Monday, March 4, 2013

K&L Gates' Full Frontal Financial Disclosure

Parsley Sage Rosemary & Ginsburg LLP
“Always a reasonable result for a reasonable fee, always”
MEMORANDUM

To:
Partners
From:
Mike Marget
Date:
March 4, 2013
Re:
K&L Gates’ Full Frontal Financial Disclosure

        A week ago, a major law firm – K&LGates (1,700+ lawyers) – chose to disclose its key financial information to thepublic via its website.  Since law firms are not required to publish financial statements, this move was surprising on at least two levels:

1.   The firm chose to disclose significantly more financial information than is typically published in connection with The American Lawyer magazine’s annual survey of the top 200 Legal Industrial Complex firms.[i]  K&L Gates provided 2 pages of financial data – the typical revenue, PPP[ii] and RPL[iii] numbers, plus other statistics like cash, debt and capital balances as of year-end, high/low debt balances during the year, and a good deal of narrative akin to the management discussion section found in a corporate annual report.

2.   What could be the firm’s motivation for taking this step at this time?

K&L Gates Motivation
        Chairman Peter Kalis said the firm wasmotivated to improve the public image of the profession in light of the “Dewey debacle” – where management at Dewy & LeBoeuf misled partners, bankers and clients (via the AmLaw rankings)[iv] about the firm’s financial stability before filing for bankruptcy.

        Notwithstanding this noble and altruistic motive, K&L Gates has also positioned themselves very nicely vis-à-vis other firms in the never-ending quest to always pick up the best and brightest laterals to continually improve their franchise.  In one bold step, K&L Gates sent the following message:
  • Our internal financial disclosures and external communications (e.g., to The American Lawyer) are the same; we don’t manipulate our revenue figure or our equity partner headcount.  
  • Not only do we have no debt at year-end, we didn't borrow as much as a penny against the line of credit during 2012 and 2011.  
  • We’re "transparent" with our partners and our clients about the firm's financial stability.
  • Can your current firm or other potential lateral firm say the same thing?
Reality Check/Lateral Partners
        Can every firm be trusted to refrain from manipulating the numbers in the press release the same way they did for the AmLaw rankings?  There will undoubtedly be temptations, but the more statistics disclosed the less likely it becomes to alter the important numbers without leaving an obvious audit trail.  Moreover, if other firms do not reconcile their internal and external reporting, they can count on their rank-and-file partners to call them out about it.

        Nevertheless, laterals must always be weary of whatever financial data is provided by prospective new firms.  As a financial person, I would like K&L Gates’ disclosure to be expanded to include, among other things, information like the quality of the firm’s inventory (i.e., accounts receivable and unbilled fees) and the number of highly compensated partners with long-term guaranteed contracts (another problem at Dewey). 

        If you are a major rainmaker contemplating a move, use your clout to examine more financial data before taking the plunge to join a new firm.  For the sake of the capital you will invest in the new firm, for the sake of continuity of service to your clients, and for your own mental health, perform significant due diligence before committing to a new firm.  There are other financial reports you should request and review:
  • Citibank and Wells Fargo[v] provide participating law firms with detailed financial analysis – comparing the firm with peer firms – as part of their quarterly industry financial reviews.  Request copies going back 2 years, read them and have a sit-down with the firm’s CFO to discuss.
  •  
  • PricewaterhouseCoopers publishes a similar report which compares firms by geographic area, size and other demographics.
These reports provide significantly more data than that disclosed by K&L Gates last week.  Should any prospective new firm not wish to share this data with you, I would be afraid -- very afraid.

[i] Don’t get me started about the financial fallacy which is the AmLaw rankings.  Simply put – firms lie.  Not all of them, but enough to call into question the entire process.  Exhibit 1is Dewey & LeBoeuf who overstated their revenue by more than $150 millionfor each of calendar year 2010 and 2011.  The magazine took a credibility hit on that one, but has never adequately addressed the systemic problem illustrated by Howrey, Thacher Proffitt, Thelen, Heller Ehrman and others who kept posting good numbers right up until the time they ceased to exist. 
[ii] PPP is profits per equity partner.
[iii] RPL is revenue per lawyer.
[iv] See Endnote i.
[v] Buy a banker from the Legal Industry Groups at either Citibank or Wells Fargo a cocktail and he/she will tell you the numbers they receive in connection with their “privately published” surveys differ significantly from the very public numbers appearing in the AmLaw rankings.

29 comments:

  1. Thanks for sharing this article. By the way, for great lawyers in the Philippines, visit NDV.

    ReplyDelete
  2. Everything is in black and white, and there are no hidden agenda's or conflicts of interest in the advice given to you by a true Fee-Only financial advisor!cryptocurrency compariso

    ReplyDelete

  3. wow very nice article glad to see your article ....

    do not forget to visit our website as well: Sejarah Togel D: D

    thanks for the info very nice and creative

    successful greeting always: Togel Online D: D

    nice article.....

    ReplyDelete

  4. After going over a handful of the articles on your web page, I truly appreciate your
    technique of writing a blog. I added it to my bookmark site
    list and will be checking back in the near future. Please visit my website too and tell
    me your opinion.


    kanchipuram sarees

    ReplyDelete
  5. This comment has been removed by the author.

    ReplyDelete
  6. N. D. Barkovski answers that working of cash made a sparing reason for allotting finances and credit as an autonomous classification and offered ascend to the credit and budgetary relations. Stifel

    ReplyDelete
  7. Rahul Soni is a famous name in civil litigation court, who owns a law firm named Soni Law Firm. He offers reliable consultancy and court representation in the Superior Court of Justice, Human Rights Tribunal of Ontario, and Small Claims Court. His expertise lies in employment law, labour law, and personal injury law.

    ReplyDelete
  8. Believe it or not, it is the type of information I’ve long been trying to find. It matches to my requirements a lot. Thank you for writing this information. Lawyer

    ReplyDelete
  9. It is really a great and helpful piece of info. I am glad that you just shared this helpful information with us. Please stay us informed like this. Thanks for sharing. Elia & Ponto

    ReplyDelete
  10. Your blog has the same post as another author but i like your better. GPW Law

    ReplyDelete
  11. I found this is an informative and interesting post so i think so it is very useful and knowledgeable. I would like to thank you for the efforts you have made in writing this article. Elia & Ponto

    ReplyDelete
  12. All that is needed of the person looking for a lawyer is to answer a few questions about the case and then give his/her contact information.  Richardson Law Firm

    ReplyDelete
  13. And even if no one in your society circle could refer you to a lawyer, they might know of someone else from their society circle who might have been in a similar situation.  https://www.eliaandponto.com

    ReplyDelete
  14. The article you have shared here very awesome. I really like and appreciated your work. I read deeply your article, the points you have mentioned in this article are useful GPW Law

    ReplyDelete
  15. It is interesting to read your blog post and I am going to share it with my friends.aybabg

    ReplyDelete
  16. IT professionals are in demand According to BLS, from 2016 to 2026, employment of Computer Specialists is projected to grow at 11%, and that of Information Security Analysts at 28%, much faster than the average for all occupations.comptia linux plus nj

    ReplyDelete