UPDATE, June 12, 2014, 4:45 p.m., EDT: Here’s Dentons’ response to our column. We’ve detailed our methodology in the seventh paragraph below.
It’s a complaint we hear from time to time here at The American Lawyer: That one of the metrics we use to assess law firm health—average profits per equity partner, a.k.a. PPP—has caused lawyers to become obsessed with money, tipped off clients to just how much their attorneys make and generally wrecked any congeniality that existed in Big Law.
In fact, stories posted today by Reuters and the ABA Journal note that Dentons, a verein that ranks No. 14 among the Am Law 100 top-grossing firms, has decided it will no longer report that measure for our annual survey of Big Law financials.
“While we understand that our position will encounter criticism, and encourage the creative number crunching that others love to engage in, we nevertheless think that our position is in the best interests of our firm, our clients and the profession as a whole,” according to a letter to us from the firm’s Global CEO Elliott Portnoy and Global Chair Joe Andrew.
I’m going to suspend any question of an ulterior motive here—that Dentons didn’t report its latest global PPP figure because, by our estimates, that number would have shown an overall PPP decline year over year of 20 percent, the worst showing in the Am Law 100. (The firm did send out a press release earlier this year with the news that U.S. PPP was up 4.8 percent.)
Let’s talk about the measure itself. Average profits per equity partner is one indicator of a firm’s profitability. Of course, there are caveats: PPP is an average, not the range, of partner pay. And to some extent firms can manipulate PPP based on who they define as an equity partner. PPP is also not the only metric we measure. We’ve often said that revenue per lawyer (RPL) is actually a better indication of a firm’s general health. (For Dentons, global RPL was down 22.5 percent last year, we estimate. RPL for the firm’s U.S. attorneys was up 1.4 percent, according to the firm’s press release.)
Still, for a company like ours that covers the business of law and is committed to the transparency of such information, PPP is a pretty important indicator to track. We will continue to cover the financial results of major law firms.
As for our methodology, most of our figures are per-lawyer or per-partner metrics. That allows us to compare firms, regardless of size, since the unit of measurement is standard. (Our 2013 numbers for Dentons took into account the legacy SNR Denton operation along with Fraser Milner Casgrain and Salans, with which they combined.)
I can’t say it any better than Steven Brill, founder of The American Lawyer, when he introduced in the July/August 1985 issue PPP, RPL and other metrics in what was then The Am Law 50:
“Yes, this survey may accelerate the growing competitiveness among firms and the awareness that it’s a tough new world out there. Better market information often has that effect in a free, vigorous economy. And yes, for some that may mean an increased willingness, maybe even an enthusiasm, for throwing professionalism aside. But that will come from the few who don’t understand that professionalism and good business not only aren’t inconsistent, but that at the top, where the customers are increasingly sophisticated, they’re synonymous.”
Lawyers, what do you think? I’d love to hear your comments.