The investment-bank model
When David Greenwald returned to co-lead Fried, Frank, Harris, Shriver & Jacobson LLP in 2013 after a turn as a top Goldman Sachs in-house lawyer, the Wall Street firm was dragging. Revenue had fallen 17% since 2007 and competitors were picking off its lawyers.
One problem, he noticed, was that partners were notoriously lax about turning in their timesheets, which meant clients weren’t always getting billed. The slips were costing the firm $6 million a year.
Mr. Greenwald realized the firm needed to operate less like a law firm partnership and more like the investment bank he’d just left, if it wanted to survive.
He closed underperforming Asia offices and created a finance committee. All partners had to turn in plans for how to expand their businesses. Partners were paid more on merit than seniority, and could no longer see how much each of their peers made.
And Mr. Greenwald told partners to submit their timesheets every week or risk a fine.
Average profits for equity partners at Fried Frank have doubled since 2013, to more than $3 million last year, according to the firm. Gone is the egalitarianism that marked Mr. Greenwald’s early days at the firm: Fried Frank’s highest-paid partner makes 13 times its lowest-paid.
“We’re all on the path from being small partnerships, in which everyone can get in a room and debate and make a decision, to by necessity having to centralize a lot of the decision-making in a group of people or an individual,” Mr. Greenwald said.
That journey from partnerships to profit machines has made some lawyers very wealthy. At the 15 most-profitable law firms, top partners bill on average $1,655 an hour and their rates are rising faster than inflation, according to legal analytics company Bodhala.
At the nation’s 100 largest firms, average equity-partner profits have doubled since 2004, to $1.88 million last year, according to American Lawyer. Eight firms average more than $4 million.
“We’re making much more than anybody who doesn’t save lives deserves,” said David Boies, the litigator who broke off from Cravath in 1997 to launch his own firm. In his best years, Mr. Boies has paid himself $25 million, a spokeswoman confirmed.
Pity the associate
As firms compete to keep profits rising for those at the top, lawyers further down the ladder are sometimes getting left behind. Promising associates who could once expect to be named a partner within seven or eight years are waiting 10 years or more.
Firms have created new steppingstones along the way to appease them—and keep them grinding.
One newly promoted partner at a big firm said he was shocked to learn he would have to spend a year as counsel, an increasingly popular interim title. The firm told him it was to prepare him for the bigger change of being partner. “I wouldn’t be a cynical lawyer if I didn’t think there were other profit-motive reasons,” he said.
Another popular stop-off is “non-equity partner,” the title held by those 560 Kirkland lawyers not invited to the California retreat. They earn a salary rather than sharing firm profits.
In 2000, 78% of partners held equity in their firms, according to American Lawyer’s ALM Intelligence. Last year, 56% did.
At Kirkland, junior partners compete each year for a few coveted slots in the equity-earning partnership, many billing more than 2,500 hours a year to try to set themselves apart. Given how much of the day’s work isn’t billable, that can require working 80 hours or more a week.
At elite New York firms, a two-tiered system was once unthinkable. Partners were partners. In the past year, however, cracks have emerged at two of them.
Simpson Thacher’s leaders told partners in April that they plan to start naming non-equity partners. It is hard not to see the move as a response to poaching by Kirkland, which has lured away more than a dozen Simpson lawyers since 2016, most of them associates and counsel that Kirkland made into partners.
“If the firm won’t be loyal to you,” said David Lat, a longtime lawyer and legal blogger turned recruiter, “why should you be loyal to the firm?”
Willkie Farr & Gallagher LLP, a 131-year old firm that was home to a future U.S. Supreme Court Justice and two New York governors, made a similar announcement this spring when it rolled out a two-tiered partnership. Its leaders said the move is intended to reward promising young lawyers earlier and make the firm more competitive in recruiting.
“It was getting harder to tell associates, ‘stick around for 10 years and see what happens then,’ ” said Willkie’s chairman, Steven Gartner. “They wanted more certainty and wanted it sooner.”
Making partner doesn’t just take longer. It takes hustle. A few decades ago, partner titles were handed out largely on the basis of being technically proficient. Now, being a business generator is a crucial component.
Janice Mac Avoy, a Fried Frank partner, said when she earned the partner title 23 years ago, the business model was “wait for the phone to ring” and do a good job for the client on the other end.
When a partner suggested a lawyer being considered for promotion had great contacts and could generate new business, she recalls a fellow partner saying, “You know that’s not an appropriate consideration.”