Reed Smith is reducing partner distributions in response to the disruption and economic effects of the new coronavirus.
A Reed Smith representative said in a statement Monday: “Businesses around the world are bracing for the short-term and potential long-term economic impacts of COVID-19, and we are taking a fiscally conservative yet responsible approach. Our leadership is taking a cautious approach and has made the decision to slow partner cash distributions in the near term as a precaution. We think this is a prudent choice as we look ahead to uncertainty in global events.”
The statement added that the firm’s performance so far in 2020 is on target, and many practices “are exceptionally busy.”
Reed Smith had about 660 partners across its worldwide offices last year, according to ALM data, including about 280 equity partners and about 380 nonequity partners.
According to a report in the U.K. publication The Lawyer, firm management told partners last week that it will reduce monthly draws by 40% for the next five months for equity partners, and 15% for the next three months for nonequity partners globally.
Longtime law firm consultant Hugh Simons wrote for The American Lawyer last week that in preparing for continued economic uncertainty, “[t]he biggest available lever firms have is to defer payments to partners.”
Simons explained: “For Big Law, typical profit margin is around 50% (i.e., partner income as a percent of revenue); hence, each month of deferred partner comp covers a full month of expenses. The only thing that comes close in size is delaying the funding of pensions, but that’s often not viable.”
At least one large firm has already acknowledged taking steps to reduce retirement-related costs. Philadelphia-based insurance defense firm Marshall Dennehey Warner Coleman & Goggin confirmed Monday that it plans to suspend its contributions to employees 401(k) accounts for the rest of the year, effective May 1.