A longer newsletter than usual this week, with three important sections.
1. A must-read article for those of you working in large firms: Pay Gap Increases Between Equity and Non-Equity Partners. Two brief excerpts will show you why you can’t miss this:
“Equity partners averaged $971,000 in annual compensation, versus $338,000 for nonequity partners, according to MLA’s third biennial survey of what partners are paid at large law firms in the United States. While average pay for equity partners has risen nearly 20 percent from $811,000 since MLA’s first survey in 2010, nonequity pay has remained relatively flat, increasing just $2,000 over the same period.”
“The growing gap between equity and nonequity partner pay mirrors the disparate amount of business the two groups of partners bring to their firms. ‘The correlation between originations and compensation is getting stronger,’ says Alan Olson, a law firm consultant at Altman Weil Inc. Olson says firms are ‘rewarding and investing in those partners that can develop and maintain a remunerative legal business.”
I’ve suggested (and the data supports the idea) that nonequity partners are in a tenuous position unless they’re making a strong record of securing business. This article provides deep insight on this point and data on pay disparities.
2. This week marks the start of a 10-week series in this newsletter, titled Nine Ways You’re Losing Business—and What to Do About It. I’d originally planned to send it as a single article, but it’s nearly 15 pages long! This week starts with the premise of the article, and you’ll find the problems and solutions over subsequent newsletters.
Nine Ways You’re Losing Business—and What to Do About It.
Unless you’ve been asleep under a rock, you realize that the practice of law has changed significantly over the last six years. Unless you’ve been paying unusually close attention, though, you may not realize that the practice has experienced a quiet revolution in the last fifty years. That earlier revolution in many ways prompted the later one, by creating dreams of “wealth by JD”; an expectation of certain financial success simply by virtue of practicing the genteel profession of law.
Those expectations couldn’t be realized in a vacuum, however, and new pressures came into play for lawyers: the inception of the billable hours, ever-rising hours requirements, a relentless focus on profits per partner in larger firms, and a certain arrogance toward clients that was masked in the professional approach to dense problems that clients didn’t, perhaps couldn’t, understand. That attitude started to unravel with the advent of lawyer advertising, and the expectation of working hard for easy money started to crumble a bit over the subsequent years.
Like any balance beam, however, the weight has now shifted firmly to the client side. It’s a buyers’ market, and buyers have more options than ever: a glut of lawyers in most practice areas increasing competition, legal start-ups that challenge the notion of business as usual, technology and offshore personnel who can handle what used to be matters for lawyers, DIY solutions that appear just as good as the ones that come with a hefty invoice, in-house lawyers who capably handle much of the work that used to be outsourced, unbundled legal services, and fierce competition for a shrinking pool of clients.
It isn’t your imagination. Times really have changed that much.
And whether you’ve been practicing for five or fifty years, chances are good that your training has been pretty much the same: three years spent focusing on how to think like a lawyer and exposure to a variety of substantive areas of practice through a relentless series of cases and professors’ questions. If you were lucky (or paying unusual attention to the trends in practice), you might have had some exposure to the idea that practicing law requires more than being a good lawyer, but you probably didn’t get much (if any) education on how to run the business side of a law practice.
In a buyers’ market, understanding the business of law is critical to building a successful law practice. If you don’t get that, you’re doomed to struggle. And you have to keep your eye on the trends and shifting pressures so you can adapt to economic, social, and business changes. That’s a tall order on top of other practice responsibilities.
There are nine key reasons why your practice is stagnant or shrinking. The good news is, once you understand this, you can make changes (starting with your own vision and understanding, then expanding to the way you practice) that will let you build the practice you’ve always wanted.
Next week’s newsletter will cover reason #1: you aren’t creating value for your clients.