The best and the brightest?

It’s a small thing, but it’s been bothering me disproportionately, so I want to say a few words about one of my least favourite current phrases in the law:  “the best and the brightest.” It’s normally used in a talent recruitment or institutional marketing capacity to describe the very small group of the very best lawyers and law students, and I must have come across it a half-dozen times in the last week alone. An archetypal example was uttered in April by US Supreme Court Justice Antonin Scalia, in response to a question put to him by a law student who asked what she had to do to become “outrageously successful” without “connections and elite degrees.” Justice Scalia’s response eventually came around to her chances of clerking for his court:

“By and large, I’m going to be picking from the law schools that basically are the hardest to get into. They admit the best and the brightest, and they may not teach very well, but you can’t make a sow’s ear out of a silk purse. If they come in the best and the brightest, they’re probably going to leave the best and the brightest, OK?”

Justice Scalia’s criterion for identifying excellent future law clerks is depressingly common within the profession. He doesn’t actually know how to identify the best and brightest law students and new lawyers, and he’s hardly alone in that. He’s one of many people who rely upon a law school or law firm’s exclusivity, elitism, household name or other purported quality signifier as a substitute for having to actually determine “bestness and brightness” for himself. It’s a habit hardwired into tens of thousands of annual decisions about  which school a 1L should attend and which schools a law firm should recruit from, and it doesn’t do us any good.

Let’s start with the law schools. Everyone knows there are elite schools and non-elite schools, right? Even if you don’t read the noxious US News & World Report law school rankings or their equivalents in other countries, you “know” which are the “best” schools, especially if you graduated from one of them. How do you know? They have the best reputations, of course — even if you couldn’t name one aspect of the educational experience that justifies “elite” status or name three elements of substance that differentiate any one school from another. “Reputation” and “prestige,” based on countless dimly illuminated factors poked into the crannies of our minds, might hold sway, but we have no empirical evidence that an “elite” law grad is any better or brighter than a “non-elite” grad. Magazine rankings and law blog chatter serve only to confirm our existing region- and class-based prejudices about what places one school above another.

The great majority of law schools are largely indistinguishable from each other, in terms of the nature of their education, the quality of their teaching, and the (negligible) practical elements of their training. Almost every law student is smart and works hard — that’s the baseline standard of admission (along with, in most cases, tremendous pre-existing socio-economic advantages). Some schools keep class sizes intentionally small or raise tuition beyond most peoples’ reach, but while that may make them more “exclusive,” it doesn’t make them any better at teaching students the law. If there are ways of determining the “best and brightest” law students, finding out where they take their classes hasn’t proven to be one of them.

None of that keeps law firms (and Supreme Court justices) from relying on school pedigree to make interview selection and lawyer hiring decisions for them. But that raises an even more pernicious problem: let’s say you could figure out who the “best and brightest” law graduates are — how do you know which of them will turn out to be great lawyers? Law school prowess has little relevance to eventual lawyer success — the absence of correlation between LSAT scores and lawyer success has been proven. Yet those who hire new lawyers continue to rely on law school performance as a hiring factor, even though it tells us little about whether a student possesses or can quickly acquire the skills that practising lawyers need, the appetite and aptitude for client service, business management, persuasive advocacy and ethical steadfastness.

Now, here’s the funny part: the system has in fact come up with a way of determining which are the “best and brightest” law students  — they’re the ones who get hired by the “best and brightest” law firms! And how do we know which firms fall into that category? Well, they’re usually very old, very large, and very well-known (and big old famous organizations are all but guaranteed to prosper, right?) But the main reason these firms are considered the best is — wait for it — they recruit only from the best law schools! The Cravath system has been around for so long that the “top” law schools and the “top” law firms now perform a little pas-de-deux, each using the other tautologically to confirm its own higher sense of self (“our graduates go to the best firms”; “we recruit only from the best schools.”)

And that brings me to the final aspect of the “best and brightest” phenomenon that’s so problematic: this belief  that the “top” lawyers are to be found at the “top” firms. I am not saying, not a for a nanosecond, that large well-known firms don’t count among their  ranks some of the finest lawyers the profession has produced. Of course they do. But they don’t own the exclusive monopoly on that particular asset. I’ve met brilliant lawyers of extraordinary skill in midsize regional firms, solo practices, corporate law departments and public-sector environments. And I’ve met lawyers who work for famous law firms whose skills and talents are pedestrian. Succeeding in a BigLaw environment is undoubtedly a sign of the fact that you have the qualities to thrive in that kind of environment — but those qualities are not automatically equivalent to superior talent and execution. In our big-firm, AmLaw-obsessed legal culture, this obvious truth keeps getting lost.

All of which is to say, if you find yourself talking about “the best and the brightest” the legal profession has to offer, or you hear someone else saying it, ask a few questions: Best at what? Brightest according to whose standards? Based on precisely what criteria, and how many of those criteria are irrelevancies, assumptions, stereotypes or conventional wisdom? Let’s not buy into a myth that puts you down or puts other people up without sufficient cause. I think a powerful, sweeping assessment like “the best and the brightest” deserves and requires more scrutiny than that.

The legacy of work-life balance

I think we’ll soon be closing the book on one of the legal profession’s most-used and least-understood phrases of the last decade: “work-life balance.” It was still all the rage just a couple of years ago — new lawyers invoked it as a mantra, talent recruiters bandied it about, and many legal publications (including those I’m responsible for) frequently referenced it. But even before the economy fell off a cliff, you could see the pushback growing — and not just from cranky corner-office partners who felt the youngsters hadn’t paid their dues. The pushback came from a growing sense that “work-life balance” (WLB) was a meaningless phrase that obfuscated some real issues lawyers needed to grapple with.

Essentially, WLB was shorthand for the widespread sense that the demands of a legal career had outstripped the personal benefits it conferred — or, as my father used to say, “There’s not much point in earning a living if you can’t live the living you’re earning.” WLB was applied most frequently within the context of large law firms, where even jaded observers would admit that billable-hour targets had escaped any rational trajectory. Across all firm sizes, though, people looked at the law and saw a career where effort and satisfaction were headed in opposite directions. It was not irrational to think that this could stand some improvement.

(It’s important to recognize, by the way, that WLB was not exclusively a Millennial issue. Lawyers of all ages reported dissatisfaction with the perceived effort/reward ratio of their careers, especially in larger firms — though Gen Y was the most willing to talk about it, at length. Remember that WLB was also often used to describe the plight of older small-firm lawyers whose clients had come to demand legal services far more quickly and cheaply than before, catching the lawyer in a vise between ever more work and ever less time. Wherever legal work seemed to grow beyond the boundaries of “worth it,” we heard about WLB.)

Most lawyers seeking WLB were really seeking an answer to the question: “Does a legal career have to be all-consuming and exhausting?” As to that, I’ve written before that lawyers now work long hours thanks to a competitive economy and our own inefficiency, and that we’ll always have to run fast enough to keep up with our clients. But during the economic bubble, lawyers who asked that question often perceived that the answer was “no.” The demand for legal services sufficiently outstripped the supply of lawyers, such that lawyers could start to dictate the terms of their availability to employers and sometimes even to clients. The whole thing got wrapped up too often in buzzwords like “personal fulfillment,” “family time,” and WLB, but what it really came down to was lawyers’ rational response to market conditions. They had a chance to get more rewards for their time and effort — unfortunately, many of them chose those rewards in $160,000 annual packages.

Now, of course, the market has changed just a little. After 10,000 lawyer and staff layoffs at large US and UK firms, even the most active WLB boosters have toned down talk that might earn them the dreaded “entitlement” label. Articles and posts that reference the term “work-life balance” now do so in an environment of cold pragmatism: Ashby Jones at the WSJ Law Blog and Dawn Wagenaar at The Complete Lawyer provide good recent examples. Realist observers like Dan Hull and Scott Greenfield have gained the upper hand in the WLB discussion — check out this slam-bang debate at Legal OnRamp about “work-life balance” generational expectations.

Where proponents of “work-life balance” went off-track, to my mind, was that they argued the duty to ensure a satisfactory proportion between a lawyer’s work and the rest of her life was an institutional responsibility — that it was up to the law firm, basically. The  firms disagreed, and all they had to do was wait for the marketplace to turn their way to make that clear.

Law firms aren’t going to unilaterally change their business models for the sake of WLB. No law firm ever budged an inch on its billable quotas or offered associates more money and perks because its partners genuinely felt they should be nicer employers — appeals to conscience at partners’ meetings don’t have a roaring record of success. Firms change their working conditions as the talent market dictates. In a seller’s market like the one we’ve just had, they play nice; in a buyer’s market like this, they don’t. If almost every potential legal recruit said, “I’m not going to work at that firm — the demands are ridiculous and the benefits to my career aren’t nearly worth it,” and did so for several consecutive years, then you’d see the firm think about changing its business model. That didn’t even happen during the boom, and I doubt it’s going to happen now.

The thing is, “work-life balance” is a lawyer’s personal choice and responsibility. If money and “prestige” are that important to you, you’ll sign up to work 3,000 hours a year at a law firm, and you can reap the rewards and suffer the personal consequences accordingly. If keeping your work hours within a predictable box is important to you, you’ll be seeking out public-sector jobs or setting up a practice with just enough reasonable clients to pay the mortgage — and you’ll always have one eye on your bank statements. When we talk about “balance” in lawyers’ lives, we’re really talking about the tradeoff everyone has to make between compensation and lifestyle. If WLB stood for anything, it was for the fact that we all have the right and the obligation to make that tradeoff on the terms we want.

But here’s the caveat, and here’s where “work-life balance” proponents were right —  most lawyers in their first several years of practice don’t really have that choice. There are two institutional flaws in our system that hurt our newest colleagues. First, there’s the unspoken symbiosis between law schools and law firms — the former charge students huge amounts of money and provide little practical lawyer training, allowing the latter to hire low-skilled and heavily indebted graduates to fill virtually the only positions lucrative enough to pay off their loans. And secondly, billable-hour targets for associates at more than a few firms simply can’t be achieved without damage to one’s health or ethics, or both. These problems are neither natural nor inevitable — they result from our neglect of the system, and they annually damage our profession’s standards and morale.

In the heyday of WLB, we were at least starting to talk about these things, and the whole debate should have shined a light directly on them. What we were groping towards, under the banner of WLB, was the gnawing sense that most everyone starts their legal career behind the eight-ball for no particularly good reason. Now that the moment has passed, I worry that WLB will be relegated to the status of a mere generational quarrel during a freak economy. We need to do better than that. There are still some serious institutional problems for our profession to resolve — dealing with them openly and effectively would be the kind of legacy “work-life balance” deserves.

Peer pressure

“If all your friends jumped off a bridge, would you do it too?” Every parent has uttered some variation on that line to a child who insists on doing something unwise, over-priced, or physically perilous simply because “everyone else is doing it.” Training children to resist peer pressure is one of the thankless but necessary tasks of parenthood, one we hope will pay off later in life with adults unafraid to assert their independence and chart their own paths.

Lawyers, unfortunately, don’t receive that kind of parental guidance — if anything, we’re over-encouraged to copy the example of our predecessors and to always rely on  precedent. And of course, the financial rewards of the traditional lawyer billing model are so obvious that lawyers have a lot of incentives not to blaze any new trails. Hence, the “mastodons” of which Sun GC Mike Dillon memorably wrote a couple of years ago — vast herds of massive beasts that stay tightly packed and lumber together in the most convenient direction. Generally speaking, law firms recruit, hire, compensate, bill and manage their affairs pretty much the same as other firms — a recipe for disaster in the corporate world, but a guarantee of continuity in the bubble-wrapped legal universe.

But with the recession grinding steadily on, and many firms forced to make increasing resort to staff, associate and even partner cuts, something interesting is emerging: the upside of peer pressure. Just as firms felt obliged to match their rivals’ associate salaries and bonuses in the boom, they now feel even more obliged to make equivalent provisions for those cast aside in the bust. Most large-firm severance packages cluster around the 2-3 months’ notice mark — and there’s a vocal community ready to track all those packages and publicly note any firm that deviates from the norm.

Firms that exceed the average, like Latham & Watkins, rescue or even improve their brand among recruits; firms that fall short can be excoriated. Take the example of DLA Piper’s London office, which managed to squeeze several years’ worth of bad publicity into a single week.  A series of memos and meetings following the firm’s decision to cut 140 staff and lawyers revealed a huge amount of internal animosity that still has the UK bar talking. In the wired age, the cost of looking cheap or insensitive in the eyes of the blawgosphere just isn’t worth the risk of pinching pennies.

But the positive effects of peer pressure can reach beyond severance packages. When Simpson Thacher & Bartlett hit upon the innovative idea of sending underemployed associates into public service work, it was only a matter of weeks before other firms copied the idea themselves. And Norton Rose’s decision to explore four-day work weeks in order to save jobs is already generating positive press — it’s likely only a matter of time before this one picks up  momentum too.

The upshot of these developments is that firms are being strongly motivated to do as well by their current and former employees as possible — the astounding level of animosity levelled at AIG executives these days should frighten any rational organization — and that can only be a good thing for both law firm workers and the overall level of workplace relations. But the really neat thing is that the herd mentality might actually help the larger cause of innovation and practice management reform in law firms. The need to be seen as actively and creatively responding to the crisis is pushing more firms to try new things and announce them publicly.

Take the example of lockstep compensation, a longstanding tradition that has merit in tightly focused, culturally solid firms, but has the effect elsewhere of rewarding lawyers simply on the basis of seniority. When Howrey LLP set out to overhaul its lockstep compensation system two years ago, the response from the profession was dismissive at best. Now, firms are jostling with each other to be the latest to institute merit-based pay and similar sins against the status quo. Not even partners are safe from the change in the herd’s mood — either from the prospect of potential explusion or from having to share the pain of the firm’s struggles.

Then there’s annual rate increases, a law firm tradition as reliable as the spring equinox. Even as recently as last fall, firms fully expected to issue their normal rate-increase notice to clients. Now, though, as Altman Weil’s Tom Clay puts it: “Nobody is that naive — or dumb.” In worst shape of all might be the almighty billable hour itself. When managing partners of top-rated firms talk to the New York Times about killing the billable hour, you know a paradigm is shifting.

And where paradigms go, law firms hasten to follow, even if it means facing up to some pretty radical changes in how they do business. Lawyers don’t like change, but they like isolation much less. As more and more lawyers and firms shuffle hastily towards new ground, it looks as if a watershed shift in private law practice —  a cross-over moment, a critical-mass point — is now only a matter of time. Where’s your nearest bridge?

The other shoe

If you like your comedy dark, track the law firm layoff news. There’s the partner at Pillsbury LLP who, seated on a crowded but quiet commuter train into NewYork City, conducted a loud cellphone conversation with a colleague at the office that revealed planned associate layoffs at the firm, right down to naming the names of pending victims. There’s McDermott Will & Emery in Chicago deciding to eliminate free coffee in the lobby of one floor of the firm’s offices, a move purportedly meant to express congruence with larger cuts but that came across to many observers as, you know, kind of chintzy. There’s the saga of a laid-off associate in the engaging Above The Law serial “Notes from the Breadline,”  with updates like this:

The next morning I e-mail the partner to tell him that I’d like to talk to the client, explain my departure, and say goodbye. A few hours later, I have heard nothing in response, so I call him. “Oh, don’t worry about it,” the partner says breezily. “I talked to them already.” I ask him what he said. “I told them that you decided to ‘move along,’ if you know what I mean,” he answers. No, I think, I don’t know what you mean.

But whether firms choose to take the callous route, or seem to be trying to soften the blow (cf. Latham & Watkins’ severance, Simpson Thacher’s pro bono plan)  the practical and human reality behind the thousands of layoff notices at big law firms is just plain ugly. I won’t bother trying to update the latest round of notices — suffice to say some of the biggest names in the US and UK legal profession are shedding anywhere from 10% to 20% of their associate workforce and an equivalent or greater number of staff. But when you look behind the rain of numbers, something interesting starts to emerge: the sense that these are just the warm-ups, not the main event.

First of all, cutting associates by the hundreds is not something you do if you expect the economy to turn around soon — otherwise, you’re just paying termination costs to people you’re going to have to rehire in less than a year. Firms understand perfectly well the negative fallout from layoffs, so a bloodletting on this scale indicates two things. One is that there’s no work for these people and none is expected soon, which must reflect what clients are telling firms about their own near-term prospects. The other is that firms don’t expect to need so many associates when things pick up again — partly because the post-recession workload won’t be as heavy, and partly because the good old days of stocking up on associates and riding their billable hours to profit are coming to a swift end. In other words, this isn’t just reducing headcount and expenses — this looks like the start of a fundamental and possibly permanent restructuring of the law firm model.

Secondly, there’s the other shoe that hasn’t yet dropped — partner cuts. With a few exceptions, we haven’t heard the ugly word “de-equitization” spoken much over the last several months. That might be because there won’t be any — that firms are confident that the associate and staff firings will be enough to safeguard profitability and keep the ship afloat, making more drastic moves unnecessary. Or it might be because the associate and staff cuts are the easy place to start, a non-controversial way to improve the bottom line short-term and give everyone a clearer picture of exactly what the profitability situation actually is. Once that picture emerges  by early summer, and is overlaid with what the firms’ internal assessments are saying about the subsequent 12 to 18 months, then the second round of personnel explosions should start going off.

Most people would agree that many large law firms overhired, to at least some degree, on staff and associates — that’s why these cuts have come so large and so quickly. But what’s not talked about much is that many law firms are also over-partnered. The Boomer generation has swelled the ranks of law firms partnerships just as it swelled the upper ranks of every business and organization in North America. I think you’d have a hard time maintaining that all those partnerships were equally earned on merit and productivity — or that, if they were up for partnership today, all or most of those lawyers would get serious consideration. Gen-X lawyers have complained for years about how the Boomers took all the best seats at the table largely by virtue of arriving first. I think we’re starting to see the same thought occur, belatedly, to the partners themselves.

Most law firms of any size are riddled with inefficiencies, from how they bill to how they compensate to how they process tasks to how they hire. We’re beginning to see, through the steady rise of flat fees and customized pay and automation and outsourcing, each of these inefficiencies start to be squeezed out of the system. Through all of this, one  inefficiency — the composition of partnerships — has been all but sacrosanct. I think we’re a few months and a deepening recession away from seeing that final wall breached.

The evolution of lawyer regulation

The thing about change is that once it gets rolling, it’s almost impossible to control and can go in directions you neither anticipated nor like very much. That thought occurred to me while reading a report issued last week by the Legal Services Policy Institute, the think-tank division of UK legal training company The College of LawTowards a New Regulatory Structure for Corporate and Commercial Legal Services: Options for Change is just 23 pages long, half of which is a lengthy appendix. But what the report recommends looks to me like an entirely new system of lawyer regulation, one I’m not sure I’m crazy about.

A little background: if you’ve been following the course of events flowing from the Clementi Report and the 2007 Legal Services Act, you’ll know that the UK legal profession is in the midst of redefining itself. On this side of the pond, we mostly hear about the LSA’s provisions to allow alternative business structures and non-lawyer ownership of law firms. But a major element of the reforms involved splitting the Law Society’s previously dual functions of solicitor regulation and representation, on the grounds that the same body could not both govern professionals in the public interest while also advocating for the interests of those professionals.

Regulation of the legal profession in England & Wales is to be the overall province of the newly created Legal Services Board, which launched on Jan. 1 and aims to assume all the powers assigned to it under the LSA by the end of this year. The Board will oversee all the various regulatory bodies for lawyers, such as the Bar Council, the Institute of Legal Executives and the Council for Licensed Conveyancers. Until the Board becomes fully functional, the Law Society technically remains the approved frontline regulator of solicitors, through the Solicitors Regulation Authority, which was partly spun off from the Law Society for this purpose. The SRA remains officially part of the Law Society, but is independent from it. Relations between the two are not always warm, and have just taken a marked turn for the frosty.

This is kind of an interim period in the regulatory overhaul process: the Legal Services Board is active but not yet fully on stream. That’s why some people were taken by surprise last fall when, with one day’s notice to the SRA, the Law Society commissioned a report to review the lawyer regulation process. That report’s author in turn commissioned a sub-report on whether current regulation of law firms serving corporate clients is satisfactory. It’s in the context of this mishmash of reports and political jostling that the Legal Services Policy Institute report was issued and needs to be understood.

The report’s premise, as I read it, is that a single regulatory framework can no longer properly govern the extreme range of solicitors’ practices in England & Wales. More specifically, the traditional framework, geared towards sole and small-firm practice in smaller communities, simply doesn’t work for the major corporate/commercial firms of London and their clients. In areas ranging from defalcations and conflicts of interest to client sophistication and lawyer transfers from other jurisdictions, rules meant for a smaller profession serving private clients constrain and damage global firms serving massive corporate and institutional clients.

The report’s recommended solutions are radical. While nodding towards a midway approach — merely modifying the current SRA regulations for large commercial firms — the report’s clear preference is to create a brand new regulatory regime for these large firms and the lawyers who work within them. This new regulator would create and administer new qualifying criteria and would even bestow a new title for these firms’ lawyers to use (the report refers to these, in uncomfortably Orwellian terms, as “NewReg,” “NewQual” and “NewTitle”). Here’s how the Institute summarizes its case for a new regulatory regime: Continue Reading

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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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

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