Recently, the American Lawyer’s methodology for its rankings has come under fire from several fronts. First, the magazine agreed to restate the profits per equity partner (PPEP) statistic for Dentons, raising the number by a whopping 37 percent from what was originally reported. The restatement marked a victory for the firm, which had been waging a well-publicized battle against the publisher about its rankings for more than a year. Second, Bruce McEwen and Janet Stanton of the respected legal industry blog Adam Smith, Esq. has embarked on a survey of AmLaw leaders on the accuracy of the AmLaw rankings.
The American Lawyer should get credit for lifting the veil covering America’s law firms 30 years ago by publishing data about the profitability of law firm. Overall, the disclosure of such information has been a very positive development for the industry. On the other hand, its methodology has been flawed in two significant ways:
—From its inception, AmLaw has engaged in the questionable journalistic practice of failing to disclose which firms cooperated in the survey and which firms didn’t. Not only did that lead to general inaccuracies of the data, but it provided an opportunity for law firm partners and others to inflate or deflate certain metrics to their firm’s benefit.
—The magazine has given particular emphasis on the profits per equity partner number, despite the fact that that statistic is most susceptible to manipulation, particularly because of who might be classified as an “equity partner.” Exacerbating that has been the magazine’s own subjective judgments on who might be called an equity partner, even contrary to the firm’s structure and policies.
Most segments of the industry—law firm partners and executives, laterals, and (yes) legal recruiters—bear some responsibility for oversimplifying a firm’s financial health by concentrating on this one number. Other important metrics, such as revenues per lawyer, profits per lawyer, and profit margin, are rarely emphasized. Now that the legal community is becoming aware of the deficiencies of the PPEP metric, a more complete picture of a law firm’s health and profitability can and should be depicted.
TMG’s Take is a regular e-mail advisory produced by The McCormick Group. The company’s Legal, Government Affairs, and Law Firm Management groups combine the expertise of more than 15 Consultants to help law firms fulfill all of their lawyer and administrative recruiting needs. TMG’s Take covers topics across the spectrum of law firm management, including associate and partner compensation, growth strategies, marketing and business development, operations and facilities management, finance and accounting, professional development, and technology. Please direct all inquiries to Steve Nelson, Managing Principal at (703) 841-1700 or snelson@tmg-dc.com.
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