Law firm management governed by economics
Charles & Mary Beard wrote in the 1930s about the US Constitution having been crafted within the background of economics (see their marvelous work, Economic Interpretation of the U.S. Constitution). So, too, one can look at Mayer Brown’s recent actions in light of economics of a law practice. In fact, if one doesn’t look at the larger economic picture, there would be a gaping hole in the analysis!
In a recent NALP study of law firm leverage nationwide, from 1995 to 2006, leverage figures have returned to levels of the mid-1990s. Reaching a high in 2000 of 2.47 lawyers to partners, the 2006 figure was 2.19. After reaching a high in 2002 of 1.16 associates to partners, the 2006 figure was .99.
This means that law firms, on a national average, were paying more for the work being done per hour. Failure to use leverage increases costs of operation.
No wonder that a law firm would seek to adjust some of the economic factors of its operation — in the case of Mayer Brown, by elimination of some of its partners. That instantly adjusts the leverage! Could they have been more politic about the process? Absolutely. Could they have adjusted other parts of the equation to reach similar results? Absolutely. Could they have put a better PR spin on the process? Absolutely
I suspect, however, that they are adjusting other elements of their operation to further improve the efficiencies and profitability of the firm. And, for the remaining partners, they should be pleased that the firm is sensitive to the real economics of the operation. Now, how sensitive are they and will they be to the needs of their clients? The answer to this last question will determine their real long-term success.Tags: Cash Flow - Finances
Categorized in: Cash Flow - Finances