Firms' Candor Sucker-Punches Outgoing Partners

With each passing year, big firms are acting more like — well, big companies. Though the title “partner” is still in wide use, 1000-lawyer firms — the successful ones, anyway — are really top-down corporations. To that, Mayer, Brown added an exclamation point Friday, with incoming Chairman James Holzhauer telling the WSJ law blog that the firm canned 45 equity partners because “we want to drive our stock price up.”

By that, of course, he means profits per partner. Cutting a tenth of the equity partners will drive that figure up 10 percent.

Such cold-blooded calculation is nothing new for firms. But the candor is.

When The Recorder goes out each year and surveys California firms’ finances for the Am Law 100 and 200 — and our newly inaugurated CalLaw 25 — there’s always a firm that cops to some equity “restructuring” during the prior year, but it’s rarely in such transparent fashion. This year, California firms Wilson Sonsini and Sheppard, Mullin each did the law firm equivalent of restating results: Wilson said for the first time that a number of its partners should be treated as nonequity, while Sheppard said it would guarantee a greater percentage of pay for many of its partners, effectively eliminating a third of its equity partners, and helping the firm notch a corresponding increase in PPP.

In 2005, MoFo and Pillsbury Winthrop each pushed a bunch of partners into the nonequity boat, too.

But even where the “restructuring” includes forcing partners out the door, firms have — until now — refrained from boasting of that, at least in real time and on the record. Now, of course, partners cut at Mayer, Brown will be sending out resumes — half were fired outright, and the rest were offered “other positions” within the firm.

Thanks to the firm’s candor, those partners will have a tough time spinning their job searches as coming from a desire for a different platform, or a more collegial culture, or a better practice fit, blah blah blah. Everyone will know the truth: They’re a drag on profits.

Mayer, Brown’s management probably isn’t driven by a desire to damage their colleagues’ employment prospects. Rather, the firm — which has an unusually high percentage of equity partners for a firm of its size, with correspondingly sluggish PPP of just over $1 million — is trying to send a message to prospective laterals. And it’s the same message that Fortune 500 companies send investors when announcing mass layoffs: We’re getting serious. Come take a look!

— Greg Mitchell

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