Partner to Associate Ratio - Good or Bad? Forum

[09042014]

People always say high P2A is good because you get better experience. While that sorta of makes sense as a junior, I'm not sure it makes sense as a midlevel and senior. I've heard stories of people who are sole associate to a partner and often the complaint is that the partner keeps the good work for themselves.

Any thoughts?

[Old Gregg]

It's a benefit for firm stability reasons moreso than the experience argument.

[dead head]

It's a benefit for firm stability reasons moreso than the experience argument.

A firm with lower apparent leverage either has a lot of non-equity partners or comparatively low PPP. Maybe their low PPP reflects priorities other than profit at any cost, with less profit-induced partner churn, but I'm not sure lower PPP is a great indicator of firm stability. Associate stability, maybe, but not firm stability.

[Old Gregg]

It's a benefit for firm stability reasons moreso than the experience argument.

A firm with lower apparent leverage either has a lot of non-equity partners or comparatively low PPP. Maybe their low PPP reflects priorities other than profit at any cost, with less profit-induced partner churn, but I'm not sure lower PPP is a great indicator of firm stability. Associate stability, maybe, but not firm stability.

Shit, didn't realize Wachtell had a low PPP or non-equity partners.

[rayiner]

It's a benefit for firm stability reasons moreso than the experience argument.

A firm with lower apparent leverage either has a lot of non-equity partners or comparatively low PPP. Maybe their low PPP reflects priorities other than profit at any cost, with less profit-induced partner churn, but I'm not sure lower PPP is a great indicator of firm stability. Associate stability, maybe, but not firm stability.

Leverage is mostly about the nature of the work and the clients. Premium matters are amenable to more leverage, cost-sensitive matters less. Financial matters are amenable to more leverage, other sorts of matters less. Litigation is amenable to more leverage, corporate is less amenable, and regulatory is a lot less amenable.

Compare a firm like Cleary (5.5:1) to hogan lovells US (1.1:1). Cleary is a lockstep firm with PPP a little under $3m. Hogan is not a lockstep firm, and has PPP a little over $1m. The dominant factor that drives those leverage ratios is the work. Cleary does large-scale defense work for NYC banks--matters the nature of which require, and for which clients will pay, to have 10 associates staffed on a matter with two partners and maybe one counsel. On the corporate side, there is less leverage, but still several associates per partner when taken across all the deal teams.

The kind of work Hogan does just doesn't lend itself to that model. There's not enough lower-level work in a regulatory matter to keep ten, or even several associates busy. Those matters tend to involve a couple of partners and one associate. Litigation will be more leveraged, but the kinds of litigation Hogan works on, say regulatory litigation, is much less document intensive and requires less associate manpower. Plus, it's more cost-sensitive and clients are more likely to want to see things like document review contracted-out.

PPP at a place like Hogan is lower, but partners also have a lot less leverage to demand a lot of money. It's not like a top FDA practitioner is going to lateral to Cravath and take $15 million in business with him. He doesn't bring in $15 million in business, because his matters don't lend themselves to requiring large teams of associates to handle. Plus, to the extent it's necessary, rainmakers can be compensated appropriately because the firm isn't lock-step. Cleary's compensation spread is 3:1, which means that a just-minted partner probably makes over $1m and a senior partner makes over $3m. The spread at Hogan over all partners is probably more like 10:1, with newly minted junior non-equity partners making ~$300k. And this isn't just a phenomenon for firms with two-tier partnerships. Williams and Connolly has a single-tier partnership with a high compensation spread.

In all, I don't think leverage or PPP have anything to do with firm stability. There are low-leverage, low-PPP firms that are very stable (e.g. W&C), high-leverage, high-PPP firms that are very stable (Cravath, etc), low-leverage, high-PPP firms that are stable (WLRK).

[dead head]

It's a benefit for firm stability reasons moreso than the experience argument.

A firm with lower apparent leverage either has a lot of non-equity partners or comparatively low PPP. Maybe their low PPP reflects priorities other than profit at any cost, with less profit-induced partner churn, but I'm not sure lower PPP is a great indicator of firm stability. Associate stability, maybe, but not firm stability.

Shit, didn't realize Wachtell had a low PPP or non-equity partners.

I wasn't aware that the existence of outliers invalidates arguments. Would me posting a firm with low leverage that went belly-up invalidate your argument?

Compare a firm like Cleary (5.5:1) to Hogan Lovells US (1.1:1)

Your comments are interesting, but hogan lovells US has a lot of non-equity partners in addition to their designated of counsel. NALP indicates only 265 equity partners in the US, against 933 total US lawyers, giving 2.5:1 leverage.

[Old Gregg]

I wasn't aware that the existence of outliers invalidates arguments. Would me posting a firm with low leverage that went belly-up invalidate your argument?

You weren't aware that a counter example invalidates arguments?

All a are b
All b are c
Therefore all a are c

Me: not all a are b

Argument invalidated

I'm glad I could make you aware now.

[rayiner]

It's a benefit for firm stability reasons moreso than the experience argument.

A firm with lower apparent leverage either has a lot of non-equity partners or comparatively low PPP. Maybe their low PPP reflects priorities other than profit at any cost, with less profit-induced partner churn, but I'm not sure lower PPP is a great indicator of firm stability. Associate stability, maybe, but not firm stability.

Shit, didn't realize Wachtell had a low PPP or non-equity partners.

I wasn't aware that the existence of outliers invalidates arguments. Would me posting a firm with low leverage that went belly-up invalidate your argument?

Compare a firm like Cleary (5.5:1) to Hogan Lovells US (1.1:1)

Your comments are interesting, but Hogan Lovells US has a lot of non-equity partners in addition to their designated of counsel. NALP indicates only 265 equity partners in the US, against 933 total US lawyers, giving 2.5:1 leverage.

The equity/non-equity distinction isn't all that relevant here (associate experience/firm stability), unless we're talking about a firm like Kirkland where they're essentially senior associates on an "up or out" track. Even single tier partnerships these days vest most operational power in a management committee. Also, non-equity partners usually receive some substantial portion of their compensation based on firm profits. So equity versus non-equity ends up being an accounting device for compensation purposes. E.g. I don't think there is a functional difference between being a newly-minted non-equity partner at Hogan versus being a newly-minted equity partner at a single-tier firm with a big spread, like W&C or DLA. As for counsel, I tend to exclude them from the calculation because depending on context, they can function either as junior partners or senior associates.

[dead head]

E.g. I don't think there is a functional difference between being a newly-minted non-equity partner at Hogan versus being a newly-minted equity partner at a single-tier firm with a big spread, like W&C or DLA. As for counsel, I tend to exclude them from the calculation because depending on context, they can function either as junior partners or senior associates.

When almost 150 of Hogan's 400 US "partners" are non-equity, it doesn't make a lot of sense to use newly-minted partners are your basis of comparison. And in the historical context, of counsel are more like semi-retired partners, and not Kirkland 9th years.

You weren't aware that a counter example invalidates arguments?

All a are b
All b are c
Therefore all a are c

Me: not all a are b

Argument invalidated

I'm glad I could make you aware now.

I didn't know we were doing formal logic (or that I ever said anything about all anything). But since single counterexamples apparently invalidate these kind of general argument, let me point you in the direction of Paton Boggs, with its super low leverage. Your argument is invalidated. Glad we're all more aware now.

[Old Gregg]

I didn't know we were doing formal logic (or that I ever said anything about all anything). But since single counterexamples apparently invalidate these kind of general argument, let me point you in the direction of Paton Boggs, with its super low leverage. Your argument is invalidated. Glad we're all more aware now.

Not really:

It's a benefit for firm stability reasons moreso than the experience argument.

Argument states that it's a benefit, not the end all of be all.

On the other hand:

It's a benefit for firm stability reasons moreso than the experience argument.

A firm with lower apparent leverage either has a lot of non-equity partners or comparatively low PPP. Maybe their low PPP reflects priorities other than profit at any cost, with less profit-induced partner churn, but I'm not sure lower PPP is a great indicator of firm stability. Associate stability, maybe, but not firm stability.

You state an either/or with no qualification as to "most" or "some," which would have saved your ass.

I'm glad I could provide this lesson to you.

[dead head]

You state an either/or with no qualification as to "most" or "some," which would have saved your ass.

I'm glad I could provide this lesson to you.

Conversation with humans must be difficult for you.

Do you think the Wachtell could have higher PPP if they increased leverage? If so, their PPP is low compared to what it could be.

[Old Gregg]

You state an either/or with no qualification as to "most" or "some," which would have saved your ass.

I'm glad I could provide this lesson to you.

Conversation with humans must be difficult for you.

Yet you're the one who hurled the first insult ITT. I actually do pretty well for myself on human interaction.

Do you think the Wachtell could have higher PPP if they increased leverage? If so, their PPP is low compared to what it could be.

I'm not really keen to circle jerk with pretend know-it-alls about law firm economics. That aside, it's really irrelevant that their PPP "is low compared to what it could be," especially since your argument stated: "comparatively low PPP," which implies that the comparison is not to some hypothetical law firm, but to other law firms. Since we are talking comparatively in the latter respect, Wachtell has the highest PPP.

You're more than welcome to revise and/or retract your argument. I mean, you'll look like a moron in the process. But it's good to concede that you were wrong every once in a while and move on, than to be a little shit when someone calls you out.

[Old Gregg]

It's a benefit for firm stability reasons moreso than the experience argument.

A firm with lower apparent leverage either has a lot of non-equity partners or comparatively low PPP. Maybe their low PPP reflects priorities other than profit at any cost, with less profit-induced partner churn, but I'm not sure lower PPP is a great indicator of firm stability. Associate stability, maybe, but not firm stability.

Leverage is mostly about the nature of the work and the clients. Premium matters are amenable to more leverage, cost-sensitive matters less. Financial matters are amenable to more leverage, other sorts of matters less. Litigation is amenable to more leverage, corporate is less amenable, and regulatory is a lot less amenable.

Compare a firm like Cleary (5.5:1) to Hogan Lovells US (1.1:1). Cleary is a lockstep firm with PPP a little under $3m. Hogan is not a lockstep firm, and has PPP a little over $1m. The dominant factor that drives those leverage ratios is the work. Cleary does large-scale defense work for NYC banks--matters the nature of which require, and for which clients will pay, to have 10 associates staffed on a matter with two partners and maybe one counsel. On the corporate side, there is less leverage, but still several associates per partner when taken across all the deal teams.

The kind of work Hogan does just doesn't lend itself to that model. There's not enough lower-level work in a regulatory matter to keep ten, or even several associates busy. Those matters tend to involve a couple of partners and one associate. Litigation will be more leveraged, but the kinds of litigation Hogan works on, say regulatory litigation, is much less document intensive and requires less associate manpower. Plus, it's more cost-sensitive and clients are more likely to want to see things like document review contracted-out.

PPP at a place like Hogan is lower, but partners also have a lot less leverage to demand a lot of money. It's not like a top FDA practitioner is going to lateral to Cravath and take $15 million in business with him. He doesn't bring in $15 million in business, because his matters don't lend themselves to requiring large teams of associates to handle. Plus, to the extent it's necessary, rainmakers can be compensated appropriately because the firm isn't lock-step. Cleary's compensation spread is 3:1, which means that a just-minted partner probably makes over $1m and a senior partner makes over $3m. The spread at Hogan over all partners is probably more like 10:1, with newly minted junior non-equity partners making ~$300k. And this isn't just a phenomenon for firms with two-tier partnerships. Williams and Connolly has a single-tier partnership with a high compensation spread.

In all, I don't think leverage or PPP have anything to do with firm stability. There are low-leverage, low-PPP firms that are very stable (e.g. W&C), high-leverage, high-PPP firms that are very stable (Cravath, etc), low-leverage, high-PPP firms that are stable (WLRK).

I haven't responded to this, but mostly because I don't have time. I think the conclusions are not correctly drawn because they're based on bad generalizations. To each their own, I guess. It's not worthwhile debating because there's no real way to prove who's right.

That said, as far as my job security is concerned, I'd much rather be a low-leveraged firm than a high one.

[Old Gregg]

Do you think the Wachtell could have higher PPP if they increased leverage?

Thought a little more about this while taking a shit. I'm not sure what the answer to this is. My intuition is to say yes, but I do remember people saying that WLRK bills for deals differently than most other firms (as a percentage of deal value as opposed to hours billed), so I'm actually not 100% sure that WLRK would have a higher PPP if they increased leverage (unless the associates themselves were able to pull in more deals as a result, which is very rare).

As far as corporate vs. litigation teams are concerned, corporate teams can be pretty vast (this is more to Rayiner's point above). On a $30 billion deal, the staffing was something like:

1 rainmaking partner
1 rainmaking/workhorse partner
1 workhorse partner
1 senior associate
3 midlevel to senior associates
11 junior associates

And then you have the specialist teams, usually consisting of a partner and an associate:
ERISA, employee benefits, intellectual property, real estate, labor, FCPA, import/export controls, sometimes health privacy matters, etc.

So deal teams can be quite vast and highly levered.

For litigation matters, the only cases where teams are hugely vast and require armies of lawyers are matters like BP and Exxon. But for the typical financial shit that Cleary does, no the litigation teams can be quite small (and I'm assuming one doesn't count staff attorneys and temp attorneys, which Cleary uses). In addition, the use of Cleary as an example is quite odd. They're not really a litigation firm. They're an M&A firm. Their PPP this year came from a pretty solid string of high value corporate deals.

I guess a better counter-example would have been Paul Weiss.

Cleary: The firm's gross revenue rose 5.2 percent, to $1.19 billion. Its profits per partner increased 7.1 percent, to $2.876 million. While overall head count was up 2.8 percent, to 1,192, the firm added just one partner—an increase of 0.5 percent—to bring its total in that category to 194. Cleary's litigators were especially busy in 2013, helping to resolve a class action against client Massey Energy Company and defending the Russian Federation against claims asserted by former OJSC Yukos Oil Company majority shareholders seeking more than $100 billion in damages related to the expropriation of oil assets. On the transactional front, the firm ranked second in terms of the number of financial industry deals handled last year, according to Thomson Reuters legal advisory league tables. M&A highlights included the firm's representation of retailer Neiman Marcus Group Inc. on its $6 billion buyout by a consortium made up of Texas Pacific Group and Warburg Pincus and America Movil SAB de CV in its $22.7 billion acquisition of Koninklijke KPN NV.

Massey Energy Company isn't a financial institution.

And fair to say that the deals leading them to being ranked second in the league tables contributed far more to the bottom line than their litigation matters did.

Read more: http://www.americanlawyer.com/id=120264 ... z32kMwjI97

[Old Gregg]

When almost 150 of Hogan's 400 US "partners" are non-equity, it doesn't make a lot of sense to use newly-minted partners are your basis of comparison. And in the historical context, of counsel are more like semi-retired partners, and not Kirkland 9th years.

I have to agree with this. It's really stupid not to include non-equity partners on the associate side of the coin for leverage purposes. Very relevant.

Good article on this stuff: http://www.adamsmithesq.com/2008/05/goi ... t_so_fast/

[dead head]

You state an either/or with no qualification as to "most" or "some," which would have saved your ass.

I'm glad I could provide this lesson to you.

Conversation with humans must be difficult for you.

Yet you're the one who hurled the first insult ITT. I actually do pretty well for myself on human interaction.

You don't think the tone of any of your comments was insulting, or is condescension not insulting in your view?

Do you think the Wachtell could have higher PPP if they increased leverage? If so, their PPP is low compared to what it could be.

I'm not really keen to circle jerk with pretend know-it-alls about law firm economics. That aside, it's really irrelevant that their PPP "is low compared to what it could be," especially since your argument stated: "comparatively low PPP," which implies that the comparison is not to some hypothetical law firm, but to other law firms. Since we are talking comparatively in the latter respect, Wachtell has the highest PPP.

You're more than welcome to revise and/or retract your argument. I mean, you'll look like a moron in the process. But it's good to concede that you were wrong every once in a while and move on, than to be a little shit when someone calls you out.

Does Wachtell really have peer firms that they can really be compared to? And I suspect that even if Wachtell can't effectively add leverage by adding associates, they could add leverage by making equity harder to obtain and/or de-equitizing some partners. I suspect this would have a negligible affect on the business brought in, since business comes to them because of who they are, and not because of partner connections.

I'm also not sure that a reasonable reader of my comments would have thought I was describing a universal truth that applies to every single law firm in existence, but that's your call.

That said, as far as my job security is concerned, I'd much rather be a low-leveraged firm than a high one.

This seems oddly similar to what I said.