Earlier this week the American Lawyer trumpeted the mother lode that certain Am Law 100 firms struck in 2006:
In 2006, for the first time since The American Lawyer started measuring the financial performance of law firms 22 years ago, a majority of America’s 100 top-grossing firms had profits per equity partner of $1 million or more.
Going even higher up the food chain, 15 firms had PPP of over $2 million and 3 firms topped $3 million. Good for them, I hope they are taking some time to enjoy it.
When a GC sees this (or CFOs, for that matter) there’s a bit of shock and awe that gives way to a realization as to who is picking up the tab.
General counsels, in charge of their companies’ legal matters and budgets, are perpetually under pressure to trim and better manage expenses. But it hasn’t been easy to move away from the familiar billable-hour system, in part because neither companies nor law firms typically have a good sense of what a piece of legal work will end up costing. Now, new tools are helping both sides estimate costs up front, giving general counsels more confidence to move ahead with arrangements like fixed fees and “value-based billing,” in which the payment a firm gets depends in part on the results it achieves.
The WSJ goes on to describe what companies like Cisco, FMC, Chevron Phillips Chemical, and Pitney Bowes are doing to slow the clock down a bit.
Profits per equity partner are an important metric for law firms to track. When it starts to appear like the metric, clients take notice. Who is tracking VPHB: value per hour billed?
Any engaged GC is rightly focused on making law firm expenditures more prudent as they are incurred and defensible when they are reviewed.
The Am Law 100 should go ahead and party like it’s 2006; just remember it’s already 2Q07 and your favorite GC may be going into a budget forecast meeting as we speak.