The glowing reports of law firm profits that have occupied recent headlines may make it seem like the legal industry is returning to the “Way We Were” in the pre-2007 Golden Era, and everyone can breathe easy.
Here’s a sampling of those headlines: In 2010, Fried Frank’s profits per partner surged 28% to $1.6 million. Gibson Dunn’s average profits per equity partner rose an astounding 20.9% in 2010 to $2.31 million. At King & Spalding, equity partners took home 18% more, an average of $1.73 million in 2010. Sonnenschein Nath & Rosenthal (now SNR Denton) saw profits per equity partner jump 15% in 2010. With only slightly fewer percentage points, DLA Piper‘s U.S. profits per partner jumped more than 12%. Overall in 2010, profits per equity partner rose 7.4%.
Wow! Sounds like at least the big dogs are back in deep clover.
It should be noted, however , that those increasing profits are inversely related to the law firm bodycount — of staff, lawyers and even equity partners. The 2008 cuts were in many cases long overdue and represented a prudent shearing of excess capacity that could no longer be supported when the money hoses were pinched.
The self-congratulatory back-slapping may be premature. The cuts are back. Tom Huddleston, reports in today’s AmLaw Daily that legal jobs dropped by 500 in March after 2,000 positions were lost in February. The cuts represent the second straight month of losses, and the fourth out of the past five months. These cuts comport with Dan DiPietro’s prediction that more trimming will occur in 2011, and please note that he is “watching equity partner head count closely.” This all may signal continuing erosion of the high-leverage model of law firms.
While it may be a hard time to read the tea leaves, I would welcome your thoughts on where the trends in the legal industry are taking us.
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