Law Firm Leverage Drops to Levels Last Seen 10 Years Ago
12-18-2007

On a nationwide basis, in 2007 major law firms employed one associate for every partner, and the overall ratio of lawyers to partners was somewhat more than 2 to 1 (2.21). This is similar to the level of leverage last seen in the legal marketplace in 1998. Between 1999 and 2005, law firms reported relatively higher leverage ratios. (See Table 1.) While the fluctuation in these figures is obvious, the reasons for the fluctuation are less so.

Not surprisingly, regardless of the measure used, on average, larger law firms leverage their partners with associates and other lawyers to a greater degree than do smaller firms. For example, the ratio of associates to partners in firms of 250 or fewer lawyers is about 0.7. Leverage figures are substantially higher for firms of 501 or more lawyers. In firms of more than 700 lawyers, the figure is about double, at 1.39. A measure based on all lawyers shows a similar progression, from 1.88 to 2.61. (See Table 2.)

This is according to recent analyses of the 2007-2008 NALP Directory of Legal Employers, the annual compendium of legal employer information published by NALP. The 2007-2008 Directory represents over 135,000 lawyers in more than 1,500 law offices nationwide, primarily, though not exclusively, in firms of more than 100 lawyers. The analyses reveal that, whether measured as the ratio of all lawyers to partners, as the ratio of associates to partners, or as the ratio of other lawyers, e.g., of counsel, senior and staff attorneys, to partners, law firms vary widely in their mix of lawyers.

City averages for leverage vary from city to city. Among the cities with the greatest representation in the Directory, lawyer/partner ratios ranged from a low of about 1.6 in Birmingham, Grand Rapids, Milwaukee, and New Orleans, to a high of 3.15 in New York City. Leverage in a number of cities, including Detroit, Minneapolis, Portland, OR, Seattle, and Tampa/St. Petersburg, is just slightly higher, in the 1.68 to 1.80 range. On the high end, however, only San Jose comes close to matching the leverage levels of New York City firms. Most of the other cities are not too far from the national average of 2.21.

Likewise, only in New York City does the ratio of associates to partners begin to approach 2.0 (1.85). San Jose is second at 1.70. The list bottoms out at less than 0.5 in Detroit and Grand Rapids. This measure of leverage is less than 1.0 in a number of cities.

Since leverage is generally higher in larger firms, differences between cities reflect to some extent differences in size composition. However, similarities with respect to firm size don’t necessarily translate into similar leverage figures. For example, looking at cities with a similar percentage of offices from firms with more than 250 lawyers, such as Austin, New York, Los Angeles, and Raleigh/Durham, leverage levels are very different, ranging from just over 2.0 in Austin, to 3.15 in New York. The prevalence of offices in firms of more than 250 lawyers is highest in Northern Virginia and the San Jose area, but leverage stands at 2.05 in the former and 2.91 in the latter. Thus, while this information is among the most comprehensive available, it does not readily provide insight into other factors that likely play a role in determining the leverage decisions of an individual firm, nor the reasons for the averages in a given area. However, these figures do provide a useful description of the current application of leverage within the nation’s major law firms, and how it has varied in the past decade.

The 2007-2008 NALP Directory of Legal Employers, which provides the individual firm listings on which the 2007 aggregate analyses are based, is available online at www.nalpdirectory.com.

Table 1. Law Firm Leverage Nationwide — 1995-2007


Ratio of Lawyers
to Partners
Ratio of Associates
to Partners
# of Offices
1995 2.15 0.99 993
1996 2.18 1.01 921
1997 2.18 1.01 1,053
1998 2.23 1.04 1,154
1999 2.32 1.12 1,258
2000 2.47 1.11 1,319
2001 2.37 1.15 1,322
2002 2.38 1.16 1,346
2003 2.33 1.12 1,391
2004 2.29 1.07 1,392
2005 2.24 1.02 1,452
2006 2.19 0.99 1,523
2007 2.21 0.99 1,562

 

Table 2. Law Firm Leverage — 2007


# of Lawyers Ratio of
lawyers to
partners
Ratio of
associates to
partners
Ratio of
other lawyers to
partners
# of Offices % of offices in firms of 251+
Total 135,170 2.21 0.99 0.21 1,562
By Size of Firm:
50 or fewer lawyers 4,704 1.88 0.72 0.16 155
51-100 lawyers 10,089 1.83 0.68 0.16 156
101-250 lawyers 29,412 1.87 0.68 0.18 300
251-500 lawyers 29,287 2.13 0.89 0.24 374
501-700 lawyers 18,109 2.53 1.26 0.27 178
701+ lawyers 43,569 2.61 1.39 0.23 399
Offices in:
Atlanta 3,866 2.19 0.99 0.19 43 59.1
Austin 974 2.03 0.83 0.20 21 76.2
Baltimore 995 1.81 0.62 0.19 11 54.5
Birmingham 598 1.63 0.50 0.14 8 22.2
Boston area 4,575 2.37 1.16 0.20 37 63.2
Charlotte 1,358 2.18 0.96 0.22 20 55.0
Chicago 8,663 1.96 0.83 0.13 63 59.4
Cincinnati 834 1.83 0.64 0.19 12 53.8
Cleveland 1,417 2.07 0.84 0.22 13 53.8
Columbus 1,104 1.95 0.72 0.24 13 53.8
Dallas 3,254 2.23 1.03 0.20 39 70.0
Denver 1,290 1.98 0.75 0.23 24 56.0
Detroit area 1,656 1.68 0.49 0.19 15 33.3
Ft. Lauderdale/W. Palm Beach 481 1.86 0.67 0.19 18 57.9
Grand Rapids 610 1.63 0.39 0.25 9 22.2
Hartford 681 2.06 0.84 0.22 15 41.2
Houston 3,040 2.17 0.94 0.22 40 71.4
Indianapolis 1,358 1.87 0.61 0.26 13 15.4
Kansas City area 1,510 1.92 0.58 0.35 13 64.3
Las Vegas 428 2.45 1.27 0.17 16 25.0
Los Angeles area 5,975 2.46 1.26 0.19 86 75.3
Miami 1,475 1.92 0.80 0.12 25 60.0
Milwaukee 1,242 1.66 0.59 0.07 9 22.2
Minneapolis/St. Paul 2,483 1.76 0.61 0.15 25 28.0
Nashville 699 1.85 0.72 0.14 9 40.0
New Orleans 645 1.66 0.52 0.13 10 30.0
New York City 23,119 3.15 1.85 0.30 143 75.3
Northern NJ/Newark area 2,827 2.44 1.16 0.27 28 42.9
Northern Virginia 900 2.05 0.90 0.15 22 86.4
Orange Co., CA 1,373 2.30 1.16 0.14 32 65.6
Orlando 472 1.87 0.69 0.18 9 66.7
Philadelphia 2,941 2.42 1.10 0.32 22 61.5
Phoenix 1,436 1.83 0.71 0.12 20 50.0
Pittsburgh 1,161 1.99 0.80 0.19 12 69.2
Portland, OR area 1,068 1.79 0.65 0.14 22 27.3
Raleigh/Durham 480 2.19 0.74 0.45 12 76.9
Richmond 942 1.94 0.76 0.18 10 45.5
Sacramento 360 2.21 0.95 0.26 10 60.0
Salt Lake City 351 2.05 0.97 0.08 10 50.0
San Diego 1,369 2.41 1.23 0.18 24 70.8
San Francisco 4,380 2.32 1.12 0.20 65 69.7
San Jose area 2,464 2.91 1.70 0.20 41 87.8
Seattle area 1,872 1.78 0.64 0.15 33 36.4
St. Louis 1,485 1.96 0.78 0.18 10 60.0
Tampa/St. Petersburg 805 1.68 0.60 0.08 17 47.1
Washington, D.C. 14,113 2.40 1.10 0.31 136 79.0
Wilmington 765 2.20 1.04 0.16 17 52.9
States:
Other areas in California 540 2.19 1.02 0.17 10 40.0
Other areas in Connecticut 552 1.91 0.76 0.15 15 53.3
Kentucky 1,035 1.92 0.61 0.31 7 42.9
Other areas in New York State 1,485 1.81 0.59 0.22 16 31.3
Other areas in Texas 576 1.84 0.65 0.19 14 64.3

Source: The 2007-2008 NALP Directory of Legal Employers. For law firms that repeated firmwide demographic information for each office listing, demographic information was retained for just one office to avoid double counting. Some city information includes one or more offices in adjacent suburbs. Orange County includes offices in Costa Mesa, Irvine, and Newport Beach. The San Jose area includes offices in Cupertino, Menlo Park, Mountain View, Palo Alto and E. Palo Alto, Redwood Shores/Redwood City, San Jose, and Sunnyvale. The Northern New Jersey/Newark area includes offices in Newark, Livingston, Saddle Brook, Roseland, West Orange, Florham Park, Hackensack, Morristown, Parsippany, Short Hills, Westfield, Bridgewater, Somerset, and Woodbridge. Northern Virginia includes offices in Falls Church, McLean/Tysons Corner, Reston, Vienna, and Alexandria. State figures exclude cities reported separately.

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