Up-or-Out: McKinsey Raises the Pressure, In Contrast Some Law Firms Ease It through Nonequity Partner Tier

"McKinsey & Co. warned some US consultants last week they are running out of time to win promotion, raising the 'up or out' pressure on staff as the global consulting industry struggles." - Abovethefold Article in Bloomberg, March 27, 2024

This is yet another sign that once-iconic McKinsey is a professional services firm in trouble. One challenge is overcapacity of manpower. It has also warned about 3,000 consultants about "concerns" regarding their performance. 

In addition to the overall slowdown in management consulting, McKinsey faces scrutiny from myriad sources about its client list including assignments with China and Saudi Arabia. There also has been that hatchet-job book "When McKinsey Comes to Town." The most damning aspect of the expose is that former employees dump on it. Posts on the professional anonymous network Fishbowl Consulting aren't optimistic about a turnaround at McKinsey or at other players in that sector.

In contrast, a growing number of elite law firms have gotten smart about how to reset the up or out mandate. Most recently Cravath and Paul, Weiss have created the nonequity partner tier to absorb valued senior lawyers who probably wouldn't make it to the equity partner tier. In that way, the law firms hold onto the experience and institutional memory of those lawyers. They have somewhere to land internally in the up or out system. Sure, they could have a shot at becoming a shareholder rather than an income partner. 

In addition, much of the law firm sector has bifurcated. There are the ones with record Profit Per Equity Partner despite slowing demand in the sector. Essentially they are in a high growth mode, particularly through geographical expansion. And there are the ones, such as being one-trick ponies in tech, which can't pull out of a downward spiral. One option is merging. 

The buzz is that management consulting will never return to its glory days. Those left standing will probably be the MBB. That includes McKinsey as well as BCG and Bain. But they might cease to be power brands.

The future for the law firm sector seems to be that mega firms which have the resources ranging from financial to talent to expand will dominate the business. Others could actually go out of business. That had been a prediction back in 2021 by Paul, Weiss chair Brad Karp in an interview with Bloomberg News. That New York based law firm itself has broadened its presence in London and Houston, Texas. It also has operations in Brussels. 

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