Bloomberg Law’s recent analysis has unveiled a continuing trend among the nation’s top 100 law firms: a reduction in the number of partners. Termed as “pulling up the ladder,” this strategy allows firms to increase their profits per equity partner. By exploring this analysis, we can gain valuable insights into how these equity partner adjustments impact the financial performance of these firms, with a particular focus on the profits per equity partner metric—a widely used indicator of success in the legal industry.
According to Bloomberg Law’s Big Law Business column, law firms achieve increased profits per equity partner by reducing their equity partnerships. The profits per equity partner metric measures the size of checks partners receive at the end of the year, making it a significant benchmark of success. While analyzing the data, two firms—Taft Stettinius & Hollister and ArentFox Schiff—were excluded due to partnership rank increases resulting from substantial mergers. Among the remaining firms, 16 experienced a reduction of 5% or more in their equity partner tier, leading to an average increase of 2.2% in profits per equity partner.
In contrast, 19 firms witnessed an expansion of their equity partnerships by 5% or more. Referred to as the “biggest growers,” these firms encountered a decrease of 8.1% in profits per equity partner. However, it is important to note that these firms initially boasted significantly higher profits per equity partner, providing them with more flexibility to add equity partners. While expanding their equity partnerships posed challenges in maintaining previous profit levels, it demonstrated these firms’ commitment to growth and ability to leverage a solid financial foundation.
The Big Law Business column considers an increase in equity partners as a positive sign of a firm’s financial health. Among the 19 firms experiencing growth in equity partnerships, revenue increased by 4.3%—a notable contrast to the 1.1% revenue growth observed in the 16 firms that reduced their equity partner numbers. This correlation suggests that expanding equity partnerships may contribute to revenue growth and overall financial well-being. Law firms willing to report significant equity partner growth often have compelling success stories to share, reinforcing their position in the competitive legal landscape.
As the legal industry continues to evolve, top BigLaw firms are strategically adjusting their equity partner structures to enhance profitability. By analyzing the impact of these changes on profits per equity partner, we gain valuable insights into the shifting dynamics of the legal sector. Firms reducing their equity partner tiers have witnessed a rise in profits, showcasing the benefits of a streamlined partnership structure. Conversely, firms expanding their equity partnerships face challenges in maintaining previous profit levels but demonstrate their commitment to growth and leverage a solid financial foundation. Staying informed about these trends empowers legal professionals to confidently navigate the industry, adapt their strategies accordingly, and capitalize on opportunities for sustainable success.