Friday, February 28, 2014

Change in the Headcount at BigLaw Firms

Headcount Strategies

Adam Smith Esquire's Bruce McEwen, well-known blawger, in a post entitled, Where Do You Want Your Firm to be in 2020?, reports some data on the strategic planning horizon of large law firms, which he argues does not extend beyond one, two, or three years.

Interestingly, he reports the following figures for the changes in headcount at large law firms.
[C]onsider the little-remarked but sobering figures on how the proportionate composition of lawyers at the largest 250 law firms in the US based on headcount has changed over the last decade:
  • Associates: from 55% to 47% (down 15%).
  • Equity partners: from 31% to 26% (down 16%).
  • Non-equity partners: from 7% to 16% (up 129%).
  • Other’ lawyers (staff, of counsel, contract, etc): from 7% to 10% (up 43%).

He comments on these changes later in the post:
And what, exactly, is the point about the aforementioned morphing composition of lawyers at large law firms? Simple, I believe:
  • First, that shrinking pool of associates. Associates require investment in training, professional development and, yes, time write-offs. (Don’t be tempted to jump to the conclusion that firms have merely responded to client preferences by cutting associates since 2008, when clients began to get serious about refusing to pay for juniors. The decline at top 250 US firms was almost entirely before that, from 2000 [55%] to 2008 [48%].)
  • Yes, associates can cost money, but they are, or ought to be, the future of the firm.
  • Equity partners, also down, are costly in another way: to firms’ reported profits per equity partner (PEP). If the top line and the bottom line are essentially flat year after year (putting aside inflation and headcount growth), what’s a body to do? Cut the denominator of the PEP calculation.
  • Non-equity partners and "other" lawyers, both up dramatically, can provide a particularly quick jolt to the income statement. Realisation rates for both are high, because experienced non-equity partners enjoy few write-offs and "other" lawyers are inexpensive to begin with. Firms can plausibly and sincerely claim they are simply being responsive to the market – clients like experienced lawyers with kinder and gentler rates than full partners – but what do they contribute to the next generation of leadership?
Worse, keeping a large swath of non-equity partners around too often results from managerial failings when it comes to performance reviews, or a cowardly preference for avoiding awkward conversation. Yet their growing ranks deprive associates of complex work, short-circuiting the associates’ professional development, impeding their career paths, and ultimately contributing to voluntary and involuntary attrition. Yet again, we have found an ingenious technique to pay the present while mortgaging the future.

I've blogged on this topic here and here. 

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