The American Lawyer’s annual ranking of law firms by size and economic performance is law’s version of the Oscars. It is highly anticipated, widely viewed, and the subject of considerable discussion. It has been a staple of the legal industry since its inception in 1986. What began as the 200 largest, most profitable firms—‘The AmLaw200’– gave way to the AmLaw100. This year’s rankings revealed a growing divide between the top and bottom halves of those 100 firms. The top 50 firms are going strong while the bottom tier show stress cracks, notably a drop in revenue per lawyer. It might well be ‘The AmLaw50’ in next year’s survey. The 2017 Georgetown Report, another legal industry bellwether, reveals that 20—not 50—firms have achieved fiscal separation and are in a league of their own. What is the significance of the winnowing of 200 surveyed firms to a fraction of the original number? [Read more…]
Law is a knowledge- based business. As such, one would imagine that those with the greatest depth of knowledge—and highest value to clients—would maintain an elevated status in their firms and be compensated accordingly. But such is not the case in today’s legal marketplace where who and what is of paramount value to most law firms often diverges from the clients’ perspective. Simply put: rainmakers call the shots at law firms while “service partners”, non-equity partners who mange and perform the bulk of the heavy lifting on client matters, have been systematically devalued, if not jettisoned, in recent years.
The Practice of Law v. The Business of Law
Why the disparity between what is most valued by law firms and their clients? Let’s start by noting the competing objectives of the practice of law (valued service to clients) and the business of law (the law firm model that determines the cost of the service). The AmLaw 100 firms have remarkably similar structures architected to maximize profit-per-partner (“PPP”). During the giddy decade of the ‘90’s and into the new millennium, large law firms experienced tremendous growth—both organic and, in many cases, via acquisition– in headcount (leverage), billing rates and hours (revenue) that led to robust PPP.
Competition certainly existed, but it was a time when the rising tide seemingly lifted almost all AmLaw 100 boats. But the economic crisis of 2008 and its aftermath has created a new normal, one where lawyer layoffs, decline in workflow, increased competition, new providers (law firms, service providers, and legal products enabled by IT), disaggregation of legal tasks, and clients demanding “more for less” have put pressure on managing partners. [Read more…]