As the world continues to grapple with the economic impact of the pandemic, it’s become apparent that law firms are not immune to the pressures. Notably, an interesting trend has emerged within Big Law: leverage is growing. While leverage ratios have traditionally been kept relatively low, several high-profile firms have been subtly changing this balance, sparking a conversation in the legal world about the implications of this shift.
Such hikes in leverage—calculated by dividing the total number of equity partners by other lawyers—can serve a variety of purposes in a firm. On one hand, an increased ratio boosts profitability by allowing a smaller number of equity partners to profit from the work of a large number of associates and non-equity partners. However, the underlying drive behind this shift may not be purely financially motivated. As observed by some law firm consultants, a rise in leverage might signal a requirement for more hands on deck to navigate increasingly complex cases.
This phenomenon underscores the dynamic nature of law firms, particularly those in Big Law. With these shifts in structural leverage, law corporations are illustrating their resilience and adaptability in a changing landscape. It may be too soon to predict the long-term effect of this new trend. Nevertheless, it serves as an important reminder of the fluidity and complexity of structures within legal practices.