Fewer associates are winning promotion to partnership this year, a trend industry experts say is a result of the economic downturn.
This month, Cleary Gottlieb Steen & Hamilton elected four new partners firmwide, half as many as in 2008, while Latham & Watkins cut its firmwide promotions 25 percent to 23. Ropes & Gray named one third fewer with eight new partners, while Proskauer Rose named four to partnership, one less than in 2008. Wachtell, Lipton, Rosen & Katz, the most profitable firm in the country, this month named two new partners, down from six last year.
Consultants say the trend likely is a reflection of the financial condition law firms have found themselves in, with demand for legal services down and profits falling. Making partner had already become tougher in recent years, Dan DiPietro, advisory head at Citi Private Bank's law firm group, said via e-mail. With the recession, he added, "the bar has been raised on what it means to become an equity partner and to stay an equity partner."
He added, "While I don't think the economic meltdown caused this trend, I do believe the trend accelerated as a result."
The bulk of promotions at law firms are expected to be announced over the next two months. But several firms have already made their decisions known, and most have elevated smaller classes.
Skadden, Arps, Slate, Meagher & Flom, for example, named eight new partners firmwide in April, down from 25 in 2008. Davis Polk & Wardwell in July named four new partners compared to six a year earlier.
Firms based outside of New York are promoting fewer associates as well. Paul, Hastings, Janofsky & Walker named six new partners firmwide, down from 11 a year earlier. Gibson, Dunn & Crutcher named 11 new partners, compared to 13 in 2008. Mayer Brown on Monday named 14 partners, down from 27 in 2008.
Law firm net income through the third quarter is down 6.1 percent industrywide, according to a recent survey by Wachovia Legal Specialty Group, part of Wells Fargo Corp. Top-tier firms are experiencing a 4.3 percent decrease, Wachovia said.
Ward Bower, a consultant at Altman Weil Inc., said firms may be trying to avoid dividing their dwindling net income among even more partners.
"Profits are squeezed at big firms this year, and they don't want to dilute partnership income any more than they have to," he said.
The reduction may also relate to the firms' reluctance to promote from business practices that have slowed, said David Cruickshank, a consultant with Kerma Partners. Because transactional practices were the hardest hit by the downturn, Cruickshank said he expected fewer new partners coming out of that area this year.
"To the extent they think business-making prospects are down, they're going to defer people for at least a year," he said. "The sweet spot right now would be to be a senior associate up for partnership in bankruptcy. Whereas if you have been working in the securitization practice, even the partners don't have enough work."
Joseph Altonji, a consultant at Hildebrandt International, said firms had more relaxed standards in the boom years as firms expanded in New York and across the globe. With demand for legal services down, firms are not as willing to extend partnership to as many senior associates, he said.
"Going forward, the requirement for making partner at many firms is going to get tighter," Altonji said.
The head of one New York firm, who requested anonymity to speak candidly about the promotion process, concurred. He said he expected New York City firms to cut the number of new partners by one third to one half of 2008 levels because of the slide in demand for legal services.
"If you have a superstar and the superstar is eligible, you'll probably make the superstar partner anyway," the law firm leader said. "But for anyone else, you'll probably want another year to look at the economy and the law firm economy in particular."
AGAINST THE TREND
A few firms are announcing larger new partner classes. Milbank, Tweed, Hadley & McCloy last week elected five attorneys to partner, up from four in 2008.
"We certainly pay attention to the economy in making new partner decisions, but we also pay attention to the fact that we're strong enough that we should mostly be focusing on long-term investments," said Mel Immergut, Milbank's chairman.
None of Milbank's new partners in New York come from its corporate side. Instead, it promoted two restructuring associates and a litigator. One new partner is in Munich and the other in Tokyo, regions where Milbank is trying to grow.
Milbank promoted all of the lawyers who were nominated by the practice groups, Immergut said, though he acknowledged it was possible some groups did not nominate anyone because they did not see a need for more partners.
Fried, Frank, Harris, Shriver & Jacobson in September named seven new partners, up from five a year earlier. The promotions followed a year where Fried Frank shrank firmwide more than any other law firm, according to data collected by The National Law Journal, with the number of lawyers falling 26.4 percent to 468 attorneys.
Sullivan & Cromwell in October elected five new partners, the same as a year earlier.
"We're obviously not going to stop making partners because of the financial conditions," said H. Rodgin Cohen, chairman of Sullivan & Cromwell.
Firms that have made fewer partner promotions, such as Cleary Gottlieb and Latham, generally say that while competitors may be factoring in the economy in their decisions, they themselves are not reducing promotions because of it.
"At least on our end, it's not any sort of strategic decision," said Francesca Odell, a partner at Cleary. "We select candidates from a pool of eligible candidates, and this year it happened to be smaller."
Odell said Cleary would never reduce its promotions because of a bad economic year "because it would hurt you five years down the road."
Cleary named four partners, down from eight in 2008.
Latham & Watkins named 23 globally this year, down from 28 in 2008. Richard Bress, who chairs Latham's associates committee, said the drop was "typical variation year to year." The firm was not considering profits per partner or the level of activity in certain practice areas in making partner decisions, he said.
"The easiest way to understand that is we made the same number of transactional partners this year as we did last year," Bress said. "And that's really the aspect of the economy that's been hardest hit."
Kirkland & Ellis in October promoted 51 lawyers to partner globally, a 27 percent drop from last year. In New York, the firm named nine partners in restructuring, corporate, litigation and intellectual property, down from 15 in 2008. As is typical at the firm, all of Kirkland's new partners entered as non-equity, a spokeswoman confirmed.
Kirkland, like all firms, has been facing a tough economic climate. In September, it laid off 20 associates in New York, as well as lawyers in Washington, D.C., a source familiar with the situation said.
Yet despite the smaller number of new partners, Kirkland partner Jay Lefkowitz said the firm "didn't change our criterion for partnership" because of the economy. A source at Kirkland familiar with the process said the firm had a smaller senior associate pool to promote from and estimated that roughly the same percentage of senior associates made partner as did last year.