Law360, New York (May 15, 2015, 6:39 PM ET) -- Annual financial performance rankings have become a way of life for BigLaw, and while they may offer bragging rights and the appearance of transparency, experts say the focus on profits and revenue overlooks several key factors in the overall picture of firm health and stability.
While yearly rankings like those put out by The American Lawyer have their share of detractors, the legal industry nonetheless tends to pay close heed to who’s up and who’s down in the BigLaw league tables, as well as to the inside-baseball prognostications that inevitably accompany their release.
Experts warn that not only are some of the most frequently cited metrics, such as profits per equity partner, easily manipulated, but those metrics alone can provide only a fraction of the information necessary for a complete picture of law firm health — and may wind up doing more harm than good. (full article)
"Partner Churn"
In BigLaw’s current era of feverish lateral hiring, the typical firm has more departures and arrivals than Grand Central Station. While the industry obviously keeps close watch on the partnership revolving door, experts say it’s not enough to just examine net head count loss or gain. (full article)
Book Realization
While profitability is an obviously popular and sensible means of measuring law firm performance, many legal experts are wary of the emphasis some surveys place on profits per equity partner as an indicator of success. (full article)
Debt and Cash on Hand
Experts say few if any industry surveys take into account how effectively a firm is managing its debt, expenses and liabilities, despite the obvious potential impact those factors would have on any firm’s overall financial health.
“One obvious approach is looking at expenses and figuring out if a firm is being managed efficiently,” says Society 54 LLC partner Jill Huse. “Surprisingly, a lot of firms don’t do this. A lot of law firms don’t think like businesses and don’t even have budgets in place to figure out if they’re really managing their expenses and meeting their goals. That would certainly raise suspicion for me.”