The disappearing associate

Well, that was ugly. In case you missed it, or you need a summary, here’s what happened on a day (yesterday) that the ABA Journal called Black Thursday and Above The Law readers have decided should be named (a little early) the Valentine’s Day Massacre:

This doesn’t include announcements of other cost-saving measures, like more salary freezes and Luce Forward rescinding its offers to new graduates and cancelling its 2009 summer program. If there’s one certainty you can take from this very unhappy day, is that this is just a sampling of what’s to come. (This morning, Peter Zeughauser agreed: “There will be more. Materially more. I’m aware of some big ones coming up.”) We’re at the beginning of this process, not the end.

And what process is this? Well, as previously noted here, it’s of course the marked decrease in client engagements; but it’s also the fallout from the 2008 financials finally becoming clear and the dire need for firms to keep partnership revenue and marketplace confidence as steady as possible. But I’m also coming to think it’s about something else: a serious, gut-check re-evaluation of the whole purpose of law firm associates. I count 297 lawyer firings in that list above; so far as I know, not one of them was a partner.

It’s becoming more evident that we’re not just looking at a normal recession with the usual coping tools (layoffs, salary freezes) from law firms. We’re looking at an extreme recession  (or worse) that happens to be occurring at a time of particular vulnerability for law firms and an unprecedented willingness or necessity to reconsider traditional approaches. With every brutal update, the good folks at Citi and Hildebrandt are speaking more plainly:

[T]he current economic downturn can be viewed as an opportunity to make some fundamental changes in the way law firms are structured and do their business – changes that are not only long overdue but that will also serve the profession well as it emerges from the current recession. …

Among the measures that Citi and Hildebrandt strongly urge is the abandonment of lockstep compensation for associates:

In the current economic climate, it is irrational to have half or more of a firm’s highly compensated lawyers on largely seniority-based salaries…. Firms that have not already done so should seriously consider modifying their associate compensation structures to allow a substantial portion of compensation to be tied to individual performance in support of the firm’s goals and strategy. Firms should also be willing to consider moving away from locked-step associate advancement (and compensation) toward competency-based models. The legal profession is one of the last industries still to cling to this outmoded seniority-based method.

This would not be an unprecedented measure, of course. But as sensible a move as this would be for many firms, events are overtaking it. Some firms are already in the uncomfortable position of having clients refuse to pay for work billed by first- or second-year associates, on the premise that these novice lawyers add inconsequential value to the task at hand and that the client is not going to pay the law firm’s on-the-job training costs. A few others are facing up to the reality that Indian firms can and will complete associate-level tasks for dimes on the dollar, or that new software can streamline and automate the due diligence and document review process on which so many associate hours have been billed.

What we’re looking at here is the real possibility that the law firm associate, in its current form, will not survive this crisis. As the number of associate billable hours clients are willing to pay declines, so too does the need to develop and maintain these vast grazing herds of associates within firms. Partners are going to have to start thinking seriously about what purpose associates serve when they no longer constitute the bottom two-thirds of the profitability pyramid. If you can’t sell the billable hours they’ve been churning out, what do you do with them? What, exactly, is the law firm associate for?

The standard answer, of course, is that associates are future partners in training — that’s what the recruitment brochures maintain. That might be more convincing if attrition — natural and otherwise — didn’t slice off about three-quarters of all lawyers between first year and the partnership committee. It might be more convincing  if more firms had a rational system for identifying, assessing and hiring associates, actively trained those associates from day one in the firm’s financial and culture realities, and had a strategy setting forth how many future partners are expected to come up through their own ranks as opposed to through lateral hiring.

Since all of these things are true at very few firms, and none of them are true at many, we’re left to conclude that as a general rule, associates are hired to be billing machines. If that machine stops working, then we have a serious problem.

Paul Lippe of Legal OnRamp noted in an American Lawyer piece:

[T]he recession will last through 2010. Law firms will use this period to substantially restructure, and beginning in 2011, things will start growing again. While there’s a lot of detail and nuance around the form this restructuring will take, it can be described in simple terms. A typical law firm bill in January 2011 will generate the same dollars for partner work as it does today, but it will generate half the revenue for associate work.

Paul’s article is titled in part: “The End of Leverage.” “Leverage” in law firm terms means associates. It’s not hard to see where this is taking us.

And in truth, not every law firm has been slow to figure this out. Calgary energy law boutique Thackray Burgess has 29 partners and 0 associates. The firm employs more than 20 “consultants,” independent contractors who look like associates but are paid by the hour, work however many hours per year they feel like, pay the firm a fee to cover their overheads costs and a percentage of the hourly rate they charge their clients, and keep the rest themselves. I don’t love the hourly billing aspects of this setup, but the idea of associates as independent contractors, retained for what the client requires and no more, makes perfect sense. Axiom Legal and Virtual Law Partners have also re-engineered the traditional associate position. I’m sure there are other examples, and more will come.

By the time this recession runs its course — and no one really knows when that will be — both client expectations about the manner in which rote legal work is done, as well as the technological and offshore solutions available to do that work, will be so different from today that there’ll no be going back. The idea that a firm can employ dozens if not hundreds of inexperienced lawyers primarily to generate revenue on low-value work will eventually be seen as a relic of the 20th century. Firms will still hire and retain associates — new partners, even laterals, have to come from somewhere — but there’ll be far fewer of them, they’ll be selected, evaluated and trained far more systematically, and they’ll be engaged, billed and compensated much differently than they are today.

We should make no mistake about how profound a change this will be, nor believe that its ramifications will be limited to big law firms. To a growing degree over the last decade or two, large multi-service law firms in urban locations have been completing the job of legal education that law schools and governing bodies have been haphazardly starting. We can complain all we want about overpriced, underskilled associates in firms; the fact is that these firms and their clients have been subsidizing the bar admissions process, providing the last three years of what amounts to a seven-year law degree. When modern marketplace economics finally puts an end to this practice, who will pay new lawyers with few skills and massive law school debts while introducing them to law practice? Who will be responsible for completing lawyers’ education and training them? We’re going to need answers to those questions, and fast.

Like I said, we’re at the start of this process, not the end. The fundamental restructuring of the law firm business model that Citi and Hildebrandt are calling for is at hand, and the changes we’re seeing now stand a very good chance of being permanent. There’s a reason I used “fired” instead off “laid off” at the start of this post.

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Book Review: The End of Lawyers?

The End of Lawyers? by Richard Susskind (London: Oxford University Press, 2008)

This is an enormously important book, and if you have any interest or stake in how the legal marketplace will operate in future, you have to read it. The End of Lawyers? provides a sweeping assessment (and in places, an indictment) of today’s legal services landscape and describes the architecture of the systems that will replace it. It identifies the pressure points where the legal services marketplace is poised to fracture and describes the forces that will cause the breaks. But what really stands out about The End of Lawyers? is its comprehensive depiction of a profession undergoing massive transformation – it provides a unique panoramic view of a legal marketplace in unprecedented flux. We talk a lot about “visionaries” these days, but in the legal profession, nobody seriously competes with Richard Susskind for that title, and this book shows why.

Now, I’m a little late to this party — many other people have written excellent reviews already, most recently this incisive commentary by Mitch Kowalski at the Legal Post. Others have also covered this terrain very well, including Bruce MacEwen, Jim Hasset, Nick Holmes and Ted Tjaden, as well as numerous consumer reviews at the Amazons of the world. Accordingly, while I’ll provide an overview of the book’s contents, strengths and weaknesses, I’m going to try focusing more on what the book represents in the history of legal innovation (answer: a watershed) and its implications for the legal profession’s evolution (answer: potentially shattering).

The End of Lawyers? relates how technology (especially the Internet), collaboration, globalization, and other forces are changing the fundamental rules by which legal services are bought and sold. The book is characterized by several key observations about how the legal marketplace is being transformed, with three especially significant ones:

  • The identification of an evolving and fluid spectrum of legal services categories: bespoke (one-off, customized or tailored), standardized (drawing upon precedents, process or previous work), systematized (reduced and applied to automated systems), packaged (systematized services exported to clients) and commoditized (packaged services so commonplace as to have little or no market value). Most lawyers insist that their services cluster around the left-hand end of this spectrum; Richard convincingly argues that movement to the right is inevitable for many types of legal services, with profound implications for lawyers’ business models.
  • The decomposition of legal tasks into component parts that can be delegated to various sources, few of them actual law firm lawyers. Twelve types of destinations for this multi-sourcing (reminiscent of unbundling) are identified: in-sourcing, de-lawyering, relocating, offshoring, outsourcing, subcontracting, co-sourcing, leasing, home-sourcing, open-sourcing, computerizing and no-sourcing, each of which is explained in more illuminating detail. Despite this multiplicity of legal work performers, an overarching entity responsible for managing the work must exist, and all the systems and processes involved must work together seamlessly.
  • In the context of astonishingly deep and rapid technological advances, the emergence of no fewer than ten disruptive (in the Clayton Christensen sense) legal technologies: automated document assembly, relentless connectivity, the electronic legal marketplace, e-learning, online legal guidance, legal open-sourcing, closed legal communities, workflow and project management, embedded legal knowledge, and online dispute resolution. These developments offer tremendous opportunity for more efficient and effective legal services delivery; but they also represent major threats to various aspects of the traditional law firm business model.

And this really is just a sampling – only an actual précis of the contents could convey everything that the book suggests. The details and depth in which these and other observations are explained and illustrated, with ample use of current examples, should be enough to persuade most readers that these trends are real and they are irreversible. But over the course of the book, Richard makes other observations that can fairly be called eye-popping ­– they open the mind to possibilities that none of us have been pondering: Continue Reading

CLE’s steep learning curve

@LTNY online networking panel. This is not what I expected. Must either leave/kill self soon as possible.

Haven’t we all been there at one time or another? Stuck in a presentation that we devoutly wished we’d never signed up (or been obliged) to attend? Up till now, all we could do was suffer in silence and wait for a coffee break or the end of the session to voice our regret to the nearest listener. Then Twitter came along.

The quote above is a Twitter entry by Gabe Acevedo, an attendee at LegalTech New York who was sitting in — and livecasting his thoughts about — an online networking session on Tuesday. Suffice to say he wasn’t delighted with the presentation, but what matters for our purposes is that he transmitted his displeasure to more than 150 followers, many of whom re-broadcast these and other negative messages to many thousands more, most of whom weren’t at the conference but all of whom received a pretty negative assessment of the session and its sponsor. Never mind all those paper evaluation forms that conference organizers are always asking you to fill out. Thanks to Twitter, liveblogging, and wireless access, every CLE session in the world is now subject to instant, real-time, uncensored feedback — not just to the event organizers, but to everybody.

As I’ve said before, it’s not just the private practice of law that’s in upheaval, it’s all the industries and offerings connected to it, including  law school, legal publishing, and legal research. It’s now time to add CLE (and its more evolved descendant, Continuing Professional Development) to the list.  Here are three ways in which CLE is likely to be transformed. Continue Reading

What the recession will bring

My newest Law21 column is up at Slaw. Click the link to go read it, and then take some time to peruse all of Slaw’s other great posts and conversations at what Dennis Kennedy calls the best law blog in the business. As always, I’ll also post the article here.

“Are we looking at a second Depression? I don’t think so,” said Paul Krugman, NewYork Times columnist and Nobel-Prize-winning economist, during his luncheon address to the Canadian Corporate Counsel Association’s World Summit last week in Vancouver. Then he added: “A month ago, I would’ve said, ‘Absolutely not.’ But today, I’m going to say, ‘I don’t think so.'”

That was the standout quote for me from an economic assessment so pessimistic that at its end, Krugman admitted: “I wish I had some positive things to tell you.” But aside from, as he said, having “people in Washington I can now talk to,” he didn’t have much good news to share. The powerful tremors emanating from Citigroup add to worries that even an astonishing American stimulus package of $800,000,000,000 — a financial adrenalin shot roughly equal to Australia’s entire GDP — won’t cover even half of the expected $2,000,000,000,000 in losses this recession is pounding out. Every country’s economy is in trouble, and even those with the political will and financial tools to address the problems seem stymied. Europe is facing particular challenges, while China — whose financial statistics are “science fiction,” Krugman said — is facing a sharp downturn. He thinks the eventual solution to banks in crisis is going to be nationalization — though he observed that not even the Obama administration is psychologically ready to take that step yet.

Now, another Great Depression is still a considerable distance away (we’re nowhere near 25% unemployment, GDP cut in half, or a stock market reduced by 90%, for example). And since whatever the mainstream media brings you is pre-inflated at least 20% by hype, you could be forgiven for thinking that things are bad, certainly, but not borderline catastrophic. But while Krugman’s grim outlook took me aback, what really struck me was the lack of surprise among audience members, including a lot of general counsel and in-house lawyers from national and global entities. Some of them nodded in agreement and all of them seemed to have had their beliefs confirmed, not undermined, by his remarks. They had the air of people who know exactly how bad things might be.

Law firm lawyers should be concerned by that. They should also be concerned by this: for the most part, surprisingly little was said about the problem of outside counsel costs. This wasn’t because the problem had gone away; from my reading of comments on stage and in conversations, it was because legal costs had ceased to be something to talk about and had become something to be dealt with. The simplicity and finality of that sentiment were unnerving. I asked an in-house lawyer to name one thing her outside law firms could do to make her happier. “Reduce their costs,” she replied. Fair enough, I said; should they do it by outsourcing, or by automating, or by — she cut me off. “I don’t care,” she said flatly. (Patrick J. Lamb reports a similar experience.) Continue Reading

Staff cuts and short-term thinking

That sound you hear is the rapidly accelerating crash of dominoes. The mainstream legal media is tracking, body blow by body blow, the shocking personnel reductions taking place at law firms throughout the US and UK. One after another, firms are laying off employees, and it seems each firm’s announcement gives three others the confidence to go ahead and announce their own. I’ll be exploring this in greater depth in a post early next week, but for now, I wanted to point out an interesting subtext in all these cuts: the extraordinarily high rate of staff-alone layoffs.

It’s not just that firms firing lawyers are also firing two to three times as many non-lawyers; an unusual number of firms are firing only staff. Here are just some of the staff-alone cuts reported in the last couple of months: 9 at Squire Sanders, 14 at Ice Miller, 20 at Moore & Van Allen, up to 25 at Buchanan Ingersoll, 30 at Fish & Richardson, 36 at Fenwick & West, 38 at Cassels Brock & Blackwell, 40 at Goulston & Storrs, 60 at Edwards Angell Palmer & Dodge, 65 at Akin Gump, 72 at Dechert, and an astonishing 106 at Ropes & Gray and 115 at Reed Smith. Remember, these aren’t part and parcel of bigger, organization-wide cuts — each of these firms let go of staff, but no lawyers.

The official reason for these layoffs, of course, is the recession, though the actual causes and motivations will vary from firm to firm. But a staff cut without a corresponding lawyer reduction is a little odd. If a firm chops 30 or 40 associates, you expect to see another 60 to 90 staff go with them, on the theory that these support staff no longer have lawyers to support. So what does it mean when a firm jettisons scores of staff members but leaves the lawyers untouched? Beyond the well-known fact that many firms view and treat their staff the same way golf and country clubs do?

One possibility is that firms have to cut fixed personnel expenses somewhere, but they fear the recruitment black eye that comes from associate layoffs and the seismic impact of partner cuts, so it’s the secretaries, paralegals, IT and marketing people who get the heave. Another is that these firms were overstaffed to begin with, not an unreasonable guess — everyone was living large in the recent boom times, and if a one-to-one ratio of lawyers to assistants made some of the fee earners happy, it was all worthwhile. A darker possibility — that associates are keeping the administrative tasks to themselves to maintain their billable hour totals, depriving assistants of work — is all too likely.

It’s also very likely that in many of these cases, the firms either don’t realize or don’t care about the negative effects of deep, across-the-board staff cuts. Aside from the damage to morale, chopping people in key areas like marketing is just foolish, a reflection of the belief that marketing is a cost center, not an essential element of the firm’s business model. Ron Friedmann rightly points out, in two recent posts, that indiscriminate staff cuts reflect the fact that the “firm has no idea what support is really required. Evenly distributed cuts imply that rational decisions were made in the past, that support needs remain constant over time in spite of the march of technology, and that wild gyrations in practice group revenue have no impact on support needs.”

It looks like many firms are missing an opportunity here to carefully and intelligently review their support needs and re-engineer both their personnel and their infrastructure investment accordingly. Simply cutting staff jobs provides only a short-term bottom-line assist while creating many other short- and long-term problems, whereas a more creative approach could both save money and improve the firm’s operations at the same time. Here are just a few possibilities:

  • Equip every lawyer with voice-recognition software, so that memos and messages need no longer be dictated or even typed out. Ditto for real-time docketing and billing programs.
  • Get lawyers blogging about their areas of practice, the release of relevant decisions, changes to applicable laws, and more — instruct them in 21st-century personal marketing.
  • Outsource or offshore functions like human resources, IT or even research and other quasi-legal tasks — firms have already done this, from West Virginia to India.
  • Then, save jobs through upsizing: convert legal secretaries to workflow managers, specialize assistants by assigning them to practice groups, train marketers to conduct client meetings and do cross-selling — basically, give your non-lawyer employees the chance to show what else and what more they can do for you, rather than automatically putting them first in line on the chopping block.

There’s a better way to cut costs than simply throwing staff overboard while keeping lawyers around — all it requires is a little more ingenuity, far-sightedness and courage than law firms are used to showing. And as 2009 unfolds, we’re going to see all three of these traits evolve from nice-to-haves to full-scale survival skills.

The crossed purposes of legal education

One of the signs that change is underway in the legal profession is that elephants in the room are becoming easier to talk about. One such pachyderm is growing increasingly obvious in legal education: the disconnect between what prospective law students imagine about the profession and what they eventually find when entering the legal workforce.

A good illustration is supplied by two recent items that zero in on the cost of a legal education versus the financial value it eventually delivers. One is an article in Forbes magazine, the other a post at the Tax Law Prof blog; it’s instructive that neither originated in the mainstream legal media (though the ABA Journal‘s Law News Now picked them both up).

The average US law school graduate, Forbes says, enters law with $100,000 in debt; the median starting salary for the US law class of 2007, NALP reports, was $65,750, and nearly 40% of all starting salaries were below $55,000. Most American lawyers are saddled with debt for a long time, and while the situation isn’t as dire in other countries, rising education costs have been pushing it that way. You can have an argument whether the debt is worth the career it enables; the more pressing issue is whether law students understand the financial realities of a legal career.

Forbes writes about “the great college hoax,”  drawing a comparison between professional schools and subprime mortgage hawkers: “Misguided easy-money policies that are encouraging the masses to go into debt; a self-serving establishment trading in half-truths that exaggerate the value of its product; plus a Wall Street money machine dabbling in outright fraud as it foists unaffordable debt on the most vulnerable marks.” A few law schools, the magazine reports, deliberately obfuscate the rewards of a legal career, but too many more finesse or downplay the reality of the debt versus the earning power of a law degree.

This is an embarrassment, said the panellists at an AALS Committee on Research Program, the podcast of which is available at Tax Law Prof. The strongest words came from New York Law School Dean Richard Matasar: “We should be ashamed of ourselves.  We own our students’ outcomes. We took them. We took their money. We live on their money …. And if they don’t have a good outcome in life, we’re exploiting them. It’s our responsibility to own the outcomes of our institutions.” Southwestern Law Dean Bryant Garth added: “This group [the AALS] has stonewalled completely and killed any kind of real consumer information for 20 or 30 years, and that’s what made U.S. News own this particular enterprise.”

In some ways, of course, the debt problem will fix itself. One of the reasons law school tuition soared so high over the past decade was that credit was so easy to obtain. Those days won’t return for another decade, and you can expect to see law school tuition (and law school spending) decrease accordingly. Richard Matasar pointed out another self-corrective measure: LSAT applications are holding steady or decreasing at many schools, the first time that’s ever happened during a recession. “They’re catching on,” he said. And the ABA is finally looking at re-engineering its law school certification process, so that “output measures” like employment statistics will become more important.

But I think there’s a larger issue here. These concerns echo the longstanding complaint about law schools, that they don’t prepare students to practise law. But here’s the thing: law schools and the legal profession exist for two different purposes and serve two different ends. Schools are in no way obliged to report to the Bar or to take its priorities into consideration; so why are we constantly surprised that they don’t? The wonder is not that law schools don’t prepare students well for practising law; the wonder is that they prepare them for it at all.

Law schools are involved in one industry — the granting of legal degrees. Legal employers are involved with another industry — the selling of legal services. Law students mistakenly believe — and we encourage this belief — that it’s all one single industry. They believe they’re traveling on a single road that starts in law school and ends in professional employment. In fact, they’re on two different roads, connected only once and briefly by a crowded merge lane that’s now in some disrepair. Students wonder why the left hand doesn’t talk to the right — but these two hands are on entirely different bodies.

Most law schools don’t make a priority of clarifying students’ expectations of a legal career, providing them with data on career prospects, or inducting them into professional practices, because that’s not what they’re set up to do. They grant law degrees; if lawyers’ governing bodies have decided those degrees are a sufficient  preparatory step towards a legal career, that’s the profession’s business, not the law schools’. If that system is not working — and there’s a pretty powerful case that it’s not — then the onus lies on the profession to rethink its training and admission process, not on law schools to rearrange their affairs on orders from an industry to which they don’t report and whose interests they weren’t created to serve.

I’m not suggesting that law schools should be wholly owned and operated by law firms or corporations. I’m not suggesting bar leaders should sit on university boards of governors and direct law schools’ curriculum choices. I’m not suggesting that if law schools want to stay relevant and solvent, they should coordinate their curricula with lawyers’ governing bodies. All these things could very well come to pass regardless of whether they’re good or bad. I am suggesting that we’re not going to make any progress on improving legal training until we understand that we’re not dealing with a single leaking pipeline, but with two pipelines jury-rigged together. We need to take a closer look at our blueprints.

Note to regular readers: I’ll be in Vancouver next week at the Canadian Corporate Counsel Association’s World Summit — drop me a line if you’ll be there too —  so posting won’t resume until the end of the month.

Avalanche alert

“[F]irms still have too many lawyers,” says the Chicago Tribune in the course of a rather grim 2009 forecast for American law firms. That might not be a problem for too much longer, because we’re about due for another round of bloodletting. But the next stage of the inexorable rationalization of the private bar won’t involve more of the associate and staff layoffs that marked the latter days of 2008 (though we’ll still see plenty of those). We’re now in Phase Two; partners are on the move, voluntarily and otherwise.

In the latter category, the latest news comes from the UK, where Addleshaw Goddard just told 19 partners they were no longer welcome, while Ashurst decided that 10 of their partners would be a better fit elsewhere. This is a whole different order of impact than associate and staff layoffs. There’s a difference between cutting fat and cutting bone, and in a law firm, partnership is bone marrow. It forms the underlying substructure on which everything else is built. “Partnership” carries a lot of emotional and psychological weight, and a firm can’t revoke that designation without expecting some emotional and psychological backlash.

But that looks like the lesser of the problems on the horizon. With the new year comes the end of the old year’s collections and distributions, so a lot of firms’ balance sheets are coming into focus. That means Lateral Season is upon us, and this year, the harvest looks to be exceptional.

Now that 2008 firm financials are becoming clearer, legal recruiters and consultants say lateral partner moves are bound to heat up, just as they always do at the start of a new fiscal year. But this time around, they say the added pressures of a tanking economy and firm layoffs will flood the market with even more partners looking for new homes, or for quick escape routes off sinking ships.

“This is the month to watch,” legal consultant and recruiter Colin Beebe says. “In January and February, you’re going to see a lot of partners calling and asking, ‘How do I get taken?'”

It’s not hard to sketch out the next few steps. Firms lower down the standard “profitability” (I use that term advisedly with law firms) scale will be vulnerable to raids by higher-ranking firms; in a recession, acutely so. In some firms, a few key partners — well-known in the industry, well-respected by clients and colleagues — will accept the invitation to climb several notches on the PEP ladder. It doesn’t have to be a mass defection; just enough key people in key positions whose withdrawal, like certain critically placed rocks on a hillside, can lead to a few more, and then some more, and then an avalanche.

We’ve seen it happen before, and I think we’re about to see a lot more of it. The first few months of 2009 could well be marked by a series of firm implosions, as the strong get stronger by poaching from the weak. This is inherently neither a good thing nor a bad thing — companies and organizations fall and rise regularly in normal marketplaces — but it will be a surprising and affecting turn of events for lawyers. It will be an uncomfortable reminder, as Prof. William Henderson told the Tribune, that “[y]ou have pretty weak glue holding these bigger enterprises together.”

And that’s what will interest me the most — looking for the firms that, in the natural order of things, might have fallen, but didn’t, because their glue was stronger.

I actually don’t think it will be the less “profitable” firms that are most vulnerable to poaching; it will be those that  failed to strengthen, or actively weakened, the internal bonds of unity, purpose and vision — “vision” here signifying something more meaningful than profit generation. Firms that worked staff sick, rode associates too hard and undervalued partners are in particular  trouble. Those that expelled partners solely for reasons of profitability should be declared off-limits to visitors due to the danger of imminent collapse.

The survivors will be those that have sufficient strength and cohesion to hold together when others shake apart. They’ll be the ones that, months or even years ago, sensed the emerging ethic of the time, that the day of the me-first organization is over. There’s no time left now to build that ethic into a firm; either it’s there or it’s not, and the consequences will flow accordingly.

I listened to a man deliver a pretty good speech yesterday. Here’s what he had to say about character and collegiality in the face of adversity:

[O]ur time of standing pat, of protecting narrow interests and putting off unpleasant decisions — that time has surely passed. … [A]t this moment — a moment that will define a generation — it is precisely [the spirit of service] that must inhabit us all. It is the kindness to take in a stranger when the levees break, the selflessness of workers who would rather cut their hours than see a friend lose their job, which sees us through our darkest hours.

How many partners in your firm would willingly — enthusiastically — assent to a drop in profits per partner in order to keep fellow partners in the fold? The answer to that question might just determine how well, if at all, your firm weathers the coming months.

Deconstructing prestige

I’m currently taking part in an intriguing conversation at Legal OnRamp about the reasons why GCs hire prestigious, big-name law firms. A recurring theme in the discussion is that in-house lawyers often default to using big, well-known (and often highly inefficient) firms because of the protection these firms’ prestige affords to corporate counsel. Just as no one was ever fired for buying IBM, as the old saying went, no one gets fired for sending important and potentially calamitous work to Famous & Expensive LLP: “I paid top dollar for Top Law Firm, so don’t blame me for what happened.”

My contribution thus far has been to ask (a) whether  that protection actually materializes in practice, (b) how much outside counsel work is so important that it requires the F&E imprimatur, and (c) if any GC has yet been fired for failing to rein in outside counsel costs. The whole conversation might eventually form the basis of a separate post. But it does lead me to a related and I think pretty important subject: what “law firm prestige” itself actually represents.

“Prestige” is one of those words, like “professionalism” and “value,” that we throw around a lot in the law without establishing exactly what we mean by it. Interestingly, trace its etymology back to Middle French and you’ll find it originally referred to an illusion or a conjuror’s trick, a sleight-of-hand; if you’ve ever wondered where the old magician’s standby “Presto!” comes from, you have your answer. That’s something to keep in mind when considering law firms’ “prestige” — that we’re talking more about the appearance or suggestion of merit than we are about the actual presence of merit itself.

Let’s say an in-house counsel purchases a law firm’s services at least in part because he expects that firm’s “prestige” will provide effective cover against adverse outcomes. The clear implication, I would think, is that that prestige reflects a higher quality of service and/or results, as compared with less well-known or less “prestigious” firms — otherwise, why would it be relevant to the question of whether the corporate counsel made the right call? This implies that there’s a rational, measurable connection between a prestigious, well-known name and better, more reliable results.

But is that actually the case? And it it’s not, are clients who rely on “prestige” when making their legal purchasing decisions doing little more than buying smoke and mirrors?

Let’s break this down: what are the elements of “prestige”? Does it involve longevity? Maybe — but Thacher Proffitt & Wood just disappeared in its 160th year. Is it about having a stable of famous clients? Maybe — but Bear Stearns, Merrill Lynch, Northern Rock, Circuit City, Nortel, the Tribune Company and many others, not to mention GM and Chrysler, all retained prestigious firms. Is it about having the “best” lawyers? Maybe — but considering that partner movement is now so frequent among large firms that the AmLaw Daily has a regular section called “The Churn,” I’m not sure how  the fleeting presence of individual lawyers can affect prestige.

It seems to me that, like the old SCOTUS definition of obscenity, many people believe they know prestige when they see it. I’m dubious. As far as I can tell, among the constituent elements of law firm “prestige” today, along with longevity, name clients and name lawyers, are tony corporate addresses, marble-lined reception areas, old masters on the wall and in the corner office, a collection of long-past accomplishments, massive marketing expenditures, and often, just sheer size (a factor ably assisted by a legal media disproportionately interested in the largest of large law firms). Roll all these together and Presto! You have a prestigious law firm.

When a general counsel tells the board of directors that he protected the company’s interests by hiring a prestigious law firm, those directors assume that a law firm’s prestige is rationally and demonstrably connected to a higher quality of service and results. I don’t know that that’s a safe assumption. I don’t know if there’s a direct correlation between a firm’s prestige and its excellence or reliability. And since that assumed connection is actually the fundamental premise upon which is based many general counsels’ hiring rationales, I’d say this is something worth exploring in some more detail.

Because if that premise is flawed — if prestige, however we define it, isn’t rationally connected to quality of service, results or satisfaction — then that’s a pretty major obstacle to the efficient operation of the legal services marketplace.

Renovating or tearing down?

I grew up in a small city of about 80,000 and went to law school in a similarly sized town, so my first experience of a major metropolitan center was when I began working in downtown Toronto. I remember being a little overwhelmed by the massive bank towers in the financial district — not a patch on New York, obviously, but still impressive to someone who’d not seen many buildings above eight floors high. But I also remember thinking — and this might give you some insight into the sometimes skewed and contrary way my mind works — “How are they ever going to get those buildings down?”

It seemed to me at the time (and still does now) that putting up a very tall building, while an arduous and lengthy task, is also a pretty straightforward and orderly one. While traffic might be rerouted and the noise pollution might be substantial, still it’s a planned, supervised, rational process with a fixed start and reasonably fixed end date. But if you ever need to take that building down, what do you do? I’ve never seen anyone erect a scaffolding superstructure around a skyscraper and deconstruct it floor by floor. Generally speaking, buildings aren’t dismantled gradually, their component parts carefully carried off to be reused and rearranged for new or better buildings; they come down all at once in a destructive collapse. Sometimes they videotape the implosion, to be replayed at the end of a half-hour news cycle.

This brings me, in a roundabout sort of way, to the billable hour — specifically, a recent wave of articles that suggests a serious challenge to its lengthy rule is underway. Famously, Cravath Swaine & Moore managing partner Evan Chesler published an article in the Jan. 12, 2009 issue of Forbes titled “Kill the billable hour,” in which he sets out clients’ (and lawyers’) unhappiness with and alternatives to the billable hour. As you might imagine, that got a lot of people’s immediate attention. The AmLaw Daily noted a number of resonant examples in the U.S. profession, while lawyers in London piped up that they’re already ahead of that particular curve, thanks.

Around the same time, The American Lawyer named as its Litigation Boutique of the Year the Chicago firm of Bartlit Beck Herman Palenchar & Scott LLP, a crack litigation team remarkable in no small part for not billing by the hour and keeping few associates on hand. Based on all this and more, Legal OnRamp‘s Paul Lippe suggests we’re witnessing an actual, real-time change in the legal profession’s billing mindset. And Michael Grodhaus wonders if those who switch away from the billable hour during the recession will ever go back.

Me, I keep thinking back to those towers. Just as they took a long time to go up and won’t come down without a lot of noise and debris, so too the law firms inside them took many years to build, and if they ever need to be, um, re-purposed, it won’t be easy or painless. Buildings are demolished when their structural underpinnings become unstable or their basic design is rendered obsolete by new advances; occasionally you’ll see a retrofit, but most often you’ll see the wrecking ball, because something that big and rigid just can’t be reduced, reused or recycled. Continue Reading