Former Baker McKenzie partner and ex–Barclays MD of Litigation, Investigations & Enforcement, Jonathan Peddie, joins Scott and Elizabeth to unpack his article, The PEP Trap—The Evolving Law Firm Time Bomb, critiquing the legal industry’s obsession with Profits Per Equity Partner (PEP), why it distorts behaviour, and how better investment in people, strategy, and non-legal functions builds healthier, more sustainable firms and client relationships.
Key Themes
- PEP isn’t the whole picture: It’s a narrow, short-term metric that can hide weakening demand, under-investment, and strategic drift.
- Invest beyond the fee-earners: Firms thrive when HR, Finance, Compliance, BD, Marketing, and Operations are resourced and respected—not treated as expendable “cost centres.”
- People > billable hours: Coaching, feedback, and development time compound into quality, loyalty, and profitability—even if they reduce short-term billables.
- Strategy vs. execution: Year-to-year profit distributions bias firms toward last year’s revenue sources and away from long-horizon investments.
- Measure what matters: Track demand, revenue quality, matter mix, and relationship depth—not just PEP—over 3–10 year horizons.
Memorable Quotes
- “It's a very short term method of comparing one law firm with another. And PEP is used by lawyers deciding where to go next, but it's also much more heavily used by law firms to advertise how successful they are against each other for recruitment and publicity purposes.”
- “In a law firm the partners and the associates are, they think, the business. My point is no, the whole business is the business, of which the lawyers are the lawyers, And yes, of course, producers are critical. They are the makers of units of cost to time that are sold to clients. But the marketing of them, the management of them, the employee relations, HR, the finance, the doing of all of the things that are not legal services are critical to optimising them.”
- “Law firms should be open to the idea that lawyers should sacrifice time that they might be spending fee earning to optimise their business. But they won't do it. They'll do it because they have to, not because they want to. And that's a fundamental problem with the law firm model because the expectation of hours is such that it is really dangerous to spend your time developing others.”
- “How do I make you better at what you do? And what do you get wrong? And how can we develop you? And how can we optimise you? And if you do that, the net effect is that all of you, if you're running a law firm, all of those people will be much higher productivity and much more lean and efficient and effective and much more attractive to the client, the profits will look after themselves.”
Important Insights & Actionable Takeaways
- Red-team your metrics: Keep PEP on the dashboard, but never alone. Pair it with demand trendlines, average matter value, matter count, and % of work that appears on clients’ board risk reports.
- Fund the “control environment”: Apply to your firm the same governance standards you advise clients on—strengthen Compliance, Risk, Audit, HR, Finance, BD/Marketing.
- Institutionalise development: Protect recurring 1:1s, coaching, feedback, and skills training as part of partner KPIs; treat non-billable development time as an investment line, not leakage.
- Succession = access to “gold” work: Maintain senior, board-level relationships and mentor successors early to preserve trust for bet-the-company matters.
- Stop annual myopia: Ring-fence budget for 3–10 year priorities (tech platforms, data, client experience, leadership pipelines) so execution doesn’t drown strategy.
- Re-balance partner economics: Don’t hollow out equity so far that you lose senior relationship capital; align remuneration with quality, collaboration, and client outcomes, not just hours and origination.
- Career design for juniors: Seek variety early, demand feedback, and learn across environments (private practice ↔ in-house) to build judgment and client empathy.
You can read The PEP Trap—The Evolving Law Firm Time Bomb here: https://www.linkedin.com/posts/jonathan-peddie-2b4b4215_the-pep-trap-activity-7361048250935566336-5ntT?utm_source=share&utm_medium=member_desktop&rcm=ACoAAAawwUkBitHoNUDvWsruZI0-G2BsPQ6Hs80
You can contact Jonathan on LinkedIn: https://www.linkedin.com/in/jonathan-peddie-2b4b4215/
