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In Down Economy, Do Less Profitable Firms Have a Better Shot at Big-Name Partners?
The American Lawyer
June 22, 2009
Image: Photodisc Green
A new study suggests that partners on the move increasingly are willing to join up with less profitable firms that might offer greater job security.
The study, by management consultancy KermaPartners, surveyed over 240 lateral partner moves among Am Law 200 firms. It found that, more and more, partners are moving "downstream," leaving firms with higher profits per partner for less profitable ones.
In the first quarter of 2009, the study found, 70 percent of lateral partners -- both equity and non-equity -- moved to law firms with lower profits per partner, on average 1.8 percent lower than PPP at their former firms. (Compare that to first quarter 2008, in which 46 percent of lateral partners moved to firms with higher PPP, on average 12 percent higher.)
"Partners are willing to take that drop if they know that it's going to add stability," says Kerma's Melissa Holyoak, the author of the study. Given the state of the economy, law firm analysts agree, and aren't surprised by the findings.
The Kerma report suggests partners seeking greater financial stability may be willing to forego firms traditionally with high profits for ones with less financial volatility. Middle market firms are generally seen as better performers in a down economy thanks to practices with fewer direct ties to Wall Street. Smaller, regional firms have also reported faring better in the current economy.
Recruiters note that Kerma's data could be skewed by the fact that fewer corporate transactional partners are making lateral moves.
"Not only is there a downturn in the transaction business, but partners with books of business in transactional areas have great difficulty predicting what their practice level will be," says Eric Sivin of Sivin Tobin Associates in New York. That, Sivin says, means fewer moves among those lawyers.
Partners may also be concerned about financially supporting other partners who have little draw, or feel that their practices are more valued at other firms.
"Once you're in that high range of compensation, you have other motivating factors besides compensation," says Mark Jungers, a Chicago-based recruiter with Major, Lindsey & Africa. Besides, he adds, higher PPP doesn't necessarily translate into higher compensation, depending on each firm's compensation system.
Will the trend continue through 2009? In this economy, anything's possible.
This article first appeared on The Am Law Daily blog on AmericanLawyer.com.
