Canadian Lawyer

exhausted all other options to increase, or simply maintain, partner profitability. He says there are four factors that play a role in its calculation: margin (revenue minus expenses), billable hours, rates, and leverage (associate-to-partner ratio). In the 1980s and 1990s, McKenna says law firms basically worked lawyers harder, push- ing billable hour targets to their limits. From about 1995 to 2008, firms simply raised rates, which worked just fine until the global economic downturn hit. Since then, margins have shrunk because expenses continue to rise, while revenue has flatlined or fallen thanks to reduced demand for legal services. Leverage, traditionally low in Canada anyway, has not been an option else- where as corporate clients balked at high rates for inexperienced and allegedly unproductive associ- ates. "Well, there's only one other mechanism to increase partner profitability, and that's to have less partners sharing in pie, " says McKenna. PULLING UP THE DRAWBRIDGE says Steven J. Harper, a retired partner formerly with U.S.-based international giant Kirkland & Ellis LLP. According to Harper, the increasing ranks of non-equity partners chasing the mirage of full partnership, or recovering from de-equiti- zation, risks creating a "permanent subclass" in law firms. Even within equity partnerships, he says the widening gulf between the lowest- and highest-paid members is a recipe for disaster. At the recently collapsed Dewey & LeBoeuf "Somebody needs to start Occupy Big Law," O LLP, some have estimated that spread at between 20: and 30:1. In more conservative Canada, where ratios are firmly in the single digits, and rarely higher than 5:1, it still hurts to be the "one" get- ting multiples less than your so-called partner, says Harper. "The gap at some of these firms is staggering, in a way that was not true 10 years ago, with an even smaller group at the top that really controls things, and they can embed themselves there." Edmonton-based law firm strategist Patrick McKenna says law firms have moved to shrink their equity partnership ranks because they've 28 JULY 2012 www. CANADIAN Lawyermag.com " he says. "What it means is you wind up longer and more convoluted route than it did for their predecessors. "I had one lawyer tell me the chances of being hit by lightning are higher than being made an equity partner, ne way firms reduce the number of equity partners is by delaying entry. In the last couple of decades, young lawyers have found the path to partnership follows a yers at large Canadian law firms found associ- ates will wait an average of seven years to make partner. "Competition for partner positions has intensified, Last year, a Robert Half Legal survey of law- " says McKenna. of Robert Half Legal in Canada, at the time. "In fact, some firms have been thinning the ranks of partners by promoting fewer associates." An increasingly common stop on the partner- " said John Ohnjec, division director ship track is non-equity partnership. According to Harper, firms are attracted to two-tier partner- ship by the ability to generate an extra couple of years of leverage out of associates who would oth- erwise have been promoted. For lawyers, they get the prestige of the partner title, and a billing rate to match, which also suits firms. "The underlying driver is non-equity partners are extremely lucra- tive. You don't have to pay them anything near " " BIG LAW. STEVEN J. HARPER SOMEBODY NEEDS TO START OCCUPY

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