Joseph Schumpeter famously proclaimed that capitalism works through “creative destruction,” as its institutions are periodically torn apart and reshaped. See Joseph A. Schumpeter, Capitalism, Socialism, and Democracy (1942). We last saw such a wave of destruction in the 1980s-1990s, when takeovers downsized and pruned the conglomerate. Large law firms are also very capitalistic institutions and may be about to face a similar wave of change and disruption.

Two seemingly inconsistent trends now characterize the environment of the largest U.S. law firms: First, law firm mergers are peaking, but, second, the number of equity partners is either stagnating or has actually declined. According to the latest annual survey of the 500 largest firms by the National Law Journal, the number of attorneys in the 500 largest U.S. law firms is growing only modestly (2.5% in 2018, after only 1% in 2017). But growth in number of partners in these firms has stalled. The most recent NLJ survey shows that the number of partners rose by only 1% in 2018, and this number was inflated by a 3.8% growth in the number of non-equity partners. In short, the number of equity partners probably declined as the result of both law firm mergers and “de-equitization” programs at some firms.

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