Let’s say you’re the managing partner of an AmLaw 200 firm. You’ve terminated associates and staff (using, of course, the kinder and gentler term "lay offs"), you’ve eliminated free coffee, taken tissues away from associates and staff (presumably you had the good grace to do this after all the layoffs), raised the amount people have to pay for vending machine soda, closed unprofitable offices, cut the salaries of summer associates, forced non-rainmaker partners out, had a second round of staff and associate terminations, and basically done everything one can do to cut costs and preserve you firm’s profits per equity partner.
Then comes the annual rite, the reporting of those PEP to American Lawyer and its release of the AmLaw 100. The AmLaw report does include a column for percentage change from the previous year, and you undoubtedly hope that your clients will focus on the fact that your PEP are down from the prior year. But that’s not the column clients look at. They look at the "PPP" column, where the numbers are still eye-popping, with many firms earning more than $1 million per equity partner.
But here’s the real kicker. No one looks at the PEP and really imagines that each partner is making a million, or whatever the number is. Those reviewing the numbers are far to sophisticated to make that mistake. They know that firm leaders and the inner group, what I call "The Club," take a disproportionate share, justifying their self-aggrandizement by the alleged value they add (they never seem to deduct for the screw-ups though) or the institutional clients they control. Different firms, different rationalizations. But the bottom-line is the same.
Now comes the real test. Clients see those big numbers, even as the GCs and in-house counsel have had their bonuses evaporate and the company stock price has plummeted. Clients negotiated a rate discount last year, only to see the total fees paid remain the same. This year they need more. So here are the two big questions as we enter into the season of planning for 2010:
1. Will clients finally start exercising the power inherent in their being the buyer and demand material changes in the amount of fees they pay for services?
2. How will BigLaw respond if faced with such demands?
My guess is that most BigLaw members of The Club are hoping the answer to question 1 is "no."