A sliver of consolation for law firms concerned with spinning awful partner profit numbers for 2008-09 came last week from celebrated ex-GE head Jack Welch, who criticised the cult that has grown up around shareholder value. In essence, Welch (pictured), regarded by many as the founder of the shareholder value movement in the 1980s, criticised companies’ short-term focus on quarterly profitability at the expense of long-term goals. Interviewed in the FT, Welch said: “On the face of it, shareholder value is the dumbest idea in the world. Shareholder value is a result, not a strategy.”
Such words should be a comfort to the handful of City law firms preparing to unveil what they view as thoroughly depressing profits per equity partner (PEP) numbers this year. Thoroughly depressing in this context refers to the handful of major firms that are expecting to unveil (or sneak out) 25%-plus falls in profitability. What is striking when talking to partners at such firms is that they know on a basic level such concerns should be meaningless. Both the bottom and top line at these firms have grown at an exceptional rate over the last 10 years. One bad year in terms of profits won’t reverse that or change the fact that partners will still be very, very wealthy men and women come May.
