Partners in a law firm are the source of firm knowledge and hold claims to the firm's residual income; associates work for partners, acquire knowledge, and receive a fixed level of compensation. The author uses the ratio of associates to partners to measure the leveraging of human assets in law firms, which he likens to the leveraging of financial capital in other firms. Analyzing data on 312 large offices of law firms in 1991, he finds that this leverage ratio was related to business strategy, human resource management, and organizational structure. As an index of law firms' human capital structures, it also had important implications for organizational capabilities and firm competitiveness. For example, offices characterized by a rare and tightly controlled human capital structure had the highest billing rates, reflecting their capability of providing clients with services that deeply embody the knowledge of partners.
Get full access to this article
View all access options for this article.
References
1.
AbelRichard L.1989. American Lawyers. New York: Oxford University Press.
2.
AlchianArmen A. and DemsetzHarold. 1972. “Production, Information Costs, and Economic Organization.”American Economic Review, Vol. 62, No. 5 (December), pp. 777–95.
3.
American Lawyer. 1991. “The AM Law 100.”Supplement, July/August.
4.
American Lawyer. 1984. “Management Dilemmas.”Supplement, December.
5.
ArthurJeffrey. 1992. “The Link between Business Strategy and Industrial Relations Systems in American Minimills.”Industrial and Labor Relations Review, Vol. 45, No. 3 (April), pp. 488–506.
6.
BarneyJay. 1991. “Firm Resources and Sustained Competitive Advantage.”Journal of Management, Vol. 17, No. 1 (March), pp. 99–120.
7.
BowerWard. 1987. “Trends in Partner Compensation.”Legal Administrator, Vol. 6 (Spring), pp. 16, 18, 20.
8.
BrillSteven. 1982. “Surviving the '80s Shake-Out.”Supplement, November, American Lawyer.
9.
BrillSteven. 1990. “The Changing Meaning of Partnership.”Supplement, March, American Lawyer.
10.
ChandlerAlfred D.1962. Strategy and Structure. Cambridge, Mass.: MIT Press.
11.
CohenRoger. 1991. “Denting a Legal Galahad's Armor.”New York Times, Oct. 16, pp. D1, D6.
12.
DeustchClaudia. 1991. “The Fast Track's Diminished Lure.”New York Times, Sunday Business Section, p. 25.
13.
FamaEugene F., and JensenMichael C.. 1983. “Separation of Ownership and Control.”Journal of Law and Economics, Vol. 26 (June), pp. 301–25.
14.
GalanteMary Ann. 1983. “Meet the Permanent Associate.”National Law Journal, Vol. 6, No. 7 (October 24), pp. 1, 28, 30.
15.
GalanterMarc, and PalayThomas. 1991. Tournament of Lawyers. Chicago: University of Chicago Press.
16.
GilsonRonald J., and MnookinRobert H.. 1985. “Sharing Among the Human Capitalists: An Economic Inquiry into the Corporate Law Firm and How Partners Split Profits.”Stanford Law Review, Vol. 37, pp. 313–92.
17.
GilsonRonald J., and MnookinRobert H.. 1988. “Coming of Age in a Corporate Law Firm: The Economics of Associate Career Patterns.”Stanford Law Review, Vol. 41, pp. 567–95.
18.
HanushekEric A., and JacksonJohn E.. 1977. Statistical Methods for Social Scientists. New York: Academic Press.
19.
HillmanRobert W.1990. Law Firm Breakups. Boston: Little, Brown.
20.
HindleTim. 1994. Field Guide to Strategy. Boston: Harvard Business School.
21.
HrebiniakLawrence G., and JoyceWilliam F.. 1984. Implementing Strategy. New York: Macmillan.
22.
ItamiHiroyuki. 1987. Mobilizing Invisible Assets. Cambridge, Mass.: Harvard University Press.
23.
KennedyPeter. 1992. A Guide to Econometrics. Cambridge, Mass.: MIT Press.
24.
KleinWilliam, and CoffeeJohn C.. 1990. Business Organization and Finance: Legal and Economic Principles, 4th Ed.Westbury, N.Y.: Foundation Press.
25.
LevinthalDaniel. 1993. “Adaptation in Rugged Landscape.” Unpublished Paper, Wharton School, University of Pennsylvania.
26.
MaisterDavid. 1984. “The Art of Partner Compensation.”American Lawyer, Vol. 6, pp. 7–11.
27.
McNeilIan. 1974. “The Many Futures of Contract.”Southern California Law Review, Vol. 47, pp. 691–816.
28.
McNeilIan. 1978. “Contracts: Adjustment of Long-Term Economic Relations Under Classical, Neoclassical, and Relational Contract Law.”Northwestern Law Review, Vol. 72, No. 6, pp. 854–905.
29.
MilgromPaul, and RobertsJohn. 1992. Economics, Organization, and Management. Englewood Cliffs, N.J.: Prentice-Hall.
30.
National Association for Law Placement. 1989. Glossary. Washington, D.C.
31.
National Association for Law Placement. 1991. Directory of Legal Employers. Washington, D.C.
32.
National Law Journal. 1991a. “The NLJ 250.” Sept. 30, pp. S5, S6, S13–S28.
33.
National Association for Law Placement. 1991b. “Billing Rates.” Nov. 12, 1991, pp. S1–S4, S6, S7.
34.
NelsonRobert. 1983. “The Changing Structure of Opportunity: Recruitment and Careers in Large Law Firms.”American Bar Foundation Research Journal, pp. 109–42.
35.
NelsonRobert. 1988. Partners with Power: The Social Transformation of the Large Law Firm. Berkeley: University of California Press.
36.
PindyckRobert, and RubinfeldDaniel. 1981. Econometric Models and Economic Forecasts. New York: McGraw-Hill.
37.
PrahaladC. K., and HamelGary. 1990. “The Core Competence of the Corporation.”Harvard Business Review, Vol. 68, No. 3, pp. 79–91.
38.
RumeltRichard P.1974. Strategy, Structure, and Economic Performance. Boston: Division of Research, Harvard Business School.
39.
RumeltRichard P.1984. “Towards a Strategic Theory of the Firm.” In LambRobert B., ed., Competitive Strategic Management. Englewood Cliffs, N.J.: Prentice-Hall, pp. 566–70.
40.
RumeltRichard P.1987. “Theory, Strategy, and Entrepreneurship.” In TeeceDavid, ed., The Competitive Challenge: Strategies for Industrial Innovation and Renewal. Cambridge, Mass.: Ballinger, pp. 137–59.
41.
SmigelErwin. 1969. The Wall Street Lawyer: Professional Organizational Man?Bloomington: Indiana University Press.
42.
SpanglerEve. 1986. Lawyers for Hire: Professionals as Salaried Employees. New Haven: Yale University Press.
43.
StevensMark. 1991. The Big Six. New York: Simon & Schuster.
44.
SwaineRobert. 1946. The Cravath Firm and Its Predecessors: 1819–47. Volumes I and II. New York: Ad Press.
45.
TeeceDavid J.PisanoGary, and ShuenAmy. 1992. “Dynamic Capabilities and Strategic Management.” Unpublished Paper, University of California at Berkeley.
46.
WagnerDiane. 1986. “Variations on the ‘Of-Counsel’ Theme.”California Lawyer, July, pp. 59–62, 64.
WhitfieldRobert. 1988. “Lateral Recruiting and the New Economics.”Chicago Daily Law Bulletin, Sept. 22, p. 2.
49.
WholeyDouglas. 1985. “Determinants of Firm Internal Labor Markets in Large Law Firms.”Administrative Science Quarterly, Vol. 30, No. 3 (September), pp. 318–35.
