False Cries of Foul? U.S. Law Firms in London May Have to Report Financials
As LLPs, law firms in the U.S. do not have to share financials with the public. Maybe they should. For example, it appears that law firms that use a business form similar to LLPs but are based in the U.K. must disclose their financials. U.S.-based LLPs that have offices in London do not, yet. A proposal under consideration would change this rule so that the U.S.-based LLPs would have to disclose their financials. That possibility met resistance in 2001 and seems to be upsetting some firms again.
Law firms make an incredible amount of money and have enviable margins. On one hand, firms seem to love being at the top of the AmLaw lists and being the highest revenue firm or highest profit per partner firm. So now when a firm like Reed Smith protests the possibility of having to disclose the numbers there is some irony. Some of this information is available through the AmLaw rankings. For 2006, Reed Smith comes in at 31, based on its 2005 gross revenue of $562,500,000. If the desire is to remain so secret — in the firm’s words “we would prefer to keep our financials private. Many of our U.S. counterparts would feel this way too.” — then how is it that AmLaw has these figures? Granted it is not the full financials but someone is likely giving the information to Law.com and others. Want to know profits per partner for the firm in 2005? Read below the fold. Hint: The firm provided the numbers.
The Legal Intelligencer’s article about Reed Smith shows that Reed Smith gave them the information:
“According to financial data provided to The Legal, Reed Smith saw a 21 percent increase in profits per partner in 2005, jumping from $662,000 in 2004 to $800,000 last year. The firm said its revenue for 2005 was $563 million, a 12 percent increase over the $504 million in revenue in 2004. Revenue per lawyer also increased, going up about 10 percent from $553,000 in 2004 to $609,000 in 2005. According to data released by Reed Smith, the firm has seen a steady rise in its financials across the board over the past five years, increasing its profits per equity partner by 154 percent since 2000 and its revenue per lawyer by 62 percent in the same time span.”
According to Legal Week, “several U.S. firms, including White & Case and O’Melveny & Myers, have already opted to operate their London office through a U.K. LLP.” If so, given the willingness to share some of the information for bragging rights in AmLaw and the willingness by some large firms to be a U.K. LLP, what are other firms trying to hide?
Now the AmLaw rankings have had an arguably negative effect on firms as they try to squeeze more from the business. So it may be that there are reasons not to ask for public information from LLPs. The reasons may have more to do with the way information seems to change how one thinks about anything and the conclusions one may draw. Does this information shift focus to bottom line rather than being an excellent counsel? Would people start to ask more about what an attorney or a firm makes as part of hiring a firm or litigating a case? Might clients start to question the fees? Would smaller firms worry about the false correlation between income and being a good attorney? Maybe. Still, for the AmLaw 200 firms some of this information is available from the firms and does not appear to have slowed the firms’ ability to charge high rates or obtain clients. The claims that a firm must be able to keep its information private are a bit puzzling when the major firms appear to revel in sharing the information in the first place. There may be real theoretical reasons not to require public reporting but they are not so clear in the context of the firms at issue here. Once the U.K. releases its consultation for comment, the ideas behind the public reporting will be available for comment. That should yield some interesting statements from U.S. firms. Maybe some statements in favor of the policy will come out. We’ll see.