Why is lawyers’ pay so high? Not because it benefits the business, say the stats
Ah, summer. A time to kick back, to look at law firms’ numbers coming in ahead of The Lawyer’s annual UK 200 analysis and wonder what I would do if I earned £400,000, £500,000 or £600,000 – or even £1.4m – a year.
Is there much difference between earning £400,000 and £600,000 a year? I doubt I’ll ever find out, but given that 99 per cent of the population would regard either amount as a healthy lottery win, it does trouble me the degree of angst many law firm partners have about how much they earn in a single year, and especially how much their colleagues or ex law school chums are earning.
Squeezing this amount of money out of the business on an annual basis has, as we all know, led to some pretty grotesque behaviour in the legal profession. There was the equity partner promised a safe berth when he returned from having left his UK client base to manage an overseas office, only to find no room at the inn. The equity partner who had been at the firm 20 years who was blanked by every other partner including his best man after he was told he was surplus to requirements, as if mere association with him would mean their heads were next on the block. The top firm where the ‘successful partner’, according to one of the unfortunate souls of that rank, has to be “paranoid, insecure and driven”.
As I pondered the relationship between earning a ton of cash and “proactive management of the equity”, it occurred to me to undertake some kind of analysis to see if there is any relationship between cutting (or ardently recruiting) equity partners and financial success.
Happily as it turned out, I didn’t need to make a choice between going and laying in the sun or burying myself in a stack of data, as the US law firm management and commentator Bruce MacEwen had already joined the dots for me.
He wasn’t looking at UK firms, but at the AmLaw second hundred but the points, I think, stand.
In a nutshell, MacEwen points out that of the 50 firms whose revenue per lawyer (RPL) outperformed US inflation over a five-year period – “good firms” – 24 increased equity ranks, 23 cut them and three remained flat.
Of the 37 whose RPL was lower than inflation over the same period – “bad firms” – 12 increased equity partner numbers, 23 cut them and two were flat. The same went for overall headcount in both groups.
MacEwen finishes with this zinger: “So on those metrics, what do we learn?… Pushing these buttons does nothing. More rigorously, changing the readings on these dials has no systemic impact. Something else must be afoot that explains out- and under-performance. The answer, I suspect, has a lot to do with knowing who you are and what clientele you’re targeting and virtually nothing to do with throw-weight.”
The telling phrase, for me, is “knowing who you are”. I wonder how well many law firms are able to articulate their own sense of purpose?
With that in mind, my sun-addled brain came up with the following questions which managing partners and law firm leaders might like to ponder when sat around the pool in Tuscany or on the beach in Weymouth:
How much time (= money) do you spend on mechanistic activities such as those outlined above, and how much time/money do you spend on your identity and culture?
If it came down to a choice of doing something which made marginally more money for the firm but affected your culture, or doing something which was better for your culture but might impact this year’s profits, which choice would you make?
Is there a level playing field for incumbent partners (= de-equitisation candidates) and lateral recruits (= game changers, drizzlemakers or duds)?
How well would you say your firm adheres to your corporate values? How well do you think your partners think it does? Have you ever tested the proposition?
How prepared are your partners to invest for the longer term, or do they just think year to year in terms of what they are taking out of the business?
Have you ever been held hostage by a high-billing partner, and how did you handle it? Was your response based on economics or culture, and were you satisfied that the outcome was the best one in the final analysis?
Have you ever attempted to define your culture? If so, how have you used the results in planning and strategising the business?
Would you describe your firm as a happy place?