Non-equity Peril

February 28, 2013 – In The News
Philadelphia Business Journal

When the recession hit in late 2008, big law firms responded by making personnel cuts, specifically support staff and associates. Almost five years later the economy has somewhat stabilized but the demand for legal services has contracted. Now, industry consultants and managing partners say firms will most likely makes cuts at non-equity tier of partnership.

“It’s just inevitable,” Fox Rothschild Managing Partner Mark Silow said. “You have two dynamics at work – the growing ranks of non-equity partners and the contracting or flattening of demand for legal services. Something has to give.”

The concept of non-equity partnership spread in the 1990s as a way to promote successful senior associates whom might not yet possess the qualities of an equity partner. It allows firms to keep their equity partner numbers down, which makes it easier to increase profits per equity partner numbers, which are used as recruiting tools.

Promotions to partnership at Philadelphia’s largest law firms have slowed somewhat, but not drastically, since the recession hit. A survey of large firms around the country by Newtown Square-based consultants, Altman Weil, seems to indicate that firms feel they might continue to cut support staff but that the associate ranks have been sufficiently streamlined. So now they are turning their attention to thinning the amount of partners in the firm.

Silow predicted that there will not be abrupt contractions like there were with associates and staff in 2009.

“It will be quieter and slower, unless a firm feels it needs to take drastic action,” Silow said. “The profession is not in the same crisis mode it was back then, but these are still challenging times.”