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Duane Morris' Sheldon Bonovitz
Arguing that attorneys at the nation's top law firms need higher salaries may be a tough sell. But at a time when many big firms are operating more like corporations, the question is whether compensation for their chiefs should become more corporatelike as well.
As law firms have spread their reach across the globe to meet clients' needs, the role of law firm chief executives has become increasingly critical and burdensome. Far-flung offices in Asia, Europe and on both U.S. coasts require firm leaders to spend much of their time living out of suitcases, wooing clients and creating cohesiveness among firm branches.
And even as the responsibilities of leaders have grown, their compensation has, proportionately, stayed the same as other partners in their firms.
But should it?
"Firms are recognizing that their contributions are increasingly important," said James Jones, a consultant with Hildebrandt International.
He added, however, that the vast majority of big law firms pay their chairmen or chairwomen on par with the amount that most senior partners make. "Otherwise, it sends the wrong message," he said.
To be sure, the level of compensation is handsome. Among the nation's 100 top-grossing law firms, 59 of them reported profits per equity partner of $1 million or more in 2006, according to The American Lawyer, an affiliate of The National Law Journal. The mean profit was $1.2 million, and for those firms based in New York, the mean profit was $2.05 million. Profits per partner in 2006 rose by 13.4 percent.
At the same time that compensation has grown, the internal governance of the largest law firms has changed in recent years. The largest law firms now have thousands of lawyers working from dozens of offices. They have become less like traditional partnerships and more like corporations, with top-down management structures and fewer people making decisions for the whole.
The phenomenon recently was underscored by a federal appeals court ruling, which held that Sidley Austin partners could be treated as employees rather than members of a partnership for purposes of civil rights law. The case, brought by the U.S. Equal Employment Opportunity Commission on behalf of a group of older Sidley partners claiming discrimination, settled last month for $27.5 million.
While few would assert that law firm leaders are entitled to the staggering salaries and stock options arrangements that heads of giant corporations rake in, the combination of people skills, legal know-how and salesmanship may be worth more to law firms than what they are paying their leaders.
"The complexity of managing is much more challenging," said Sheldon Bonovitz, chairman and chief executive of Philadelphia-based Duane Morris. "Most attorneys aren't trained to do that." Duane Morris has 612 attorneys in 22 offices, including four locations overseas.
Bonovitz, who has led Duane Morris for 10 years, notes the absence of an industry "benchmark" or starting pay range for law firm chiefs because most are promoted from within, where their pay is relative to the amount they were making as partners.
But as law firms move toward operating like other businesses, the pay may become more standardized, he said, especially as more firms compete with each other to bring aboard proven leaders.
In Bonovitz's case, his compensation is tied to the budgeted increase in equity partner compensation, he said.
One chairman at a law firm among the 20 largest in the nation said that the traditional compensation paradigm, in which leaders are paid equal to or just below the amount that top performers earn, provides certain comfort.
"I prefer governing without being paid the most," he said.
With the issue of self-interest removed from the equation, he said, he can argue for higher levels of compensation for other partners whom the firm wants to keep or recruit. He also said that the job of heading a law firm is significantly different from leading a corporation.
"There's only so much I can do to screw it up. I can do a lot less harm or a lot less good than somebody like Sandy Weill," he said, referring to the chairman emeritus of Citigroup Inc.
The fundamental difference between law firms and corporations, say observers, lies in the structure of firms, which also makes a direct comparison of pay for leaders difficult. Firms are, after all, partnerships, which means that no matter how big they get, equity owners will always have a say in their governance. Some would argue, then, that leaders' pay should not exceed that of other partners because their contributions are limited.
But the very fact that law firm chiefs do not have full authority over others may make the job, one of leading by persuasion, that much more difficult -- and valuable.
"It takes a different skill set to run that type of business," said Stanley Kolodziejczak, national leader of law firm services at PricewaterhouseCoopers International. "Firms haven't yet come to realize what they have to pay to keep that talent."
That may be true, but the prevailing view among attorneys at big firms is that while the nature of the leader's job in most big firms has become very different from that of a practicing partner, the leader's job is not necessarily more demanding, said Richard Gary, former longtime managing partner of the law firm once known as Thelen Reid & Priest. He now is principal of Gary Advisors in Tiburon, Calif.
In addition, keeping a chief's pay even with that of senior partners shows the firm recognizes that a successful operation requires business development and guidance from a leader and nuts-and-bolts lawyering from its partners.
"A managing partner or firm chair whose compensation gets too far out in front of his or her partners is just painting a big target on their back. They're asking for trouble," Gary said. "Even though those jobs require far more management and leadership expertise, it's a real stretch to get law firm partners to agree with that proposition."
A failed merger between Orrick, Herrington & Sutcliffe and Dewey Ballantine earlier this year may serve as a cautionary tale. A major sticking point to the deal, reportedly, was the $5 million in compensation that Orrick Chairman Ralph Baxter wanted. Profits per partner at Orrick in 2006 averaged $1.43 million. At Dewey, they were $1.45 million. Baxter did not respond to messages requesting an interview.
Although that amount may have been too far afield from what other partners at the two firms were bringing in, partner compensation in general should serve as a guide but not a limitation for firm leaders, said the chairman of one of the 10 largest firms in the country.
"Managing partners should be compensated for value creation and leadership," he said. "Their compensation should not be tied directly to what other partners make, but, of course, the compensation of other top partners will always matter for context."
