the training they have invested in their female lawyers.  This is a much less expensive path than driving out parents and then trying to replace them with lateral hires.

How can Lateral Link help?
At Lateral Link, we are in constant conversation with partners and associates at Biglaw firms, mid-size firms, and boutiques all over the country, so we have reliable information on which firms are most supportive of parents.  All firms claim to support women and parents, but the reality is that some execute on those promises more effectively than others.  If your firm is not offering the support you need, we encourage you to explore your options.  A long-term law firm career is not for everyone, but if you’re feeling burned out, it’s worth learning about alternatives to your current firm before making a decision to leave the law.  Please feel free to reach out to me or any of my colleagues to discuss your unique situation.

Biglaw Associate Salaries and Cost of Living: An Imperfect Correlation

With Biglaw offices reopening and office attendance soon to be expected at most firms (at least for part of the week), many associates are contemplating their post-pandemic Biglaw futures and considering their options. It still remains to be seen whether the exodus from large, high-cost cities during the pandemic will end up being a momentary blip or a permanent shift. But even assuming the migration to lower-cost locales partially reverses, the relative advantages of living in different parts of the United States remain front-of-mind for many associates.

A move from a high-cost city to a lower-cost one is a particularly good deal if you can continue to earn the same compensation. But it may be a tougher call if it comes with a salary cut. That’s a trade-off that employees of some major tech companies are currently weighing. Facebook and Google have both taken a relatively flexible approach to the post-pandemic workplace, allowing employees to request office transfers or permanent remote arrangements. But there’s a catch: pay localization. Facebook and Google have thus far declined to explain publicly how they will recalculate the salaries of employees who move. But judging from the approach of companies like Stripe, base salary cuts of around 10% are likely on the table.

Tech workers may not like it, but the reality is that paying lower salaries in lower-cost cities has historically been the norm for many industries. That’s also true of the legal industry, to a point. But Biglaw is an anomaly. Top firms largely ignore cost of living and instead pay associates the “New York” rate in several “major” markets, including the Bay Area, Los Angeles, Chicago, Houston, Boston, and DC. On a cost of living basis, paying New York salaries in San Francisco is justified. In Houston? Not so much.

It’s good to be a Houston Biglaw associate

A November 2019 NALP analysis of median private practice first-year associate salaries relative to cost of living found stark differences in associate buying power. NALP calculated that Houston first-year associates enjoyed 2.4 times the buying power of their New York counterparts. Chicago associates were at 1.9 times the New York baseline. Meanwhile, first-year associates in cities like Miami, Portland, and San Diego were found to have less buying power than their New York peers.

The NALP survey looked at private practice salaries overall, rather than Biglaw salaries exclusively. If the analysis had been limited to Biglaw offices, the results would surely have been somewhat different. But the broader point is unassailable: associate salaries are poorly correlated with cost of living.

Billing rates are a key driver

If cost of living isn’t driving associate salaries, what is? The answer is billing rates. Houston and Chicago may not be high-cost cities, but they have plenty of clients willing to pay firms top-dollar rates. Viewed from that lens, paying top salaries in these markets seems fair: associates are being compensated for the value they create. Over time, as clients become more accustomed to the notion of top legal talent being based in regional cities, we may see more lawyers being paid New York rates in cities across the country. Biglaw firms in markets like Kansas City and St. Louis, for example, have raised their first year associate salaries up to 30% this year, significantly narrowing the salary gap.  That’s not to say that median associate salaries in secondary cities will rival the New York level. But for lawyers with top-flight credentials, geographic arbitrage may become increasingly possible and alluring.  

As we discussed last week, however, we aren’t quite there yet. The post-pandemic market is still sorting itself out, and for most Biglaw associates, the work-from-anywhere dream is not yet a reality. Still, that doesn’t mean you don’t have options. If you are a New York or Bay Area associate tired of putting up with relatively low buying power, you may wish to consider a lateral move to Texas. Needless to say, plenty of professionals have had the same idea recently, so housing isn’t as cheap as it used to be. But at least you’ll pay no state income tax!

International Lateral Moves

You might expect Biglaw firms to be reluctant to hire associates from one country for roles in a different country. Cross-border moves are inherently more complicated than hiring an associate from across the street. There are visa considerations, bar admission hurdles, even cultural challenges.

But in fact, despite the possible obstacles, the market for cross-border hiring is booming. In particular, Biglaw offices in the United States are increasingly open to bringing on foreign candidates. And lawyers from other common law countries are realizing the advantages of gaining experience in the American market. Building a professional network while working on the highest-value, most complex deals in the world pays dividends throughout one’s career, whether the lawyer stays in the United States permanently or moves back home. Lucrative American Biglaw salaries are also a plus (though you’ll need to tolerate high hours expectations in exchange).

If you are a well-credentialed attorney working in Canada, Australia, London, Asia, or the United States, now is a great time to consider an overseas move. And Lateral Link can help.

Growing demand for cross-border hires

International lateral hiring is not a new phenomenon. We have previously written about it in the context of moves between Canada and the United States. But relative to prior years, the level of interest among firms in hiring from overseas has escalated dramatically in 2021. Firms that have made these hires in the past are looking to bring in candidates in larger numbers. And firms that previously ruled out such hires are suddenly embracing the overseas model.

What explains firms’ growing openness to foreign lawyers? The biggest factor is that local candidates are in short supply. Many firms instituted hiring freezes or layoffs last spring, only to see unexpectedly strong demand for their services in the second half of 2020. All at once, firms have found themselves playing catch-up in a highly competitive market.

The talent squeeze is especially acute in the most expensive cities, such as New York and San Francisco. As with professionals more generally, the pandemic has caused many lawyers to reevaluate their circumstances and in some cases make major life changes. One of the most common has been to move away from high-priced urban centers. That has left firms with slots to fill in the largest markets facing a reduced talent pool. As a result, many are exploring creative solutions like hiring from abroad.

Another important factor is that cross-border hiring is working well for the early adopters. Firms have seen their peers succeed with this model, and that has given them confidence to jump on the bandwagon. The trend is catching on broadly: Lateral Link has worked with dozens of firms this year on international lateral searches.

There are some caveats to keep in mind. First, even in this tight market, firms still expect solid academic credentials, as well as strong and relevant substantive experience. Second, visa restrictions can be an obstacle. On the visa front, Canadians and Australians looking to move to the United States have an advantage. Canadians are eligible for the automatic 3-year TN visa issued at the port of entry; Australians can obtain an automatic E-3 visa prior to traveling to the United States. Candidates moving to the United States from other countries require employer sponsorship, which can be more challenging.

But for candidates who can surmount those hurdles, opportunities abound. There is demand for lawyers at various seniority levels, ranging from second-year associates up to senior associates and counsel. Firms are especially eager to hire in transactional practices such as M&A and finance. Capital markets demand is also growing. Tax and litigation opportunities are more limited, as these practices don’t cross borders as easily. Local bar admission is not necessarily a prerequisite, though of course candidates who already have it are especially desirable.

Lateral Link has specialized capabilities for cross-border lateral moves

If the prospect of a cross-border move is intriguing to you, please note that Lateral Link has a team of experienced recruiters specializing in international lateral hiring. Our primary markets are Canada, Australia, London, Asia and the United States. We work with candidates moving between any of these geographies. Firms specifically reach out to Lateral Link asking for candidates from these markets because they know our team has local expertise. We are constantly sitting down with partners to learn more about their hiring needs.

I lead our international group and bring particular knowledge of the Canadian and Australian markets. I have specialized in international moves for the past six years, and as a result, I’ve gained a strong understanding of which firms and practice groups are open to foreign candidates. I strongly advise candidates considering an international move to seek out recruiters who understand both the origin and destination markets. Real knowledge of both markets is critical to finding the right fit and ensuring a smooth transition. Lateral Link brings the necessary depth of expertise to navigate these moves successfully.

Canada

Firms considering a hire from the Canadian market frequently call me even if I am not working with the candidate because they trust my assessment of Canadian legal backgrounds. Lateral Link primarily places Canadians into the United States or London. We also place American associates into the Canadian market. Candidates interested in moving to or from Canada should contact Elizabeth Soderberg or Andrew Clyne.

Australia

As with Canada, we mainly place Australians into the United States or London. We also assist Australians with moves to Asian markets such as Hong Kong and Singapore. Australian candidates should contact Zach Sandberg.

London

In the London market, we mainly assist U.S.-qualified associates with moves to London and UK-qualified associates with moves to Asia. We sometimes place UK nationals into the United States, but this is more challenging due to the need for visa sponsorship. Our experts on the London market are Abby Gordon and Andrew Clyne.

Asia

The majority of our Asia work involves placements of Americans into Hong Kong or Singapore. One notable feature of Asian markets is that lateral opportunities are available for litigators who have local language skills. For transactional associates, language skills are highly valued, but they are not an absolute requirement. As with London, placements of Asian nationals into the United States are less common, due to visa requirements. Candidates interested in Asia moves should contact Justin Flowers or Andrew Ng.

Biglaw Partners Should Think Like Franchise Owners

It’s a common refrain even from highly successful lawyers: “I wish I were on the business side.”

There can be more than one motivation underlying that sentiment. The chance to earn more money tends to be part of the appeal, particularly if the lawyer is treating an especially successful client as the reference point. But beyond money, attorneys who yearn for a business role are often drawn to the notion of managing a P&L. In other words, they like the idea of being in charge of a business and controlling their destiny.

The thing is, if you are a Biglaw partner, you’re already running a business: your practice. It might not feel that way. Maybe you view your firm’s managing partner as the person who is running the business, and relative to that leader, you feel like you don’t have much management autonomy. If that is your view, it may be worth considering that most of the clients on the “business side” are constrained by decisions made higher up the pyramid. Not all of them are CEOs. Many are leaders of divisions within a broader corporate structure, managing a P&L that is just one component of a larger whole.

But the best analogy for law firm partners isn’t to a corporate division. It’s to a franchise. A law firm partner is effectively a franchise owner. At first glance, running a capital markets practice looks vastly different from running a fast food restaurant. But if you set aside the surface differences, there are some fundamental similarities.

In a franchise model, the franchisor determines many details of the franchisee’s operation. The franchisor defines the brand in the public imagination through marketing campaigns. It controls the menu of products sold at the franchises. It supervises the design and construction of stores to maintain a common look and feel across the brand’s outlets. And it provides instructions and training to ensure a consistent customer experience.

But although the broad strategic and design choices are primarily the domain of the franchisor, the franchisee controls the actual operation of the business and ultimately determines whether it succeeds. The franchisee’s responsibilities include hiring employees and supervising their work, building the reputation of the franchise in the community it serves, and carefully tracking the performance of the franchise relative to industry benchmarks to identify opportunities for improvement.

A law firm’s management, like a franchisor, is the primary steward of the brand under which the firm’s partners offer their services. The managing partner or management committee determines which practice areas the firm will compete in, selects the partners who will lead service delivery in those practice areas, and sets the broad policies and cultural norms by which the firm operates.

To be sure, those are all important decisions. But the success of the firm’s business is ultimately contingent on client satisfaction, and that depends on the management skills of the individual partners. As a partner, your job is to bring in matters and execute on them such that the client’s expectations are met or exceeded.

Like a franchise owner, you are responsible for your practice, and it will grow primarily through your direct efforts. It’s on you to get out there and interact with influential members of the community, and it’s on you to ensure that the team of associates working under your direction is motivated and equipped to deliver on your promises to clients. Like a diligent franchise owner, you should be monitoring the performance of your practice relative to others, taking stock of its relative strengths and weaknesses, and gleaning insights that can be leveraged to drive continuous improvement. You don’t need to shift to the “business side.” You’re already on it.


Biglaw Partners: Are You Capturing A Fair Share Of Your Revenue?

If you are a Biglaw partner, you may have heard this compensation rule of thumb: you should be taking home a third of the revenue you generate for the firm. The 33% rule has the advantage of being simple, and it makes for a reasonable starting point. But to really know whether you are capturing a fair share of the value you create, it’s important to consider some other factors.

Your hours vs. your team’s hours

The first distinction you’ll want to make is between the hours you bill and those billed by the people working for you, such as associates and service partners. The 33% rule is supposed to apply to all revenue for which you are responsible. But we can make things more precise by breaking that revenue into two segments.

As a general rule, you should make about 40% of revenue from hours you billed personally. As for the hours billed by members of your team, it depends how profitable those lawyers are for the firm. Associates at some firms are substantially more profitable than others. The more profitable your associates, and the more leverage your book has, the greater the share of your team’s revenue you can expect to take home.

RPL and leverage are the key metrics

To understand what share of team revenue should accrue to you, consider how your firm stacks up on two key metrics: revenue per lawyer (RPL) and leverage.

RPL is critical because it is so poorly correlated with associate salaries. You could imagine a different compensation model in which firms paid associates a standard share of the revenue they generated, either individually or on average across the firm. But as we know, that isn’t how this industry works. Instead, all top-tier firms pay associates more or less the same salaries based on class year. As a result, partners at firms with relatively high RPL get to divide a much larger profit pool than partners at “top” firms with low RPL.

Within the Am Law 100, the spread between high and low RPL is striking. Firms at the low end have RPL of around $500,000. For example, Lewis Brisbois is the lowest of the Am Law 100, at $434,000. Firms at the high end have RPL close to 4X that of the low-end firms. Sullivan & Cromwell, for example, clocks in above $1.9 million. (Wachtell is in a league of its own, with RPL in excess of $3.6 million.) Granted, a Sullivan & Cromwell associate earns higher total compensation than a Lewis Brisbois lawyer in the same class year, but that multiple is nowhere near 4X.

Now, RPL isn’t everything. We also have to consider leverage. If a partner’s book can feed a relatively large number of associates, the proportion of the team’s revenue that should accrue to the rainmaking partner will be higher. And to be fair to Lewis Brisbois, their partnership is doing well on that dimension, with leverage of 9.99 (second-highest among the Am Law 100).

How does your practice compare to the firm average?

Your firm’s overall RPL and leverage are important considerations, but unless the partnership has a pure lockstep compensation model, the performance of your practice relative to the firm average is also critical. A good starting point for thinking about this dimension is to compare the firm’s profit margin to the share of your revenue that you are taking home. For example, let’s say your firm’s profit margin is 45%. Are you being paid 45% of the revenue you are generating?

If not, consider how your practice may differ from others in the firm. Does it have lower leverage than the firm average? Are you personally billing fewer hours than your peers in the partnership? If the answer to both of these questions is no, then your compensation should reflect the firm profit margin. If it doesn’t, you are likely underpaid, and you may want to consider your options.

Why Leave Biglaw To Form A Boutique?

If law practice were a normal business, this would make little sense. In theory, larger firms should be more profitable per partner than smaller firms because a large firm can spread its fixed costs of operation over a larger pool of lawyers, lowering per-lawyer cost. The move to form boutiques seems to violate the basic principle of economies of scale.

But law is not a normal business. As we have previously explored, the legal profession is remarkably fragmented relative to other professional services fields. It is clear that standard economies of scale logic does not explain law firm industry structure.

We see four central factors driving the boutique boom: founder autonomy to chart strategy, avoidance of client conflicts, the opportunity to limit overhead investment, and freedom from ongoing obligations to retired partners.

Strategic autonomy

Boutique founders value the ability to chart their own strategy and run the show. A rainmaker in a typical Biglaw firm can be expected to have a more influential voice than the average partner, but the fact remains that major decisions require some degree of consensus, and the status quo tends to prevail.

Take alternative fee arrangements, for example. Boutiques generally have embraced flat-fee or other alternative structures much more readily than their Biglaw peers. That shift is a lot easier to execute when a firm is controlled by a small group of partners who work in the same practice area and are operating on a relatively long time horizon.

Boutiques can also more easily limit themselves to competing only for higher-margin work. When you make no pretense of being a full-service firm, and you have no legacy low-margin practices encumbering you, there is little reason to bring on equity partners whose revenue contribution would reduce the average.

Conflict avoidance

In their public statements, boutique founders tend to highlight the appeal of escaping the conflicts entanglements of Biglaw. It sounds more noble than “I’m expecting to make way more money.” But in all seriousness, freedom from conflicts can be important. It is a frustrating experience to be in line to represent a client in a significant matter, only to find out that your firm has a conflict that seems entirely tangential but nevertheless requires you to decline the work.

No bloated overhead

If law firms were managed to maximize profits, overhead considerations would counsel against forming a boutique. All law firms must incur some level of fixed cost in order to operate. Consider IT costs. Properly managed, the amount spent on IT per lawyer should be materially smaller at a 1000-lawyer Biglaw firm than at a 10-lawyer boutique. Similar economies of scale should exist for real estate expenses.

And yet, boutique founders routinely cite reduced overhead as an advantage of the boutique model. This is an indictment of large firms’ spending decisions. Historically, there has been a cultural assumption among the Biglaw elite that fancy offices on the highest floors of the most prestigious towers are a necessary expense, both as a status symbol for clients and as a recruiting tool for attorney talent. Boutiques have illustrated that there is reason to doubt this assumption. Even before the pandemic made every law firm question its real estate needs, boutique founders realized that they could operate successfully with a considerably smaller office footprint.

Here we again see the value of the autonomy discussed above. It is easier for a small group of founding partners to agree to dispense with some of the traditional trappings of Biglaw office space than to drive consensus among a large partnership to make substantial cost cuts.

No retirement payments

The final factor is likely the least intuitive, especially for lawyers who are not yet partners: the burden of payments to a firm’s retired partnership. Biglaw firms vary in the generosity of annuities offered to retirees, but it is common for a retired partner to be paid in perpetuity something like one-third of the partner’s average compensation in the final five years of service.

As life expectancy has increased, these generous payouts have become an ever-growing drag on Biglaw profits. Imagine you are a relatively young and successful partner. You could spend the next two decades dutifully contributing to the pockets of your retired forebears and hoping that you will receive a similar deal in your old age. Or you could leave now, found your own boutique, and keep that portion of your billings for yourself. In a world in which even partners who stay in Biglaw are likely to make multiple lateral moves over the course of their careers, it is increasingly difficult to convince current partners that bearing the costs of retirement payments is a worthy investment.

Conclusion: Biglaw must reform its cost structure

Unless Biglaw firms take seriously the signals that the boutique boom is sending, they can expect escalating losses of their most productive partner talent. There is of course a limit to the reforms that Biglaw firms can undertake: the autonomy and conflicts factors are particularly hard to counter. But on cost control, the ball is in Biglaw’s court. And in the wake of the pandemic, the largest firms have a golden opportunity to reimagine their business models in fundamental ways.

Biglaw firms need to take a hard look at all elements of their cost structure, with real estate and retired partner compensation at the top of the list. To that end, now would be a great time to shift to more professional administration by trained management professionals, rather than untrained lawyers engaging in administration as a part-time, supplemental duty.

Biglaw firms have advantages that boutiques cannot easily match, including strong brands and the ability to cross-sell work among multiple practices. But without significant reform on the cost side, Biglaw will continue to lose ground to boutiques.

8 Time Management Tips for Young Lawyers

As an associate, you often have limited control over your own schedule — but there are still some actions you can take to improve your use of time and cut out unnecessary stress.

If you’re an associate, you’re probably thinking, “What?! As if I have any control over my own schedule!” And you’re right, your ability to manage your time will never be perfect.

I understand. I was an associate myself for seven-plus years. But there are still some actions you can take to improve your use of time and cut out some of the unnecessary stress.

I understand. I was an associate myself for seven-plus years. But there are still some actions you can take to improve your use of time and cut out some of the unnecessary stress.

  1. When you are given a new assignment, always ask right away what the deadline is. I can’t tell you how many times as an associate I failed to ask this important question because I said to myself, “This will take no time at all, I can do it right away,” only to have a more urgent task land on my desk — and I wished I’d asked upfront instead of begging for more time later on.
  2. Many of us lawyers are Type A personalities, and we love that feeling of completing a task and checking it off the “to do” list. But I find the easiest way to prevent procrastinating about the next task is to start it right away. Just get three minutes in, then you can take that coffee or bathroom break. When I’m jumping back into an established rhythm instead of getting my mind around a new project, it’s much easier to get back to work.
  3. Believe that there is no such thing as a huge, daunting project. Everything can be broken down into smaller, bite-sized morsels. Take on one mini-project at a time.
  4. Put everything on your calendar. I assume I won’t remember anything. I include project deadlines and my to-do list items as 30-minute calendar entries. I have repeating calendar reminders to pay my credit card bills, renew my dog’s license annually… there is nothing in my life not on my calendar because the last thing I want to be stressed about is that I may have forgotten something I need to be stressed about!
  5. I also block time for work (and personal) projects on my calendar. Even if I end up changing the start and end times multiple times, it helps me to be able to eyeball my projects for the day, estimate how long they will take, and plan accordingly.
  6. Find ways to use your down time productively. What down time? Even law firm associates have down time. Mine often came at 1 a.m. as I was waiting on a senior lawyer to send me the next mark-up. But I was determined to reclaim this time for myself. So what did I do? I started a travel blog. It was a creative outlet I could turn to even at my desk in the middle of the night. So those late nights in the office were not a complete waste in terms of my personal life. I also made a point of having dinner with a work friend almost every night, even if it was for 10 minutes at their desk or mine. If you’re not inclined to start a blog or write a novel or screenplay, use your scarce breaks to update your resume and deal sheet, work on a business plan, keep in touch with contacts (build relationships!). Or research for your next vacation! Have a plan for how you’ll use your free time so it doesn’t go to waste.
  7. Whatever your goal may be — hitting the gym a few times a week, putting together a business plan, catching up with one law school classmate each day — establish an accountability partner. It could be a friend, a colleague or even a journal. Keeping track will help keep you honest!
  8. If you’re truly feeling underwater, ask for help. Firms are investing more and more into associate life and associate development resources. Even if you’re not comfortable talking with a partner, there is likely someone you can talk with. And you can always reach out to a trusted recruiter to learn what your realistic options might be for a new job offering a better work-life balance.

Making small changes to your daily routines may buy you only a few extra minutes each day at this stage in your career, but these actions will help you build good habits for when you do gradually take on more control of your schedule. I’d love to hear what time management tricks have worked for you!

How Did Biglaw Firms Fare Financially In 2020?

Pretty, pretty well, in terms of both revenue and profit.

Color me surprised — or even shocked. I’ve been following the American Lawyer’s early reporting on Am Law 200 law firm financials for 2020, and the numbers so far are good, even great.

Despite the coronavirus pandemic and recession that made life so miserable for millions last year, law firms did very well for themselves. Check out this table, showing the firms that Am Law has covered so far and the year-over-year change in their revenue per lawyer (RPL) and profit per equity partner (PPEP):

(If you like, you can access this spreadsheet as a Google Doc here, which also allows you to sort the firms by the change in their RPL and PPEP.)

Of the 29 firms listed above, all posted increases in profit per partner, many of them well into the double digits. The highest figure so far, a 46.6 percent increase, was reported by Crowell & Moring (which led me to declare Crowell my Law Firm of the Week last week). But the firm had plenty of company, with eight other firms posting PPEP increases of 20 percent or more.

Now, the increases in profit per partner might be somewhat understandable, given how the pandemic and working remotely led to dramatic drops in many firms’ expenses, such as rent (in some cases), utilities, travel, and entertainment. And yes, some firms did engage in layoffs last year as well.

But revenue per lawyer, which industry observers generally regard as the better metric of law firm financial health (since it’s less subject to manipulation than PPEP), also increased for almost all firms — not as dramatically as PPEP, but still significantly. In recent years, RPL growth in the low single digits has been quite common in Biglaw; but last year, if these early numbers are representative of the whole, perhaps half of Am Law 200 firms enjoyed RPL growth of 5 percent or more in 2020.

In light of these robust revenues and profits, one can understand why law firms paid out “COVID bonuses.” Take Cooley, which kicked off the trend by announcing “appreciation bonuses” in September 2020. The firm posted PPEP growth of a whopping 25.4 percent in 2020. Had Cooley not paid out special bonuses, then reported PPEP growth in excess of 25 percent, it would have had a lot of unhappy campers among its associates and staff.

Congratulations to these firms on their strong performances in 2020. People like to say that lawyers are not good businesspeople, but clearly lawyers are doing something right. The ability of the legal sector to do so well during a period of great difficulty for many other industries is a testament not just to the talent and hard work of Biglaw lawyers and staff, but also to firm leadership. So the next time you encounter one of your firm’s leaders, perhaps in a Zoom town hall rather than in a hallway or conference room, thank them for successfully shepherding your firm through some very dark days.

What do these strong numbers mean for lawyers interested in lateral moves? They indicate that now is a safe time to transition to a new opportunity. Last spring, when the pandemic was at its peak, the economy was in a recession, and law firms were very worried about how they’d fare, it was a risky time to move; candidates feared moving to firms that might hit rough patches after their arrival, threatening their job security as associates or their practices as partners. But now that the economy is on the mend and law firms are not just surviving but thriving, it’s a good time to move to a firm where you’d be more fulfilled.

If you’re thinking about a possible move, please feel free to reach out to me or any of my colleagues to discuss possible opportunities. We look forward to hearing from you.