Law Firms Need to Look At Partnership Behaviors to Manage Profitability

The drop in equity partners didn't come about by stopping promotions (indeed, promotion rates held constant); rather, firms shed their less-profitable practices and partners: they dropped inherently low-leverage flanker practices, pared back international operations, corrected promotion and lateral-hiring mistakes, and transitioned out less commercially capable partners within high-profit practices. Per-partner profitability rose just as would a student's grade point average if one dropped the classes with weaker results. In essence, the effect of external pressures on profitability was offset by changing the composition of partnerships.

Looking at the decade ahead, firms are caught in a pincer. On one side, premier firms are in segment retreat, i.e., serving a segment of the overall market that's shrinking as clients take work away from traditional firms and give it instead to alternative service providers (including in-house counsel) who are growing in number, quality and sophistication of the services they can deliver. On the other, partners have become accustomed to, and expect, profitability growth; failing to grow profits risks having the more commercially capable partners decamp to rivals.