Chicago law firms are mimicking national trends that have partners increasing their equity stakes in the wake of the Great Recession.
Two banks that market financial services to law firms report hefty increases in financial contributions from newly minted partners at some firms in Chicago and the Midwest since 2008. The rise has been roughly parallel to a fall in firms’ bank debt, say bankers from Citi Private Bank Law Firm Group. And some partners are borrowing to meet their increased obligations.
Average capital contributions rose to $350,000 in 2014 from $200,000 in 2008 for partners at the 14 Chicago firms that share data with Citi.
Among another approximately 10 Midwestern firms that submit data to Wells Fargo Legal Specialty Group, average capital contributions rose to $298,000 this year from $193,000 in 2007.
There is “somewhat less focus on firm borrowing, and more of a focus on that individual partner,” said Onjada Haggard-Richardson, head of Citi’s law firm group in Chicago. Capital contribution requirements generally hover around 30 percent of a partner’s budgeted compensation.
The $350,000 contribution in Chicago is still less than Citi’s nationwide average of $383,000.
Increasing capital contributions is primarily a trend among large firms, which typically use the money to finance operations, said Mitchell Roth, managing partner at midsized law firm Much Shelist in Chicago.
Some have switched to a single-tier equity partnership structure to access more of those funds. DLA Piper made the move in 2008; Baker & Hostetler, a Cleveland firm with 24 attorneys in Chicago, did so last week.
At the local office of Nixon Peabody, contributions are rising following the merger that brought the Boston-based firm into the Chicago market. The 90 lawyers at legacy firm Ungaretti & Harris joined a now 700-lawyer organization that is proud of its minimal debt. Now the Chicago partners are giving a greater percentage of their compensation to the firm, though the change is being phased in over time.