Profits vs. Partners

lat dinosaur Profits vs. Partners“There is a real generation gap between those around 35 and those around 45,” a 33-year-old partner at a major national law firm said recently. “Older people still have this weird idea that this is a partnership and we’re in professional services, yakkety yak and blah blah blah. I don’t see how they think that would pay for this 47-story glass building that we’re in. Younger people see this as a business. I see myself as a midlevel director in a billion-dollar corporation.”

Another partner in his 30’s, at one of New York’s top firms, agreed—but with more anxiety than enthusiasm.

“We’re supposed to care about Aristotle and Plato, and they’re supposed to care about Mammon,” he said, comparing lawyers to finance types. “But now we lawyers care about money.”

“There’s no question that law firms are becoming more like businesses,” said Peter Zeughauser of the Zeughauser Group, a legal consulting firm. “The trend has been around for a good 25 years, but it has accelerated. The competitive pressures have increased dramatically over the last 5 to 10 years. This forces firms to become more businesslike in running themselves.”

One can argue over whether it’s a good or bad thing, and one can also argue about how long it has been going on. But most observers agree that large law firms are becoming more business-oriented, more focused on efficiency and profits—in short, more like investment banks, hedge funds and other money-making machines.

It’s a noteworthy shift for the legal profession, whose denizens like to think of themselves as intellectual types—and view their Wall Street cousins as money-obsessed philistines. Many angst-filled attorneys suspect they should have gone into something more tweedy and creative than relocating commas within merger agreements. As Clarence Darrow said, “Inside every lawyer is the wreck of a poet.”

Such questions of professional identity aren’t just theoretical; they have ramifications for law firms as businesses. If law firms become “just like banks,” but with smaller paychecks, firms may lose their appeal to the talent they must attract in order to thrive.

“The law firms in this culture place so much emphasis on compensation,” said the young partner in New York, who insisted on anonymity, like many of the lawyers contacted for this story, because of firm policies against talking to the press. “But if you end up putting money as the aspiration, inevitably money takes on a power that can transcend the greatness of the craft that you’re learning. When money is what motivates, and money is offered in a higher quantity, people will take the money.”

Not unlike the Mafia, Big Law—the moniker used, with a mixture of respect and resentment, to refer collectively to large law firms—must ask itself, What is this thing of ours? Is the American law firm still a professional partnership servicing clients, or is it just another vehicle to a seven-figure income, but with “LLP” instead of “Inc.” at the end?

“This has been historically the most profitable period for large law firms,” said Brad Hildebrandt of Hildebrandt International, a law-firm consulting firm. The nation’s 100 top-grossing firms as ranked by The American Lawyer magazine are more profitable than ever. In 2006, the average profit per partner was $1.2 million; at New York’s top ten shops, it was $2.67 million (see chart below).

LAT chart web Profits vs. Partners