It Depends on the Meaning of the Word “Partner”

The American Lawyer publishes its annual “profits per partner” on the top 100 law firms in the United States. Because law firms are privately held, the disclosure of the revenues and financial health is not required. However, the firms do provide the information for the publication because, well, looking robust is good for business. The problem is that “profits per partner” can vary, depending upon how one defines a partner. The definition for the publication is that the figure should include equity partners, those who receive no more than one-half of their compensation in a fixed figure amount. If you decrease the number of partners to divide into net income, well, your profit per partner does increase. In fact, the amazing performance of the law firms, in terms of increased profits, caught the eye of Citi Private Bank Law Firm Group (a division of Citigroup). This group’s look at the data concluded that profits were overstated by more than 20% by 22% of the top 50, and all by definition of who is a partner.

The most interesting part of a Wall Street Journal piece on the Citi study is the response of the law firms and legal experts. “Even an honest calculation isn’t easy because the firms are using revenue projections and have partners moving in and out,” offered David Wilkins, who directs Harvard Law School’s program on the legal profession. Oh, you dear, innocent man. Welcome to the world of financial reporting. This stuff is not for the fainthearted, but the lawyers among you have experience in disclosure. Put in a footnote or two explaining who’s a partner and who’s not. Add a note or two on fluidity of partners. And put in your disclaimer on forward looking numbers. It’s not that there are wide variations in what the number is; the problem is the lack of disclosure on individual calculations. And here’s a bit of advice: “Profit per lawyer” would be a better indicator of financial performance, efficiency, and net results. Heck, you might come up with a figure that could actually help the firm strategically. You can’t fix what you don’t measure. And if your measurements are meaningless, you may be going downhill.

Vanessa O’Connell, “Law Firms Profits Called Inflated,” Wall Street Journal, August 22, 2011, p. B1.

About mmjdiary

Professor Marianne Jennings is an emeritus professor of legal and ethical studies from the W.P. Carey School of Business at Arizona State University, retiring in 2011 after 35 years of teaching undergraduate and graduate courses in ethics and the legal environment of business. During her tenure at ASU, she served as director of the Joan and David Lincoln Center for Applied Ethics from 1995-1999. In 2006, she was appointed faculty director for the W.P. Carey Executive MBA Program. She has done consulting work for businesses and professional groups including AICPA, Boeing, Dial Corporation, Edward Jones, Mattel, Motorola, CFA Institute, Southern California Edison, the Institute of Internal Auditors, AIMR, DuPont, AES, Blue Cross Blue Shield, Motorola, Hy-Vee Foods, IBM, Bell Helicopter, Amgen, Raytheon, and VIAD. The sixth edition of her textbook, Case Studies in Business Ethics, was published in February 2011. The ninth edition of her textbook, Business: lts Legal, Ethical and Global Environment was published in January 2011. The 23rd edition of her book, Business Law: Principles and Cases, will be published in January 2013. The tenth edition of her book, Real Estate Law, will also be published in January 2013. Her book, A Business Tale: A Story of Ethics, Choices, Success, and a Very Large Rabbit, a fable about business ethics, was chosen by Library Journal in 2004 as its business book of the year. A Business Tale was also a finalist for two other literary awards for 2004. In 2000 her book on corporate governance was published by the New York Times MBA Pocket Series. Her book on long-term success, Building a Business Through Good Times and Bad: Lessons from Fifteen Companies, Each With a Century of Dividends, was published in October 2002 and has been used by Booz, Allen, Hamilton for its work on business longevity. Her latest book, The Seven Signs of Ethical Collapse was published by St. Martin’s Press in July 2006 and has been a finalist for two book awards. Her weekly columns are syndicated around the country, and her work has appeared in the Wall Street Journal, the Chicago Tribune, the New York Times, Washington Post, and the Reader's Digest. A collection of her essays, Nobody Fixes Real Carrot Sticks Anymore, first published in 1994 is still being published. She has been a commentator on business issues on All Things Considered for National Public Radio. She has served on four boards of directors, including Arizona Public Service (1987-2000), Zealous Capital Corporation, and the Center for Children with Chronic Illness and Disability at the University of Minnesota. She was appointed to the board of advisors for the Institute of Nuclear Power Operators in 2004 and served on the board of trustees for Think Arizona, a public policy think tank. She has appeared on CNBC, CBS This Morning, the Today Show, and CBS Evening News. In 2010 she was named one of the Top 100 Thought Leaders in Business Ethics by Trust Across America. Her books have been translated into four different languages. She received the British Emerald award for authoring one of their top 50 articles in management publications, chosen from over 15,000 articles. Personal: Married since 1976 to Terry H. Jennings, Maricopa County Attorney’s Office Deputy County Attorney; five children: Sarah, Sam, and John, and the late Claire and Hannah Jennings.
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