Think of it as a law firm leader’s form of magic: Change the size of the equity partnership, the theory goes, and firms can manufacture changes in their reported profitability. In the simplest terms, it’s just math: Profits per partner (PPP), arguably the most watched (and critiqued) measure of a firm’s financial performance, is calculated using the number of equity partners as the denominator. Reduce that denominator, and the PPP swells.
Of course, it’s not that simple. Slashing a firm’s equity partner roster could boost the bottom line, if the partners who are cut are expensive and unproductive or in unprofitable practice areas. But cut the wrong partners, and you’ll create a drag on PPP, if the remaining lawyers generate lower billings and profits. Likewise, increasing the size of the equity partnership won’t necessarily hurt profitability: A well-chosen group of laterals might provide entrée into a new and lucrative practice area that could even increase PPP.
