There is no reason to pick on any law firm for collecting Paycheck Protection Program loan proceeds, not if all the firms that could got that money.
Looking through a list of the top 25 law firms in the Twin Cities, the only Minnesota-based firm that doesn’t also appear among the Minnesota recipients of PPP loans seems to be Dorsey & Whitney LLP.
Dorsey did not choose to turn down taxpayer money. It has more than 500 employees in addition to its lawyers, so it’s too big to be eligible.
The PPP program was part of the federal response to the economic pain of the COVID-19 pandemic, the money coming as a forgivable loan, with some strings, through the Small Business Administration (SBA). They were processed and funded through banks.
The original allocation of about $350 billion in PPP loans was gone in days back in April, but the SBA only released information on borrowers this month. The data finally appeared in broad ranges of amounts for loans in excess of $150,000.
That’s when the public could see just how much went to law firms. At least $1 million went to more than 1,500 firms in the country and about three dozen in Minnesota, so the loans were not exactly going to storefront legal offices.
About a quarter of the 200 largest law firms in the country received them, as tallied by the American Lawyer, with total loan proceeds of at least $218 million and up to $445 million.
There was a clear tone of having just uncovered a scandal in this news coverage. The Wall Street Journal pointed out that each of the large law firms that it named at the top of its PPP loan article all had profits per partner of at least $1.2 million in 2019.
Among those firms in the top 200 that took PPP money was Robins Kaplan LLP of Minneapolis, ranked as the 152nd biggest law firm in the country. Its profits per partner in 2019 came to $1.56 million, according to the American Lawyer.
There’s always a lot of judgment tossed around about who gets taxpayer help, with the underserved largely boiling down to people who don’t seem to work as hard as me or who are a lot richer.
A lot of taxpayer funding went to big financial firms after the financial crisis of 2008, for instance, which was almost certainly the right policy choice even though it was hard not to resent the bankers afterward.
There were eyebrows raised about other PPP loans, too, particularly for a funding program designed for small business to keep payrolls intact through a crisis. There were country clubs and private schools among the borrowers, along with well-endowed arts organizations. And a name that leapt off the screen in a headline about musical groups was the venerable rock band the Eagles.
Band member Joe Walsh has been singing for more than 40 years that he already owned a mansion he didn’t even live in and a Maserati car he didn’t drive.
Yet the Eagles had to suspend their latest tour, the two shows in St. Paul are now on the calendar for October of next year. And the Eagles apparently used the money to preserve jobs as it could when the performances as planned needed more than 70 musicians up on stage in addition to other staff.
That’s sort of the point of law firms seeking loans, too. It wasn’t about making sure the rock stars kept getting paid but ensuring the crew members did.
While April seems a long time ago already, back then there was an initial rush to apply for PPP loans. The near-term outlook looked very bleak amid stay-in-place orders and cascading job losses, although hopefully the worst would soon be over.
At the end of the first quarter, law firms were looking at a 15% reduction in second-quarter revenue, the median slide in demand that showed up in surveying a broad section of law firms by a banking unit of Citigroup. The firms also were expecting clients to stretch out paying their bills.
Law is one of those service businesses that have what’s called a “low operating leverage” model. That means attracting a lot of new client work and revenue to a prosperous firm won’t generate big additional profits to the partners because it will also take additional lawyers and staff to do the work.
But shrinking revenue with the same staff hurts right away. Billable staffers could end up with time they can’t bill to any clients. And the office won’t have shrunk.
The law firms responded as you would expect, cutting the monthly payments for partners, salaries for other staff along with measures such as cutting back the summer internship programs.
Given its high profile, Dorsey & Whitney was among the long list of prominent firms nationally that made news for paring back costs, including layoffs of some staff, pay cuts and delaying the start date of new hires.
Then the second quarter turned out to be not as bad as once feared, with some practice areas doing quite well solving problems for their clients. On the other hand, at least nine of those top 200 firms that got PPP loans have still laid off people, cut pay or both, the American Lawyer reported this month.
And the pandemic recession increasingly looks like a much longer slow period in the economy than once hoped, as the spread of the virus has accelerated in much of the country.
Some big banks announced huge additions this week to their reserves for loan losses, a really strong suggestion that they fear that the worst part of the recession still lies ahead. The nation’s biggest bank, JPMorgan Chase & Co., now expects a double-digit unemployment rate well into next year.
Of course, a resurgent pandemic and stalling economy must be worrisome for many of the thousands of other American organizations on the PPP borrowers list that have nothing to do with the legal-services business.