How to solve the legal employment crisis

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The cover story in last week’s Economist got me thinking about the looming crisis in lawyer employment. “When jobs disappear” paints a bleak picture of a rising wave of unemployment worldwide that will hurt more and last longer than past employment crises. The credit crunch has forced companies to cut costs rapidly, while the massive deleveraging underway in most consumer economies means that the eventual recovery will proceed slower and will crest lower than we’ve become used to. But the key point is this:

[W]hen demand does revive, the composition of jobs will change. In a post-bubble world, indebted consumers will save more, and surplus economies, from China to Germany, will have to rely more on domestic spending. The booming industries of recent years, from construction to finance, will not bounce back. Millions of people, from Wall Street bankers to Chinese migrants, will need to find wholly different lines of work.

In its editorial leader, the magazine drives the point home further:

[M]any of yesterday’s jobs, from Spanish bricklayer to Wall Street trader, are not coming back. People will have to shift out of old occupations and into new ones.

We’ve been bingeing on reports of law firm layoffs for a few months now, and there’s every reason to think those reports will continue through 2009. But we haven’t spent as much time looking at the big picture: there is a growing population of lawyers whose jobs are gone for good, and a larger group of lawyers whose underlying business models are fast becoming obsolete.

Many of the junior associate and staff positions cut in the past several months won’t be filled again. We’ve always known that low-level associates billed out at a handsome profit by midsize and large firms would survive only as long as clients continued to tolerate the law firm business model and its rank inefficiencies. During the recession, clients just won’t be able to afford that; when the recession finally eases, they won’t be willing to afford it, hardened by the lessons meted out in the financial wilderness. Similarly, legal support staff still carry out many automatable and outsourceable tasks. By the time the recession ends, those tasks simply won’t justify a person sitting in an office or cubicle adjacent to a lawyer.

You could actually argue that there hasn’t been a “market” for many of these positions, in the sense of a financial justification or imperative, for some years now. Firms could be as inefficient in their workflow as they liked, because they could always pass the cost of that inefficiency on to the client, who would put up with it for reasons unknown. But the recession is bringing all that to an abrupt halt, and firms suddenly are having to either rectify those inefficiencies or absorb their cost. The results are plain to see on the unemployment line, which figures to get longer before it’s all over.

That’s all bad enough. But the same fate awaits other legal jobs still to disappear, including some held by senior associates, partners, and even solo and small-firm lawyers. There will still be a market demand for these positions after the recession. But the level of demand will be lower because the economy figures to putter along below its recent peak for as much as a decade, so fewer such lawyers will be needed. Moreover, the nature of what the market demands of these positions will be so different from what it is now that many lawyers will be unable to meet it.

During the recession, we’re all going to learn to do more with less. Cost-saving efficiency and “good-enough” quality will be the twin standards by which purchases of all kinds will be made, including legal services. Lawyers have never needed to be efficient and they’ve always preferred an exhaustive answer to an adequate one; they’re not going to adjust easily, and some won’t adjust at all. Clients also will need their lawyers to focus more on high-value services that demand advisory skills and judgment, and less on than repetitive tasks that require boxes to be ticked off and i’s to be dotted. That’s going to be more than a business model challenge; that’s a new way for many legal professionals to view themselves and their functions, and again, some simply won’t  have the wherewithal to meet the new expectations.

So there are two separate problems that need imminent addressing:

1. A legal employment crisis. Before it’s all over, tens of thousands of lawyers and legal support professionals will have lost their jobs and will have little prospect of finding replacement positions (the Economist reports that the chances of an unemployed American worker finding another job soon are the lowest since records started being kept 50 years ago). Younger lawyers are deep in debt and short on experience; older lawyers have families to support in the teeth of an economic meltdown and are too highly specialized to be easily retrainable and transferable to other professions or industries. What will they do?

And more importantly for the profession, who will help them do it? Governments are preparing aid and retraining packages for workers in manufacturing and other hobbled industries; who’s doing the same thing for lawyers whose careers have been cut down by the financial crisis and the recession it spawned? Whose job is it to do that? Law societies and state bars exist to govern the profession, not to care for its members. Bar associations look out for lawyers, but they are strapped for resources, and not every lawyer is a member. Law schools lose interest in their students shortly after graduation. Who will help meet the unemployed lawyer crisis?

2. A legal training crisis. As heart-wrenching as the fate of jobless lawyers is, an arguably bigger problem is arising profession-wide: the adjustment to a new type of legal career. Technology, globalization, and extra-professional competition have already damaged or even eviscerated many types of legal careers. It doesn’t take long to count all the residential real estate lawyers in jurisdictions where title insurance has taken hold, or the thriving general practices anywhere (but especially in small towns). Estates and family lawyers were already feeling competitors’ breath on the back of their neck. But when the recession really takes hold, few legal positions will be safe: who, for instance, will be able to afford to go to trial? Pro se representation is now a growth industry.

The types of work for which lawyers will be in demand and from which they can make a living are changing, and no one really knows into what. But our law school, bar admission, and continuing education systems continue to grind along churning out lawyers suited for 20th-century practice. Practitioners have complained for years that law schools don’t prepare their students for practice; but the irony is that even if every law school changed overnight to become full-scale career preparation institutes, it still wouldn’t help that much. That’s because no one can say what market demands and consequent skills will be required of lawyers in the year 2015, 2025 or 2035. It’s a serious problem for education generally (the linked video is incredibly insightful), but no less an issue for the legal profession for that.

So we have an immediate problem — a growing crowd of lawyers whose jobs aren’t coming back and whose interests have no obvious advocate — and a mounting crisis — a fundamental change in the nature of legal services for which our profession seems largely unprepared. Are there any roads leading out of this morass? I think there’s at least one: opening up the deep and largely untapped potential of the latent legal market.

Several commentators have pointed out the unrealized market of millions of people who, as Richard Susskind memorably expresses it, need a fence at the top of a cliff, not an ambulance at the bottom. Preventive legal services — customized legal checkups and health regimens that anticipate and reduce the occurrence and impact of legal problems — is the way of the future for many lawyers. Whether online or in person, for corporations or individuals, bespoke or varying slightly from a standard construction, these kinds of services promise the dual benefit of using lawyers’ most valuable skills as well as helping achieve the larger social good of a more legally informed and prepared population. A legal problem may be solved in months or weeks; good legal health requires a lifetime of wise legal advice.

If you’re a person, organization or corporation looking to catch the next wave, here it is: open up an institute dedicated to retraining current lawyers and training prospective ones to provide preventive legal services to latent legal markets (here’s a great model). It’s not enough simply to teach lawyers to carry out their current practices more efficiently and effectively; we need to start training them in the ways of an entirely different type of legal business from that which now holds sway in the profession. We need lawyers who can not only see and analyze legal problems that have occurred, but who can anticipate and reduce the risk of problems that could or will occur if left untreated. We need fewer antibiotics and surgeries in the law; we need more flu shots, vaccines and diet-and-exercise regimens.

A legal profession centered around the prevention of problems first and the resolution of problems second would be a better, happier, healthier and more socially beneficial profession than the one we have now.  We’re facing both a drop in the demand for traditional legal services and the rise of a jobless lawyer population ready and willing to try something different. There may be no better time to give this approach a legitimate shot.

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13 Responses to “How to solve the legal employment crisis”

  1. Doug Cornelius

    Jordan –

    I am not sure that the jobs won’t come back and I am not sure that the currently displaced lawyers will be there.

    I remember back to the late 90s when associate salaries began taking off. Senior and midlevel associates were needed to shoulder the increasing workload. But they were not in the firm and they were hard to find outside the firm.

    If you look back five years early in the hiring cycle, firms had dramatically cut back on hiring during the economic downturn in the early 90s. Five years later when they needed the workforce, it was not there. As a result salaries took off as a means of retention. That trend continued through the current economic cycle (with a blip for the dot-com bubble.)

    Big law firms are wiping out their classes of senior associates that would come to fruition in several years. If you assume the economy is back up to speed in that time frame, many big law firms are going to be caught short-staffed.

  2. Matt Kelly

    This is certainly a thought-provoking commentary, and I agree that many faceless lawyers– the ones in the bottom 80 percent of the class at the legions of second-tier law schools– are in for a very rude awakening. But to survey your current circumstance and say, ‘No, this time it really is different’– that’s a very risky and dubious assertion to make.

  3. Jordan Furlong

    Doug, the widespread associate cuts are definitely reminiscent of the early ’90s, and many firms lived to regret those moves. The fact that many firms are now repeating those decisions could speak to their having short memories, though my sense is that many firms remember those consequences all too well. Another possibility is that current circumstances are so dire that firms are willing to bite the associate layoff bullet, reasoning that the alternatives are far worse. The now-growing ranks of firms drastically cutting partner ranks and remuneration tells me the latter explanation may be more robust than previously thought. The broader question, I think, is whether, by the end of this recession and the malaise likely to follow it, the traditional business model that made these jobs possible will still be extant.

    I strongly suspect that over the next few years, the efficiency mantra will drive higher rates of adoption for automation, outsourcing, and real KM investment in firms. If traditional firms do somehow ride out this storm without at least starting to make some fundamental changes, then they will indeed need to replenish their associate ranks — but it will seem a price worth paying when remembering how easily other firms fell apart in the panic of ’09. And if big change does occur — primarily, if high-billing low-skilled associates reviewing documents at $160K/year actually are gone — then they’ll just have started the adjustment process earlier than most.

    Matt, it probably is risky to assert that this time things are different — I can’t speak to dubious, but I do note that the profession to my knowledge has not seen anything like this before. I’d contend, though, that there is also risk — maybe a lot more — in surveying these circumstances and saying there actually is nothing really different this time. Either way, firms have to grapple with risk and make tough decisions — either way, there are significant downsides, and that can’t be avoided.

  4. jason

    what do you mean by this?

    It doesn’t take long to count all the residential real estate lawyers in jurisdictions where title insurance has taken hold…

    Thanks

  5. Jordan Furlong

    Jason, what I mean is that title insurance, a rival service from outside the legal profession, has proved an incredibly powerful competitor to traditional real estate law practice. Residential conveyancing practice an example of a legal practice area that was faced with a massive disruption to its competitive environment and generally didn’t cope well. My thesis is that a similar disruption is barreling its way towards much of the rest of the profession.

  6. Doug Cornelius

    Jordan –

    I don’t know if there will be a seismic change. Since my switch from law firm to in-house, my flows of information have decreased. But I do not hear many stories of GCs asking for things to be done differently.

    I hear lots of stories of GCs asking for bigger discounts on hourly billing. This seems ineffective to me. You have fewer associates around to do the work and you have partners hoarding work. So the GCs may be getting the percentage discount, but it is a discount from a higher effective billing rate. In the end the GC cans say they got the discount, but they still end up with higher total bills.

    Until hourly billing becomes the alternative billing arrangement I don’t expect any changes in the way law firms operate.

  7. Jason Wilson

    Doug,

    I don’t have a dog in the hunt relative to GC’s, but I have a number of friends who are, and many of them realized even before the downturn that there were numerous tasks (e.g., employment issues) they could handle in-house for a better ROI than farming out. I don’t hear this talked about much, and honestly I expect that in this market, those folks will be looking at the possibility of expanding internally (again, strangely reminiscent of the 90s). Perhaps we’re headed for another cycle of larger in-house legal departments?

  8. George Wilkinson

    Jordan

    A sobering assessment. My experience of in house in the UK (as a transactional lawyer I am one of their suppliers) is that where they can, they are moving away from the billable hour. This will take time, and there are always going to be jobs where hourly billing will be the basis of charge ~ but there has been a very noticeable shift.

    Over here we were already facing the perfect storm: a legal services marketplace about to be opened up to non-traditional providers, a demographic where the profession has doubled in size (in private practice) in a generation, increasingly sophisticated clients (particularly at the top end) and now recession. Wow!

  9. Firehorse

    Risk, risk, risk! At the core of all of our recently realized problems is the unwillingness, inability or incapacity of organizations and individuals to recognize, estimate and mitigate risk. Jordan’s article suggests that the legal profession can find a niche farther up the chain of risk management by offering “preventive legal services”.

    Wow! How will they ever sell that concept to the public?

    I think that lawyers are seen primarily as fixers of problems after the fact. They are also co-dependents and beneficiaries of the bureaucratic methods devised by legislators to mitigate social and economic risk through laws, procedure, regulation, permits and official filings of all kinds.

    Things happen in one’s life. If I get arrested and charged, I will hire a lawyer to work to get me freed. If someone sues me, or owes me money, I will hire a lawyer to defend my wealth. If I want to write a will or purchase a house, I will hire a lawyer to save time and to reduce my risk of missing a form or filling one out incorrectly. I could, theoretically, do virtually all of these tasks myself, but instead I hire a lawyer, trusting that they know how to do it right. I am buying the knowledge and skill required to pilot and defend my interests through the legal system.

    That’s why a lot of people are down on the legal profession: the environment in which lawyers operate to mitigate risk on behalf of clients can seem rather artificial, bureaucratic and obstructive. Particularly in the case of wills and basic property law, lawyers are paid to construct instruments of risk management that should be standard and freely available (thus the success of published kits for wills and divorce). I still wonder why I had to sign about 84 separate documents to buy my house. Could there not be a standard, all-inclusive form requiring no more than the details specific to the transaction plus one sample of each signature? But I digress…

    The more practical questions are these:

    How will the legal profession sell the idea of additional “preventive” services when many of the existing “reactive” services deliver questionable value for money?

    How will they convince people to pay for an extension of services whose cost/benefit equation will be predicated on the construction of a hypothetical risk (you might get sued, arrested or swindled) instead of dealing with an imminent risk (being sued, on trial, or out money already)?

    How will the legal profession estimate hypothetical future risk? Insurance companies hire actuaries, who use hard stats to estimate how many houses will burn down, how many car accidents there will be, and how many people will die or get a terminal illness in a given year. They price accordingly and people generally accept that the risks covered are real. How would lawyers put a price on a future legal risk? How will the value of these services rendered be measured by the client? How can you know the value of a risk that has been prevented?

    And isn’t the field of risk management already dominated by other powerful professions, such as banks, insurance companies and accountants? Granted, considering what’s happened to the economy, they don’t seem to have done a very good job. Is bringing in lawyers to innoculate clients against risk a better solution than insisting that bankers, insurance companies and accountants operate ethically and competently?

    Overall, I think that the money and trust invested in a lawyer during a crisis will seem to most people to present better value than hiring one to keep you out of potential trouble.

  10. Firehorse

    Oh, and another thing:

    I’m pretty sure that all of the financial firms, mortgage brokers and insurance companies that have come to ruin recently had lawyers who helped them assess the legal risks involved in leveraging and sub-prime mortgages. What good did that do?

    The problem in our society is a general lack of moral and ethical integrity, not a lack of legal services. We need lawyers who will advise clients on the right and ethical course of action, not just help them devise ways of doing business that, while not technically ** illegal **, could prove ruinous to them and to society at large.

  11. Ay Uaxe

    I entered law school during a regional economic boom and graduated as it went bust–that was over 25 years ago, so I’ve been watching and working in the legal community, both as an assistant DA and as a small firm attorney long enough to have a little perspective. Bottom line is that law schools and bar associations, in particular the American Bar Association that purports to “accredit” law schools have pushed an agenda of using the legal profession as a tool of racial and gender affirmative action with little consideration for how increased numbers and decreased standards for admission and graduation of law students will ultimately affect the profession. In case no one has noticed, when law schools began admitting more “free-ride” affirmative action candidates, they also found ways to admit more “full-payers” to carry the load. The numbers have grown to meet the schools’ financial and social goals, but not the legal market.

    The AMA and med schools have had this figured out for a good century–they sharply limit the numbers of graduating MDs by a number of means. Consequently, there is a manageable shortage of doctors, ample opportunities for nursing and other para-medical careers and their economic clout is massive and undiluted.

    Meanwhile, law schools are churning out more alleged lawyers every year than the market can absorb. Many go on to other careers or become “bottom feeders.” Some of the latter get very lucky and very rich–at grave cost to the profession. But the broader result is that the economic clout of the legal profession is horribly diluted. There are many many JDs doing paralegal work and less. The market for clerks and paralegals is not at all what it should be.

    It is up to the ABA and law schools to tighten standards, recognize that progress doesn’t mean just growing numbers generally or in any particular demographic. Progress lies in improving the quality of the profession year by year, while ensuring that those who go to and finish law school have the skills and the opportunities actually to be responsible lawyers–not just parasites or piranhas. Law schools must tighten their admissions and stop flooding the market with under-qualified, alleged JDs.

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    What is economy meltdown , how can we use cost concept to solve the problemof economy meltdown.

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