In Defense of PPP

, The Am Law Daily

   | 9 Comments

Some say profits per partner is an unfair measure of a law firm's health. Here's why that argument is wrong.

What's being said

  • Kimchi Law Blog

    I‘m always surprised to hear even seasoned, prominent attorneys dispute the usefulness of measuring and analyzing law firm performance metrics (see comments in recent post on Korean law firm performance: http://kimchilaw.com/2014/01/14/size-matters-korean-law-firm-rankings-follow-up/

  • Michael Flynn

    Has nobody bothered to note that Dentons had no problem reporting PPEP for its US operations only four months ago? Take a look at the 2/10/14 press release still on their website. Now do you seriously think that the sudden decision to cease reporting PPEP is really a huge, principled stand... as opposed to a wish to avoid reporting what sounds like a catastrophic falloff for the rest of the firm? Come on, folks. Wake up.

  • Anonymous

    Can‘t agree more

  • Why does the AmLaw continue to recognize total revenues from vereins as if these were shared revenues and profits?

    As the ABA states, “A verein is an association of independent legal entities for specifically defined purposes—generally, marketing and branding in nature. Financial separation and local entity independence of control for each verein member law firm is confirmed in the verein’s governing documents, and reaffirmed in dedicated disclaimer and notice sections prominently featured on the website of every verein member, along with the important note that the verein itself does not practice law anywhere.” The ABA goes on to state, “The first is the fundamental legal separation and requirement of no sharing of revenue or profits that is at the core of the verein governing charter, with the business objective of enhancing revenues and profits for member firms”.

    DLA Piper’s website disclaims “DLA Piper is a global law firm operating through various separate and distinct legal entities”. Their legal notices page goes on to say, “The use of the name "DLA Piper" and words or phrases such as "firm", "law firm" or "international legal practice" is for convenience only and does not imply that all or any of such entities are in partnership together or accept responsibility for the acts or omissions of each other

    So vereins are financially separated, locally independent, a matter of convenience and does not imply any partnership together, yet AmLaw recognizes and reports them as one entity, while reporting all other firms‘ numbers based on shared revenues and profits. This current reporting creates the inaccurate picture of the verein-structured firms as a truly global organization.

    I have been in BigLaw since 1988 and understand the AmLaw numbers as well as anyone and verein reporting is an inaccurate statistic. I wonder where DLAPiper would stand if you reported actual revenues in the US partnership used to distribute US partner profits.

    Based on the AmLaw rationale, shouldn’t my firm include/recognize the revenue from our extensive network of foreign associates that we send/receive work to/from as we don’t share this revenue or profit but use those firms as a matter of convenience?

    We have most likely reached the point where these self-reporting surveys have little practical use to the industry or its clients.

  • I support the principle that Steve Brill pursued of transparent financial reporting by law firms, but I believe the American Lawyer financial metrics methodology contains too many inconsistencies and estimates to be useful to law firm management, lawyers, or clients. At best it is subjective, at worst it is open to manipulation (see ALM‘s own revision of Dewey results http://bit.ly/1isaEqe). My advice to the managing partners that I work with is to get off this merry-go-round round and instead to publish their own audited results following GAAP or IFRS, along with a balanced score card of the performance indicators about their firm that they value monitoring. K&L Gates have taken a step in right direction: http://bit.ly/1q9nhhw

  • AMB

    In my view, the issue is not that AmLaw reports financial results, it‘s that AmLaw reports ONLY financial results. Why not create a more balanced index of law firm "success"? Why not also include metrics for, e.g., lawyer well-being, engagement, and retention; client commitment/service; contribution to the community, etc.? What gets measured gets done, and it seems time for the profession to take a broader view of success. In the book "Good to Great," Jim Collins made the same mistake. Collins defined "great" companies solely by financial measures. In "Firms of Endearment" and "Conscious Capitalism" Raj Sisodia et al. argue that this is a mistaken view of greatness. Firms that optimize the value to all stakeholders--including employees and clients--are more likely to be more profitable, have more engaged, productive employees, and to survive/thrive in the 21st Century. It would be a great service to the legal profession for AmLaw to begin the transition toward a broader view of success by helping to create and measure non-financial metrics to supplement the financial metrics.

  • VM

    Very informative

  • Anonymous

    I wish AmLaw would promote use of CAP (Compensation All Partners) rather than PEP (Profit per Equity Partner) to encourage balanced comparisons among single- and two-tier firms while weakening the incentive for exaggerating PEP figures by having or expanding a non-equity portion of a partnership. Although CAP is reported, those figures seem to stand in the shadow of illuminated PEP figures.

  • I applaud Denton‘s decision. Our firm (Flaster/Greenberg PC) made this same decision several years ago. I am also on record with one of your sister publications (the New Jersey Law Journal) as taking issue with your practice of estimating the financial performance of firms that refuse to voluntarily report without indicating to your readers whether the information for each firm is provided by the firm or estimated by your publication. http://www.flastergreenberg.com/media/article/348_Managing_Partner_Disputes_Top_40s_Methodology_and_Accuracy.pdf

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