By Ben Seal for Law.com
Law firms have never been more profitable than they were over the past year, and they’ve never been so conflicted about it.
Faced with a global pandemic and a recession, firms delivered for their clients—and cut back on costs—to the tune of a 13.4% increase in profits per partner across the Am Law 100, an 11.4% jump in profits per lawyer, and a 4.8% increase in revenue per lawyer that is a record for the period after the Great Recession.
And no group was more successful in 2020 than the Super Rich, our annual list of Am Law 100 firms that excel on a per-lawyer basis. These 31 firms each reported at least $1.1 million in RPL and $550,000 in PPL (up from $500,000 in years past to account for the industry’s near-universal profit growth driven by an inflated ability to manage expenses). In addition to 28 firms that remained from last year’s list, the group was joined by Cleary Gottlieb Steen & Hamilton; King & Spalding; and Morgan, Lewis & Bockius. And it waved goodbye to Vinson & Elkins, which fell just short on PPL, and Boies Schiller Flexner, which fell off the Am Law 100 entirely.
As a cohort, the Super Rich far exceeded the otherwise successful results for the rest of the Am Law 100. They grew revenue, on average, by 8.8%, compared with 3.4% growth for the other 69 firms on the Am Law 100. Their RPL increased 7%, versus 3.1% for everyone else. And when it came to profits, their partners took home shares 14.2% larger than the previous year, compared with 11.7% for the rest of the Am Law 100, juiced by an average profit margin of 52.6%, versus 34.4% for everyone else.
But as the U.S. death toll from the pandemic steamrolls toward 600,000, with tens of millions of jobs lost and life disrupted even for those unscathed by the virus, firms have been unusually reluctant to tout their great 2020 successes. There is a sense that even in the ultra-competitive legal industry, those successes are accompanied by a heavy weight this year—and concern about how they look to the outside observer.
“I would expand my concerns not just to the optics but to the reality of the privileges that we have in the law firm world and how that compares with the struggles of so many people around the world,” says Kim Koopersmith, chair of Akin Gump Strauss Hauer & Feld, a member of this year’s Super Rich list with $1.35 million in RPL and $580,000 in PPL last year. “It’s looking at ourselves at moments where you can talk about the firm’s success and being mindful of how to think about that as it relates to the disparities and the challenges that exist for so many.”
For Paul, Weiss, Rifkind, Wharton & Garrison chair Brad Karp, whose firm made the cut with $1.52 million in RPL and $842,000 in PPL, the past year has been a reminder of the importance of giving back to those in need, whether through pro bono work or other measures.
“Displaying empathy and concern for your internal firm community and the broader community—and acting on it—are absolutely critical in times of crisis,” Karp says. “The need to live up to your values and ideals is amplified when it matters most.”
Karp says he’s cringed when reading about layoffs, pay cuts and other cost-saving measures taken at law firms to provide a bulwark against the pandemic-fueled recession. He says he wouldn’t be surprised if there is now tension among the differently situated populations of firms that made cuts and went on to post double-digit profit increases. And, he notes, clients may cringe, too, when they hear about their outside counsel’s record numbers or the bonuses being doled out to associates to share in the wealth. (Paul Weiss gave out associate bonuses last year and this year.)
“Several corporate clients have called and complained about law firms doling out large COVID bonuses at the same time their GCs are being asked to cut the compensation of their internal legal staff or, even worse, to furlough employees. I certainly appreciate the dissonance. Elite law firms had record-breaking years, while large swaths of corporate America continue to be in extremis,” Karp says. “Now is not the time to tout one’s PEP.”
Precious Williams Owodunni, CEO and founder of Mountaintop Consulting, says that on the back of a big year, she’s seen firms invest more proactively and publicly on social issues, while also investing to retain and support lawyers and staff who may have had a more difficult year, including women, Black and Asian American professionals. Firm leaders are also ensuring that such success didn’t come at “too high a price,” she says, by remaining conscious of the risk of burnout.
As for the client perspective, Owodunni says it’s normal for firms to catch some amount of “blowback” from clients that recognize they are the source of their firms’ revenue and profit growth. But with this year’s profit spike driven less by rate increases and more by expense cuts, the optics aren’t as bad as they might initially seem.
“The increased profitability is not from gouging clients. It’s not from going out of their way to create excessive bills,” says Marcie Borgal Shunk, president and founder of the Tilt Institute. “More often than not what I’m seeing is law firms are generating more revenue because they’re driving value for their clients and responding to real needs.”
Firms have shown more sensitivity than usual in how they have billed and treated clients over the past year, she says, and that may matter more to clients than any disconnect between their struggles and their firms’ successes. There is, however, internal tension at firms that tightened budgets and then brought in extraordinary profits, leaving some firm employees, particularly in administrative functions, feeling shortchanged.
“We did OK here, so why am I still sitting here like Oliver begging for the next meal when we’ve got all these profits that came through?” Shunk says some may be wondering.
Ultimately, every year is a good year to be among the Super Rich. This one is just a bit more complicated, as leaders like Koopersmith and Karp can attest.
Consultant Kent Zimmermann of Zeughauser Group says firms are of two minds: On the one hand, they served their clients well when those clients needed them most, and they deserve to be compensated for it at market value. On the other hand, success feels like a sensitive issue at a time so fraught for so many, clients included. “It’s easy to have mixed feelings on how to talk about a firm’s financial performance these days,” Zimmermann says.