Profits per partner inflation?

It's become the most frequently cited metric of a law firm's performance, but Bill Henderson, a law professor at Indiana University-Bloomington, wonders whether the numbers might be misleading or just flat-out wrong. Henderson, who is working on a project that analyzes data supplied to ALM (publisher of the widely followed American Lawyer 100), told the WSJ's Law Blog that some firms may be undercounting the number of equity partners for the purpose of jacking up the average profit per partner number.

Some firm managers are “keeping information from a lot of partners who don’t control the big books of business, so the only numbers they see are the numbers supplied by Am Law,” says Henderson. “In an era of less transparency, we have reason to take [reported profits-per-partner] numbers less seriously.” So what’s the incentive to deflate the numbers of equity partners? Higher Am Law numbers often help attract lateral partners, drive merger interest or buoy entry-level recruitment, he says.

The 2006 numbers, as reported to American Lawyer, show that the nation's largest law firms saw a 13.4 percent increase in average PPP from a year earlier, to $1.3 million. Last month, the Business Journal reported that Quinn Emanuel Urquhart Oliver & Hedges LLP led L.A. law firms with PPP of $2.4 million, a 24 percent jump from 2005. Name partner Bill Urquhart cited the busy NY office. The other skewed aspect to the figure is that it's the average profit per partner, so an especially strong year by a couple of partners might distort how the rest of the firm actually did.