What does firm leverage mean Forum

[mandrewsf]

Just curious if there's a golden ratio of partners to associates? Or should the leverage be as high/as low as possible? Never found the answer to this question so thought I'd ask here.

[Sackboy]

Generally, the more "leverage", or associates to partners, the more disposable you are and the less likely you're at a place interested in making partners. Some firms operate on very low leverage models (like Wachtell) where if you survive in the system then you have a real shot at partner. That being said, low leverage generally means you're going to have more responsibility and probably work harder (or at least be able to coast/slack off). For partners, economically, high leverage is almost always ideal unless you run a place with a unique fee structure like Wachtell or a contingency fee litigation firm. That being said, some very prestigious and well-paying partnerships realize higher leverage would be a better idea and instead opt for lower leverage as a cultural element of the firm (you see this all of the time at boutiques).

[mandrewsf]

Thanks! Which model in your opinion has the bigger propensity to layoff associates? Or are they really about the same?

[Sackboy]

Thanks! Which model in your opinion has the bigger propensity to layoff associates? Or are they really about the same?

A highly-leveraged firm will generally go for cuts first. That being said, this only really applies when you're judging firms with a Susman Godfrey-type leverage to firms with a Latham/Kirkland-type leverage. If you're comparing a firm that has 5 associates per partner to one that has 6 or 7, you're going to largely get the same results when bad times roll around.