As humans, we are immutably susceptible to confirmation bias. We interpret facts to confirm our beliefs. This has probably been happening with respect to our belief that Big Law is stratifying into tiers of haves and have-nots. As we peruse the Am Law 100 performance data, we’re probably availing of some numbers to confirm this belief, and overlooking the results that don’t.
To assess what is truly happening with stratification, it’s best to strip away firm names and look at all the data at once. The figure below does this. Each point is an Am Law 100 firm. On the horizontal axis is 2017 firm revenue and on the vertical axis is growth in profits per equity partner from 2017 to 2018. If larger firms were performing more strongly, we would see an upward trend in the data points from the left to right; there is no such trend.
But what if we look at stratification by firm profitability rather than by revenue? Or over longer time frames? I’ve looked at them all; there’s no trend to be seen. It’s hard to avoid the conclusion that we’re being misled by our prior convictions into believing in market stratification that simply isn’t happening.
For smaller and less profitable firms this has an important implication: position is not destiny. You can grow profits irrespective of your starting position. The insight is important too for larger and more profitable firms: Don’t kid yourself into believing your strength today guarantees growing prosperity.
Hugh A. Simons, PhD, is formerly a senior partner and executive committee member at The Boston Consulting Group and chief operating officer at Ropes & Gray. He writes about law firms as part of the ALM Intelligence Fellows Program. Contact him at firstname.lastname@example.org.