Simpson Thacher Bucks Industry as Equity Partner Ranks Swell

Welcome back to the Big Law Business column. I’m Roy Strom, and today we look at a law firm that grew its equity partner ranks by more than 10% last year—and what that might say about the proliferation of nonequity partner tiers. Sign up for Business & Practice, a free morning newsletter from Bloomberg Law.

In the past I have praised a simple metric as one of the most important law firm financial statistics. It’s also the one law firm statistic that hasn’t grown at a ridiculous clip in recent years: Equity partner headcount.

The tepid growth in lawyers who get a slice of earnings is partly due to firms limiting the size of this group to boost average partner profits. As equity shares have become more valuable, letting more members into the rarefied group has also become more expensive. It’s a trend this column has derided as short-sighted in the past.

So, it’s fair to celebrate when a firm bucks the trend.

Simpson Thacher & Bartlett last year appears to have blown away the industry in terms of its equity partner growth. The firm added 25 equity partners last year to 229, a rise of 12%, The American Lawyer reported.

It may not sound like much, but compared with the firm’s—and the industry’s—recent history, it is unusual.

Simpson’s equity partner tier had risen by an average of less than 1% a year for the past decade, AmLaw records show. It took the firm 14 years to increase its equity partner ranks by 25 members—from 2010 to 2024.

Simpson was not alone with such an anemic track record. In fact, it had the same equity partner growth rate as the top 50 law firms by revenue, on average, from 2011 to 2024—15%.

The firm’s equity partner growth is relevant because Simpson has a significant nonequity tier. The lawyers in this tier have the title of partner though don’t receive a share of profits. Almost every major firm has created such nonequity tiers.

Simpson’s nonequity partnerships have grown considerably since the firm introduced them in 2018. The tier had 149 lawyers last year, nearly triple the number since 2022.

Many, or most, in this group won’t become equity partners. But it’s worth noting that by growing its equity tier, the firm is signaling that there is a decent chance of promotion.

Still, it’s not clear how many of the new equity partners Simpson promoted from the nonequity tier. (The firm has been on a lateral partner hiring spree.) A spokesperson did not respond when asked about this, and the firm said chair Alden Millard was not available to discuss this column.

In earlier generations, of course, all lawyers with a “partner” title would have profit stakes in their firms. By receiving some of the firm proceeds, they would share in the upside during heady growth years such as those of recent years rather than receive just a fixed salary.

That has led to fears that the position would become a waystation to departures. And that will be the outcome for many of these lawyers—at Simpson and elsewhere. Surveys show nonequity partners are significantly less satisfied with their jobs than their higher-paid equity bosses.

But if you take law firm leaders at their word (which may be asking a lot for a skeptical group), it doesn’t have to be that way.

Law firm leaders have said the position is a way for firms to have more flexibility in the talent wars while also taking more time to decide who is right for entry into the (real) partnership.

When Cleary Gottlieb introduced the tier, managing partner Michael Gerstenzang told me it would “create more opportunities for people to become equity partners.”

It’s not necessarily straight-line thinking, but there’s a route for that to be true. If a nonequity tier helps a firm become more profitable, it can afford to be more welcoming in its equity partner ranks.

How does a nonequity tier help a firm become more profitable? One answer is a concept called leverage, which I’ve said before goes a long way to explain why firms introduce the tier.

Leverage is the number of lawyers working underneath every equity partner. If every equity partner has four salaried lawyers working for them, they will generally be less profitable than an equity partner overseeing six attorneys.

If some of those attorneys happen to be “partners” with higher billing rates? All the better. So, a leverage number of six is preferred to four. That’s the rationale for describing the nonequity tier as a cash machine for law firm partners.

Simpson has boosted its leverage ratio and profitability since introducing its nonequity tier. Leverage has risen from four in 2018 to nearly seven last year. Meanwhile, profits per equity partner have skyrocketed—more than doubling to nearly $8.6 million in that same time period. By comparison, profits per equity partner grew by about 55% in the years before Simpson adopted a nonequity tier from 2010 to 2018.

For now, firm leadership is likely celebrating its decision to introduce nonequity partners. If Simpson promotes more nonequity lawyers in the coming years, those lawyers may begin to see wisdom in the move, too.

Worth Your Time

On Sports Lawyers: A successful group of sports deals partners have left Hogan Lovells, departing to some of the largest, most profitable firms that have been desperate to service private equity clients diving into the sports world.

On Sullivan & Cromwell: The New York firm is making a name for itself in the AI infrastructure boom, Meghan Tribe reports.

On Private Equity and Law Firms: A California bill that prohibits private equity firms, hedge funds, and other corporate investors from directing or influencing the practice of law advanced to the state senate this week, Emily Siegel reports.

That’s it for this week! Thanks for reading and please send me your thoughts, critiques, and tips.