Dentons to stop reporting 'meaningless' PEP figure

Dentons has opted to stop reporting average profits per equity partner (PEP), citing the metric as “meaningless” for a global firm, and claiming it could be potentially damaging to client relations.

The firm – the product of last year’s three-way merger between SNR Denton, Salans and Fraser Milner Casgrain – will continue to report revenue and headcount.

In a recent letter to the The American Lawyer, and seen by Legal Week, global chief executive officer Elliott Portnoy (pictured) and global chair Joe Andrew set out four reasons for their decision.

The lawyers argue: that average global PEP figures say “nothing about the success of a firm”; that partners often object to voluntary public disclosure; that the reporting can lead to client dissatisfaction; and finally they argue that “a focus on profit undermines the differences between the practice of law being a profession rather than solely a business.”

Dentons has opened the way for its rivals to join it in shunning one of the traditional metrics by which law firm performance is judged. In issuing the statement, Portnoy and Andrew added: “We invite other firms to join us.”

The pair further wrote that while they expect their position to draw criticism, “and encourage the creative number crunching that others love to engage in”, the decision is in the best interests of the firm and its clients.

“It is easy to anticipate the assertion that we choose not to report aggregate annual average profit numbers because they are not as high as some other firms,” they added. “But that assertion simply assumes that the way things have been done in the past is the way they should be done in the future.”

The American Lawyer estimated Dentons’ average global PEP to be $625,000 (£372,000) in 2013. Earlier this year, the firm said its US limited liability partnership (LLP) had seen revenue rise to $473m (£286m), with US PEP up by 4.8% to $958,000 (£570,000). US revenue per lawyer also rose 1.4% to $789,000 (£470,000).

Last year, self-reported figures calculated by combining the respective financial performances of each part of the Swiss verein-structured firm, showed a PEP figure of £452,000 and net earnings of £225.2m.

“From a client perspective, they see our profitability as services that aren’t invested into further support for them,” Andrew told Legal Week.

“Anecdotally, I know that there is a tremendous amount of pressure on the most profitable firms to address this challenge.

“The most profitable firms will say ‘we only want to do the top work for the top clients who will pay the price’, but really that’s nonsense. You never want to lose work from a top client.”

The pair also questioned the accuracy of self-reported PEP figures, citing studies by Citibank that firms often fudge the benchmark.

“So you are taking a public relations hit, for exaggerating the figures in the first place, and then taking a second hit from clients when they see the exaggerated data,” added Andrew.

On the subject of lateral hiring, both Portnoy and Andrew argued that PEP is rarely mentioned in discussions with potential recruits. “Every sophisticated lateral I’ve ever spoken to doesn’t care about average profitability of a firm, they care about ‘what profitability means for me’!” commented Andrew.

Related: Lawyers still need a PEP talk – Dentons calls for an end to profits reporting, but it’s still a valid comparator

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