Reinventing the associate

Last week’s post, “The decline of the associate and the rise of the law firm employee,” wasn’t just my longest Law21 title on record. It also triggered a detailed response from Toby Brown of 3 Geeks, to which I left a lengthy comment and which in turn inspired a further comment from Susan Hackett of Legal Executive Leadership. Toby converted both of these comments to posts, and I’d invite you to read all three consecutively to get the full exchange of views.

My plan this week is to follow up my original post with two more: one (today’s) that will explore more deeply the past and future role of the “law firm associate,” and the other that will study the whole issue of “lawyer training.”

I don’t really have strong feelings one way or another about Greenberg Traurig’s new “residency” program, largely because (as I noted in my original post) we don’t have nearly enough data about what the program actually involves. If it manages to strike a healthy balance among the needs of the firm, the interests of clients, and the well-being of lawyer employees, then I’m all for it. We’ll have to wait to see how it unfolds in practice. For the moment, I’m  more interested in the implications of introducing another new employment category (“residents”) for novice lawyers in law firms. It raises the whole question of what we mean by “associates,” and why they exist.

For most of law firm history, lawyers who were not equity-owning partners had only one title (“associate”). Associate status represented two things: full-time salaried employment and potential future admission to equity partnership. In theory, associates are lawyers who are learning their craft and honing their skills for the chance someday to become partners — and that does still accurately describe a small percentage of each firm’s associate class. In practice, however, most associates are short-term, leveraged assets whose purpose is to bill hours that fuel the firm’s profits, and who will leave the firm (voluntarily or otherwise) well before the brass ring of partnership comes into view. [do_widget id=”text-7″ title=false]

Many firms have begun to explicitly acknowledge this reality and to call this larger group of associates “staff lawyers” or something similar to indicate their status. Greenberg introduced the title of “practice group attorney” at the same time as it announced its “residency” program. Other firms refer to such lawyers with the unwieldy term “non-partner-track associates.” More senior members of this group, over the past several years, have been classified as “non-equity partners,” highly experienced associates whose time for partnership consideration has come, but about whom there are doubts (on one side or the other) that admission to partnership is a good idea. And now we have the “resident,” a short-term position for newly admitted lawyers that pays less, bills less, and gets “trained” more than a normal associate role.

So, for those keeping score at home, here are some of the ways in which law firms are now describing lawyers who aren’t partners:

  • Associate
  • Resident
  • Staff Lawyer
  • Practice Group Attorney
  • Non-Partner-Track Associate
  • Non-Equity Partner

That’s a whole lot of terms meant to express one basic idea: “You’re not an equity partner.” And for every title on that list other than the first one, there’s an additional component: ”…and you’re not going to become one, either.”

Toby argues that this is no bad thing: all of a law firm’s associates should not presumptively be considered its future partners, not least because few lawyers are truly cut out for the demands and responsibilities of ownership. I think that is certainly correct. But as I mentioned above, the title of “associate” has always carried with it the potential of ascendancy to partnership. Not every associate will become a partner someday; but any associate could become one. That’s the promise and the allure that gives “associate” an extra shine. And it’s exactly this shine, I think, that law firms are trying to remove these days.

Law firms are developing an allergy to equity partners. “Under-performing” partners are being removed from firm mastheads in every jurisdiction, while partner tracks grow longer and “non-equity partner” holding pens become more crowded. Altman Weil’s “Law Firms in Transition” survey explicitly advises law firms: “Make equity partnership very difficult to achieve.” The reason is simple: the revenue pie is shrinking, and the slices are becoming thinner than many partners want. The easiest short-term solution is to remove as many place settings as possible, adding new seats only for lateral recruits who can bring more pie of their own.

So it’s very much in law firms’ interests to lower the expectations of their associate lawyers about their chances of partnership. What many firms would prefer now is new classes of lawyer employees who don’t have all the baggage of “associateship.” These firms want salaried lawyers who work competently and bill profitably, but who neither desire nor expect equity partnership offers. All the rejigging and reclassifying of lawyers who used to be called “associates,” but who increasingly are called anything but that, is in service of this outcome.

The timing for this effort is excellent, because the traditional law firm associate model no longer works very well anyway.

  • New associates cannot be paid handsomely to be trained on clients’ dime as they once were, but firms don’t want to absorb the costs of training on top of the salaries they’re paying, and they’re afraid of cutting salaries because of the potential hit to their reputations in the market.
  • Experienced associates do good work and can still be billed at high rates, but the work they would normally be doing has been grabbed by partners desperate for billings, and the opportunities to gain experience early in an associate’s career are drying up anyway.
  • Senior associates have successfully run the gauntlet and “won the tournament”, but even these few winners increasingly outnumber the available internal routes to equity ownership, leaving them in a restless state of non-equity limbo.

In short, both a driving need and an unprecedented opportunity to replace or reinvent the law firm associate have arisen — and as it happens, they’ve arisen right in the middle of an historic surplus of unemployed lawyers.

In the result, for the next several years (and maybe longer), law firms figure to employ or engage the services of lawyers on much more advantageous terms than in the past. Whether located within the four walls of the law firm or in an outsourced capacity, most lawyers who work for law firms will do so at lower rates, with less job security, on shorter time frames, with less expectation of long-term equity rewards. The idea of “graduating” from associate to partner, from employee to owner, as part of a natural process of law firm development and advancement will lose its traction in many firms. If you no longer want to develop many partners, then you don’t really need many associates.  [do_widget id=”text-8″ title=false]

Is this good, bad, or indifferent? Insofar as firms are recognizing the growing obsolescence of the traditional associate model and are taking steps to rework it or replace it, I think it’s good: that model worked very well in the 20th century but seems a poor fit for the 21st. Agile, flexible workforces are coming to every industry, and the law will not be an exception. But describing this as a strategic shift may be giving law firms too much credit: in most cases, the driving force behind these moves is to reduce personnel costs and compress the ownership pool in order to increase partner profits on a short-term basis.

And it’s the short-termism that worries me. Law firms are meant to be multi-generational entities that grow through a natural cycle of development. You invest in new lawyers at a cost today because you confidently expect your investment to pay off years down the road; you accept short-term losses in exchange for long-term profits as part of a big-picture view of the firm. Law firms everywhere are currently gripped by a fever that drives the opposite behaviour: you accept long-term losses in exchange for short-term profits, because you won’t be around for the long term and you don’t really care what happens when it arrives. This, unfortunately, describes more senior lawyers in more law firms than I care to count, and it’s positioning these firms for a very dangerous future.

The traditional associate model needs to be replaced by something better. But it can’t be better just for law firm partners, or even just for partners and clients, and just for this year’s financial results. It has to be better for everyone, on a sustainable, sensible, long-term basis. If the associate model is replaced by a system that simply strip-mines our legal talent resources for maximum profit for the balance of this decade, leaving the cleanup and rebuild to the next generation, then as both a business and as a profession, we’re going to be in a lot of trouble. More on that in my next post.

Jordan Furlong delivers dynamic and thought-provoking presentations to law firms and legal organizations throughout North America on how to survive and profit from the extraordinary changes underway in the legal services marketplace. He is a partner with Edge International and a senior consultant with Stem Legal Web Enterprises.  

The decline of the associate and the rise of the law firm employee

Earlier this month, Greenberg Traurig became the latest large US firm to take a new approach to its legal talent. Rather than firing secretaries or de-equitizing partners, however, as is all the rage elsewhere, Greenberg proposed something different and potentially groundbreaking: the introduction of a “residency” program for new associates. Here’s how the Am Law Daily describes it:

Join the firm as an associate, but only if you’re willing to spend a third of your time training rather than churning out billable work. The catch? Those who sign on will be paid considerably less than the typical starting associate, will bill at a much lower hourly rate—and may wind up only sticking with the firm for a year.

The offer is the basis of what Greenberg is billing as a new residency program that is being rolled out across its 29 U.S. offices. Firm leaders envision the program as a way of recruiting talented associates it wouldn’t have hired during the traditional on-campus interview process for one reason or another. It will also allow the firm to assign junior lawyers to client matters without billing their work at the usual cringe-inducing hourly rates.

Greenberg is simultaneously creating a new non-shareholder-track position, practice group attorney, that is akin to similar jobs created by Kilpatrick Townsend & Stockton; Orrick, Herrington & Sutcliffe; and others that have moved beyond the up-or-out structure typically employed by large law firms. …

[C]lients have been eager to use the junior lawyers, who cost less than a typical associate, and have allowed them to sit in on meetings and calls—at no cost to the client—as part of their training. The rest of the training, MacCullough says, comes via online courses with the Practising Law Institute, the professional development courses the firm offers all associates, and extra “hands-on learning” with partners without concern about billing for the time.

This initiative emerged from Greenberg Traurig’s Fort Lauderdale office, where new graduates are offered the chance to be “fellows” who resemble associates, but are paid less, bill less, and spend more time training. This innovation has now spread firm-wide. “Once the initial one-year period ends,” the Am Law Daily reports, “residents will either become a regular-track associate, take on the new practice group attorney title, or leave the firm.” (This reminds me of the old college football coach’s admonition against the passing game: “Only three things can happen when you throw the football, and two of them are bad.”) [do_widget id=”text-7″ title=false]

Response to Greenberg’s program has been generally positive, and I can understand why. Anything that offers even partial employment opportunities to new law graduates these days has to be considered a good thing. The “residency” approach contains echoes of the “apprenticeship” programs that firms like Drinker Biddle, Strasburger, Ford & Harrison, Frost Brown Todd, and Howrey pioneered about 3-4 years ago and that I thought might herald a whole new approach to associate training. (They haven’t.) And Greenberg’s residents bear a close resemblance to Canada’s articling students, whose one-year apprenticeship in a law firm is a widely admired (although increasingly flawed) way to introduce new lawyers to practice.

Yet something still seems off. By crafting the position of “practice group attorney,” Greenberg has joined many firms in creating a class of associates who aren’t going to be partners; by introducing “residents,” Greenberg appears to be creating a class of lawyers who, most likely, aren’t even going to be associates. What’s not clear is why either of these new groups of lawyers are inside the firm at all. If what you’re looking for are low-cost, non-essential generators of legal work, why not talk to Axiom or The Posse List or any LPO with offices in Mumbai, Manila, or Minneapolis? Why introduce and maintain yet another costly group of lawyers who aren’t here for the long term?

One possible reason is that the whole point of the residents is to eventually replace the associates altogether. Lower salaries? Essential for continued partner profitability, and more reflective of actual associate value. Lower billing rates? Clients aren’t paying the higher rates anyway, so you might as well find a rate that they will pay. Lower billing targets? There isn’t enough work available for partners to make their targets, let alone new lawyers. As the article makes clear, these are really the only differences between a “resident” and an “associate.” Which of these two classes do you think the firm will want to sustain?

The law firm associate market is way overdue for a serious compensation correction: $160,000 starting salaries were and are ridiculous, relative to both the availability and value of new associates. New lawyers can’t and shouldn’t be expected to bill 1,900 legitimate hours a year, and a system that required them to do so was impractical and unwise at best, improper and unethical at worst. Something had to replace that system, and this may be the replacement.

Greenberg’s model is obviously still in its formative stages, and there’s not much point in exploring it further with such limited data. But it’s possible that it might be part of the next stage, maybe the final stage, in the decline of the law firm associate and the rise of the lawyer employee.

Go back several decades to the emergence of the Cravath model, which originally viewed a small class of salaried associates as future partners who could nonetheless generate profits through leveraged work along the way. The distortion of that model, over time, led to much larger and more profitable associate classes, of which only a few members would make partner — but all the same, the firm and its clients still treated those associates as professionals with potential long-term value. We’re now on the verge of entire associate classes whose only purpose and value is to generate leveraged work. They are not meant to be future partners: they are temporary employees meant to sustain the practices of current partners for as long as those partners need them. [do_widget id=”text-8″ title=false]

You might object that that’s not a good long-term stratagem. But a lot of law firms these days aren’t being managed for the long term, and there’s nothing more long-term than associate development: the investment of serious time and money in hopes of producing future partners. Many firms are employing fewer new lawyers than ever, and they have little incentive to invest heavily in the long-term development of the ones they do. They don’t need more equity partners — many firms are busily culling their own ranks — and if they do, they’ll get experienced, plug-and-play veterans with books of business via lateral acquisitions in the free-agent market. (Where laterally trained partners will come from in future, if firms no longer commit to investing in new classes of associates today, is not firms’ leading concern at the moment.)

It’s therefore possible that the era of the “law firm associate” — the partner in training — is now coming to an end, as I suggested back in 2009. Replacing it might be the era of the “lawyer employee” — here today, gone tomorrow, with a completely different set of expectations on each side about the nature of the relationship. It’s true that at several firms, the transition I mentioned above has long since taken place: most associates are essentially revenue generators. But the title of “associate” has a lengthy history and carries powerful expectations: “associateship” has been the precursor to “partnership,” just as adolescence has been the precursor to adulthood. Take away the title of “associate” and replace it with something smaller and poorer — “intern,” “resident,” “employee” — and the impact is profound.

This must surely be an attractive route for many law firms eager to reduce salary costs, minimize training expenses, and boost partner profits. But there’s a risk to the law firm that trades associates for employees straight-up, that diverts resources from internal development to external acquisition: it might permanently lose its capacity to develop any lawyers at all.

The ability to onboard a new lawyer, bring her into the firm’s cultural and structural orbit, develop her capacity to produce higher value over the course of time — this is an organizational skill, no different than any other a firm might possess. A firm that ceases to take internal development seriously will see that skill atrophy: it will become a muscle rarely exercised, with predictable results. PD professionals may leave the firm for better environments elsewhere; partners may lose whatever remaining interest they might have had in bringing along new lawyers; potential recruits may regard the firm as a dead end. These outcomes might not matter to the firm today. I guarantee that they’ll matter down the road.

Once a law firm switches off its lawyer development engine, it’s not easy to rev it back up again — and if you intend for your firm to be operating more than five years from now, it’s an engine you will desperately need to work at some point. That’s the tradeoff, whether they realize it or not, that some law firms now seem poised to make.

There’s another risk to this development, by the way — a threat to the continuing development of the legal profession itself. But that’s for another post.

[Here’s the next instalment in this series: “Reinventing the associate.”]

Jordan Furlong delivers dynamic and thought-provoking presentations to law firms and legal organizations throughout North America on how to survive and profit from the extraordinary changes underway in the legal services marketplace. He is a partner with Edge International and a senior consultant with Stem Legal Web Enterprises.  

Your future legal survival kit: Another Law21 survey

I have a new survey for you to complete, similar to my previous questionnaire about building your own law firm — except that today’s quiz looks like a lot more fun. But first, some background as to what prompted this one.

Five years ago this month, I posted a short entry here at Law21 called “Core competence: 6 new skills now required of lawyers.” I identified six attributes that the legal profession has traditionally valued, the ones we’ve always assumed are the most important assets for a lawyer to possess (e.g., analytical ability, logical reasoning, persuasiveness). I then suggested that these skills, while still necessary, were no longer sufficient — that tomorrow’s lawyers will require new abilities such as financial literacy, emotional intelligence, and project management. I thought it was an interesting post, but to be honest, not much more than that.

In fact, however, “Core competence” turned out to be far and away the most popular post I’ve ever written on this site. It’s among the most frequently accessed posts every day of the year, and often this five-year-old article is the top daily entry.

The popularity of that post just underlines for me the tremendous demand, both from within the legal profession and among those who wish to join it, for information about what kind of abilities — practical, functional, and performance-based — you need to be a successful lawyer. This is a question that ought to be occupying virtually everyone with an interest in the practice of law over the next decade:

  • Current or potential law students (there are still a few out there) who want to know what attributes they’ll need to compete in a tough market with a heavy debt load;
  • Law school administrators who want to know what kinds of pragmatic, professional courses they should be offering to attract those students and impress employers;
  • Managing partners and law firm hiring directors who want to know what aptitudes should inform their recruitment, training and retention efforts;
  • Clients who want to know what characteristics they should require of both their outside counsel suppliers and their own growing ranks of inside lawyers; and
  • CLE directors who want to know what training and educational opportunities they should offer in order to maximize market interest and curriculum effectiveness.

Over the course of the last five years, however, I’ve found my own thinking on this subject has evolved. I’m still interested in skills — the ability to effectively execute important tasks will always be highly coveted — but a focus on skill that underplays other characteristics will result in a work force too heavily reliant upon technical abilities and shortchanged on the kind of dynamic talents that separate the merely good from the truly great. Not only that, but over-emphasizing skill ignores the reality that some people are simply born with innate talents that give them an advantage over others. Charisma, for example, is a talent, a remarkably effective one (especially for trial lawyers and rainmakers), but like speed, it simply can’t be taught.

So that got me thinking: if we were to expand our repertoire of potential abilities and advantages for lawyers — if we thought more broadly about what lawyers require to be successful in the coming years — then we could start to assemble a more diverse and well-rounded inventory of market-centred attributes for 21st-century lawyers. And that leads me to my new survey.

This survey, like my new book Evolutionary Road, was co-created with my friends at Attorney At Work, and it touches on the same basic issue: the future development of the legal marketplace (if you haven’t checked out the book yet, please click through to learn more). Evolutionary Road posits five stages in the transformation of the legal market and recommends ways in which firms can adapt.

But what about individual lawyers? What can they do to adjust their own inventories of market offerings? The answer to that question depends on another one: what precise individual skills, talents and resources will maximize lawyers’ odds of success in the coming years? I have my own answers to that question, but I’d like to find out yours first. So I’ve put together a survey that tries to elicit your responses, and in an innovative way.

Have you ever taken one of those survival quizzes, like Survival At Sea or The Sub-Arctic Plane Crash Survival Test? The idea is that an accident has stranded you in a harsh and desolate location, and you must choose, from among a small array of remaining supplies, the items most important to your survival. In some tests, you can only take a limited number of items with you; in others, you can take them all, but you must prioritize them in order of importance. These quizzes test, to a certain extent, your knowledge of basic wilderness survival techniques — but also, and more importantly, your ability to think creatively and cleverly about how you can use the tools and resources available to you.

Using these tests as inspiration, allow me to present: Your Future Law Survival Kit Quiz:

Evolutionary_Road_takeTheSurvey (1)

You’re stranded in a future legal market, vast and unfamiliar, and you need to launch a new legal career. Luckily, you get to start off with several skills and talents — but it’s a limited supply, and you’ll need to choose carefully. Which ones will help you most? Below you’ll find 15 resources that seem like they’d be useful, including innate abilities and valuable skills. You have 100 points to assign among these resources, according to how important you think they’ll be.

And here are the 15 attributes (listed here in alphabetical order, but randomized in the quiz):

  • Connections: Strong and productive relationships with clients in your chosen field.
  • EQ: Your emotional intelligence fosters great relationships, especially with clients.
  • Famous Brand: Start off your new career widely known and respected in your field.
  • Financial Facility: You have a business background and a great head for figures.
  • Innovation: A talent for and enthusiasm about improving upon current practices.
  • Legal Knowledge: Good old-fashioned legal know-how, the black-letter kind.
  • Moral Fibre: You’re renowned for strength of character and high levels of integrity.
  • Nice Niche: Start your career with a strong grasp of a narrow but very promising field.
  • Pricing Strategies: You know how to price your work effectively and profitably.
  • Process Mastery: A knack for developing systems, procedures and efficiencies.
  • Recruiting Prowess: You easily attract talented colleagues and collaborators.
  • Risk Acceptance: You’re not averse to risk; you’re confident about taking chances.
  • Solutions R Us: A gift for solving seemingly intractable challenges, legal and non.
  • Techno-Wizardry: Facility with programming, web design, apps and all things tech.
  • War Chest: A bank balance to help finance many (but not all) of your future needs.

Which of these would you choose to launch a legal career in the future legal market described in Evolutionary Road? How much weight would you give the attributes you choose? As with the previous test, you’re given 100 points, which you must distribute throughout the list according to which features you think will prove most important; you will almost certainly have to leave some out, and you will have to award some choices more points than others.

Here’s the link to the survey — it’s open as of today, July 22 , and will stay open until August 12 (or until I have enough responses to draw some conclusions). Please take the survey — Note: print out your choices before pressing “Done,” so that you retain a copy — and forward it to your friends and colleagues. And then check back here next month to see how your answers compared with your fellow readers — and with mine.

Available now! My first two published books: Content Marketing and Publishing Strategies for Law Firms (co-authored with Steve Matthews, published by The Ark Group) and Evolutionary Road (e-book published by Attorney At Work). Click the links to learn more and order your copies today.

Jordan Furlong delivers dynamic and thought-provoking presentations to law firms and legal organizations throughout North America on how to survive and profit from the extraordinary changes underway in the legal services marketplace. He is a partner with Edge International and a senior consultant with Stem Legal Web Enterprises.  

Disrupting the legal education marketplace

Are you old enough to remember when the only way you could send a letter or a package to someone in another city was through the Post Office? Do you remember what it was like to deal with the employees and policies of a company that had a complete monopoly on a vital service? Remember how much you enjoyed that?

Are you also old enough to remember when the only way you could phone someone in another area code was through long-distance services provided by your local telephone monopoly or duopoly? And how you had to wait and call after 6 pm to get a discounted rate, or after midnight for an even steeper discount? How did that work for you?

It’s easy to forget how much technology and globalization have changed and improved our everyday experiences in the last few decades. Today, we take companies like Fedex and Skype for granted. We have trouble picturing a world — a very recent world — in which there was no Ikea, no Amazon, no Samsung, no Starbucks, no SouthWest. You don’t have to use these companies or like their products to recognize that their arrivals changed the markets they entered, created more choice, forced the incumbents to lower their prices or raise their games or change their offerings or all three. And I can presume that you wouldn’t go back to those old, narrow, barren markets unless forced at gunpoint.

Now, take that frustrating, constraining, 1970s-malaise feeling you recall from the old days, and apply it to legal services. Because that’s the way many people and businesses still experience the legal market: one type of provider, one set of rules and procedures, one definition of adequate service. But that’s all about to change:  our cozy little market is opening up, and new players are entering.

These new players, like the Ikeas and Southwests that entered other markets before them, will undermine clients’ existing assumptions about how legal products and services should be created, priced and delivered, and they will find many willing customers desperate for a breath of fresh air. This isn’t really negotiable or reversible. All that’s left for us to decide, as lawyers, is whether we want to wind up as the future equivalent of the Post Office in a FedEx world.

Now, here’s the better news for lawyers: there’s a growing chance that we could experience the same kinds of consumer benefits arising from the opening and expansion of another dusty, moribund market: legal education.

As you know, for all practical purposes, there is one and only one route into the legal profession: a law school degree and a Bar-administered admission process. The degree goes by different names (e.g., Bachelor of Laws, Juris Doctor) and so does the admission process (e.g., articling, Bar exam, solicitor training, Bar admission course). But the basic structure is universal and hasn’t changed for decades: three years of law school followed by a competence assessment that, in most (but not all) cases, is not especially difficult to pass.

The practicing Bar’s unhappiness with the legal education system has been thoroughly documented. But the Bar also has no one to blame but itself. By allowing a law degree to stand as the exclusive means of legal education credentialing, the legal profession has also created a monopoly that works against its own interests. If you want to become a lawyer, you must first go to law school. Legal educators, gifted with sole possession of an extremely lucrative and perennially increasing market, have responded exactly as you would expect any monopolist to respond: jacking up prices, fending off change, and ensuring their own nests are comfortably lined. (Before you start feeling too resentful about that, go back and read the fourth paragraph again.)

Law schools, of course, are currently in the process of watching their pleasure domes start to crack and crumble. Thanks in large part to recessionary forces and changes to the way law firms hire and use associates, US lawyer employment has imploded, and law schools are paying the price. You could argue — I won’t, at least not strenuously — that this is unfair to the schools: they didn’t cause the changes to the market, and if anything, they’re doing a slightly better job preparing students for practice today than they did 10 and 20 years ago. Not that that will help them now — there’s an old saying that when you sow the wind, you reap the tornado.

Anyway, the most recent US law school data is remarkably grim: as you’ve probably read, applications to ABA-accredited law schools are down 20% from 2012 and are on track to nosedive 38% since 2010. If you go back to 2004, the drop is an astonishing 50%. This has hit the legal academy like a hand grenade tossed through a window: Paul Campos has been tracking the resulting panic and shrapnel for several months now.

The problem has become large and serious enough to have caught the attention of the mainstream press: The New York Times, The Atlantic, Forbes and The Daily Beast have all picked up the story, coverage that is just going to accelerate the race away from law school enrolment. I issued a “sell” advisory on law schools 20 months ago, and nothing that’s happened since has changed my mind. (Smart schools still interested in saving themselves should read Bill Henderson’s Blueprint, today.)

That, obviously, is the bad news. The good news is that this market disruption, like every other, can create opportunities for new players and new models. Here are a couple that you should note and encourage.

In England & Wales, now widely recognized as the world’s legal laboratory, apprenticeship is poised to make a comeback in the professions. “At the moment, to become qualified as a solicitor, accountant or in insurance, the typical route involves three years at university, then on-the-job training and professional qualifications,” wrote Skills Minister Matthew Hancock in the Telegraph. “But university is not for everyone. There is no reason why you can’t attain the same qualifications, without the degree, starting on-the-job training in an apprenticeship from day one. So I want apprenticeships spanning craft, technical and professional jobs that open up work-based routes to the top.” The minister cited approvingly an apprenticeship program under development at BPP Law School, which has close ties to the profession.

Now, if you’ve been reading my work for a while, you’ll know that I think highly of apprenticeship, and that I wrote a few years ago about some promising apprenticeship programs at a handful of US law firms. (Here’s the paper I submitted to a Georgetown Law symposium on the subject.)  I imagined and hoped that this was a trend that would take off in a recessionary climate; it did not. But that was apprenticeship as a training method for new lawyers; we’re now talking about apprenticeship as a non-school route into the profession.

Hardly anyone takes that path anymore; but if it could be revived, ideally complemented with a mini-degree that provided grounding in the essentials of jurisprudence and legal theory, then law schools would have more on their hands than just a PR nightmare and a shrinking inventory: they would have competition. And unlike those first two factors, which will spawn only destructive outcomes, competition can and should be constructive for schools. Competing models that threaten to siphon off the best applicants would spur schools to make real changes in their approach to the market — it would give them a target to focus on and a framework within which to reconfigure and rebuild.

Nobody wants law schools to disappear; we want law schools to thrive — but on their merits. Putting a viable alternative up against law schools would motivate them to reconsider their own models, defend their own visions of lawyer preparation, or adapt their approaches to more closely resemble what the successful options offer. Complaining about law schools didn’t work; trying to regulate them won’t work; and putting them out of business is pointless. So give them competition: unleash alternatives that can give them a run for their money, and let them fight their way out of this mess.

A similar sort of innovation may be unfolding here in Canada, which it seems fair to say is not widely recognized as the world’s legal laboratory. But the Law Society of Upper Canada in Ontario has recently done something which could be just as bold, in its own way, as the UK’s move towards apprenticeship.

Law graduates cannot be admitted to the Bar in Canada until they’ve completed a year of articling — itself a form of apprenticeship with a practicing lawyer or law firm. More than a few US commentators have envied this approach and suggested its adoption in the US (or the British solicitor trainee program or German Referendarzeit). But articling in Canada is itself the subject of ongoing controversy, and in Ontario, articling placement — which used to be all but automatic — is now down to about 85%. That’s a problem that the US bar, facing a 55% new-lawyer law-related employment rate, would love to have.

In Ontario, however, concern about the articling crisis led to heated debates and finally, late last year, to the approval of a pilot-project Law Practice Program that would run parallel to articling and provide an avenue to those who cannot land articling positions. The program is not, shall we say, universally popular, and at this extremely early stage, it’s almost entirely speculative anyway. But I think it’s tremendously important nonetheless, for much the same reason as I think the possibility of apprenticeship is important: it creates competition for new lawyer training.

Up until now, articling in Canada has, in a sense, enjoyed a monopoly, in much the same way that law schools and lawyers have. There is only one “apprenticeship” method, one training route, for Canadian bar admission, and that’s the articling process. Knowing this, many Canadian law firms have felt free to offer articling positions without having to worry very much, if at all, about the quality of those positions. All they really had to concern themselves with was the provision of a competitive salary; it was accepted wisdom among lawyers and law graduates alike that the articling experience itself would always be uneven, and that whether you really learned much about being a lawyer would be partly a matter of your own efforts and partly the luck of the draw.

Now, introduce the Law Practice Program into this mix. Suddenly, articling programs can’t afford to be complacent, because now there’s another training option. Providers of the Law Practice Program (it’s envisioned that there would be several) can pitch themselves to the law student market thus: “Law firms won’t really train you to be lawyers, you know. They’ll have you photocopying and doing grunt work and picking up drycleaning. But we will train you, through competitive work placements and practical role-play sessions and other cutting-edge methods for inculcating business skills. We will give you the tools to be employable upon graduation.”

These providers will have to offer and deliver these kinds of benefits, because that’s the only way they’ll be able to make money. In order to attract candidates — and, much more importantly, to produce graduates attractive to employers — they will need to build a training program superior to articling (and based on some reported articling experiences, that might not be terribly difficult). They will have to do more than just be a consolation pathway for students who couldn’t find articles — they’ll have to persuade law graduates of all stripes that their programs are as good as or better than articling and are worth the investment.

And if they succeed — well, then suddenly, we have a race. New lawyer training stops revolving around the tired old question of “Whose responsibility is it?” that we’ve been grappling with for ages. It becomes a question of “Who wants the opportunity?” Which training option is better for new law grads? Which can deliver the best results? Which can draw the best students into their programs and produce the best subsequent employment rates? A market filled with new lawyer training options, competing with each other to attract law graduates into their program, would have many ramifications — the likely end of standard paid training for new lawyers almost certainly among them — but the overall impact on the profession would be highly positive.

That’s why I think the Law Practice Program for the Ontario legal profession has the potential to be a game-changer, and why the suggestion of an apprenticeship route into the British profession is equally significant. Our legal education and admission methods have grown stagnant because they are monopolies, no different from the post office or phone companies of the past. Break up those monopolies — open up these markets and let in some sunshine and fresh air — and you’ll have the first real opportunity for serious reform and improvement in the new lawyer development process.

And if it all breaks right, then just like with mail and long-distance calls, no one will want to go back to the old days again.

Jordan Furlong delivers dynamic and thought-provoking presentations to law firms and legal organizations throughout North America on how to survive and profit from the extraordinary changes underway in the legal services marketplace. He is a partner with Edge International and a senior consultant with Stem Legal Web Enterprises. 

Law firm profits in the process era

Large and midsize law firms appear to have an “expenses problem.”

  • Few managing partners expect that they’ll be able to corral rising expenses in the foreseeable future, according to the Citi Private Bank Law Firm Group’s most recent report. The bank’s newest survey of law firm leaders showed that only about 10% believed expenses would decrease by as little as 5%; about 21% thought expenses would stay steady, and a whopping 69% believed expenses would rise, with more than 22% forecasting an increase greater than 5%.

We know a few things about this market by now, or at least we should. First and most importantly: demand is soft, and it promises to stay that way for a few years. Macro-economically, we’re all stuck in a low-growth environment, with several landmines still active in Europe and China that could go off anytime. Law firm business is equally slack: every recent survey of in-house counsel confirms that law departments are insourcing more work and are pushing back on fees for the work they do send out. (Bruce MacEwen goes further and insists that “Growth is dead” in a must-read five-part series of Adam Smith Esq. posts, with a sixth to come.)

Aggressive marketing and business development can go some way to offset this decline in demand, but you can only squeeze so much blood from a stone. Severely discounting rates will get you some work, but clients have been playing this game for awhile and they know how it works: the firms keep raising their rates, the clients keep asking for steeper discounts, and the circle of life goes on. Demand is soft, and there’s not really much firms can do about it.

But expenses are up too, and firms can do something about that, even if they haven’t had much success so far. Physical premises might be off-limits if the firm is in the middle of a long-term lease (hopefully not one signed at the height of the boom), but property owners under recessionary pressure might be persuaded to renegotiate terms. Moving into a less ornate yet still respectable location is sometimes an option, though most lawyers are extremely reluctant to risk the perception of shifting downmarket, and it ain’t exactly cheap to move a law firm.

The killer expense for most law firms, however, is people, which is why reducing headcount is still a popular route to an improved bottom line. We all recall that firms threw thousands of employees over the side in the wake of the financial crisis. But most haven’t fully repopulated, instead forcing more work onto the partners, associates and staff who remain. That trend has never really gone away: just yesterday, white-shoe UK firm Slaughter & May fired 28 secretaries, while partner de-equitization remains the new black for every large firm. But you can only fire so many people, and you can’t fire them over and over again. At a certain point, you stop cutting fat and start carving into bone.

The other popular option is to find cheaper alternatives to your current staffing arrangements. But as Bruce points out in part 4 of his “Growth Is Dead” series, labour market arbitage — “a) cheaper people; (b) cheaper locales; (c) cheaper career paths; (d) cheaper offices, or some combination of all of these” — also has built-in limits: “You can only move certain people out of midtown Manhattan once, and you can only introduce the non-partner associate track once; [moreover,] there are virtually no barriers to entry in the labour market arbitrage business. If AmLaw firm A can do it, so can AmLaw firm B, C, D … — not to mention the Pangea3s and Integreons of the world.”

Bruce then goes on to make a critically important point: “We have not fundamentally changed how we do things. We have changed who does them and where.” [My emphasis.] I think that’s the heart of the matter right there.

Law firms have run up against a wall when it comes to reducing expenses, and that wall is their business model. The traditional law firm business model is fundamentally people-intensive. The only way most firms know how to get work done is by using lawyers and support staff. Few technologies more advanced than email management or time and billing software govern their operations. Few systems more sophisticated than hourly docketing support their workflow. People provide the vast majority of law firms’ products and services — but the market price of those products and services is falling below the baseline cost of their in-house providers and will eventually surpass the cost of the outsourced ones. Something has to give.

There’s only one door that leads through that wall — but firms are immensely reluctant to walk through it, because it leads to a radically new business model. The fundamental nature of law firms has to change from “people-intensive” to “process-intensive.” Systems and technology must play a greater role in the creation of products and services — not least because systems and technology are less expensive, more easily scalable, and completely immune to lateral hiring offers. Lawyers must be reassigned from performing systems-level work to either overseeing that work or taking on higher-value tasks. We are well into the process era I identified more than three years ago. It’s past time for firms to acknowledge that and adapt.

But many don’t. Many firms keep trying to force more low-value productivity from a resource — lawyers — that is fundamentally designed to deliver high-value production and that has maxed out in its current usage. The law firm business model has to shift its primary fuel source away from lawyers and towards systems, reserving the challenging tasks for the former and relegating the routine work to the latter. This is no longer a matter of being innovative and cutting-edge; that was three years ago. Now it’s about remaining competitive and profitable.

Don’t underestimate the impact this business model change will have throughout the legal ecosystem. Because the volume of routine legal work is much greater than the volume of challenging work, law firms will require fewer lawyers to create and deliver their inventory — a lot fewer. I’ve already written about the fact that many law firms have too many partners. The next step will be the legal market’s eventual realization that it has many more lawyers than it needs.

We can already see the outlines of this new market emerge. Prof. William Henderson has noted that new lawyer hiring by large US law firms has fallen off a cliff: “In 2011, firms of 500+ attorneys hired 2,856 entry-level lawyers. In 2007, that figure was 4,745. So, after five years, Big Law is paying the same wage but hiring 40% fewer lawyers.” Even if, as Mitt Regan suggests in a comment, that 2011 figure represents the nadir rather than a midpoint, we’re not going to see those hiring levels go back to where they were, because the work simply isn’t there.

The best-case estimate of US new-lawyer full-time legal employment right now is about 55%. According to the US Bureau of Labour Statistics, 44,000 law school grads are expected to compete for 28,000 jobs over the next decade. We should expect to see compensation for entry-level lawyers nosedive over the next few years, as the glut in that particular supply becomes clear.

It’s not simply a matter of law schools producing too many graduates for the market to absorb. It’s a matter of law schools producing graduates for a legal market that will shortly pass from this world. Law firms today are lawyer-intensive, process-light operations; throughout this next decade, they’ll become process-intensive, lawyer-light operations.

Law schools are not the only stakeholder in this industry to be fundamentally misaligned with that future: legal publishers, CLE providers, and bar associations are likely to be the hardest-hit, because they all rely on “volume of lawyers” as the basis for their businesses. Conversely, legal technology suppliers and legal systems analysts should have a field day as they retrofit firms for leaner infrastructure and more mechanized operations. (Read my article on disruptive legal technologies if you’d like to refresh yourself as to what’s coming.)

Law firms wonder where the growth in the legal market has gone. But Toby Brown has answered that: growth is bypassing law firms and going instead to innovative new providers, few of which are law firms and hardly any of which employ lawyers in the usual way. Law firms are going to realize that in order to compete for this market growth, they will need to emulate the approach of these competitors, which invest heavily in systems and reserve lawyers for those tasks that truly require their intellectual heft and skilled judgment. The hard fact for lawyers to absorb is that those tasks are much fewer than our traditional law firm model supposed them to be.

Many law firms believe their “expenses problem” is all about cutting costs to preserve profit in the face of declining revenue. It’s not. It’s a concrete sign of the growing misalignment between law firms’ lawyer-intensive workflow models and the market’s emerging requirement for a better use of resources in the delivery of legal services. The “expenses problem” can’t be solved by making deeper workforce cuts or by playing around with outsourcing and automation. It can only be solved by recognizing that firms must be configured differently in order to deliver legal services profitably.

Business is down for law firms, and it will stay down for a while. But when it comes back (and remember, it always does), it will look different and behave differently than it did before. Your firm must be ready for that. If you have an expenses problem today, prepare to change the way you do business tomorrow.

Jordan Furlong delivers dynamic and thought-provoking presentations to law firms and legal organizations throughout North America on how to survive and profit from the extraordinary changes underway in the legal services marketplace. He is a partner with Edge International and a senior consultant with Stem Legal Web Enterprises.

Learning to run

There’s an old expression among professional sports coaches: “You can’t teach speed.” It’s usually meant to indicate that there are things you can train athletes to do well (skills) and things that are simply God-given (raw talent), and it encourages the traditional view that talent is more valuable.

I’ve come to believe differently. In most markets, athletic and otherwise, there’s no shortage of talent: the physical and mental attributes of today’s new recruits surpass what most members of previous generations could boast. What’s missing, in many cases, are the skills, the knowledge of how to deploy those talents to maximum effect as a performer. Almost every good athlete coming out of high school and college can run fast; relatively few, however, learn to run well.

These thoughts came to me while reading (and commenting upon) an excellent post by UK law professor John Flood, in which he laments the complete disconnect between the legal education system and the rapidly evolving profession into which that system’s graduates will be deposited. If you asked your average law school professor to identify names like Axiom, Acculaw, Lawyers On Demand or any leading LPO, as John suggests, they wouldn’t know what you were talking about.

Law schools are so far behind the legal market’s evolutionary curve (and apparently so uninterested in catching up) that they seem extremely unlikely to lead conversations towards a better legal education and training system. But if so, where do we start fresh? I’d like to suggest that we begin by re-examining some fundamental assumptions about “talent” versus “skills” in the legal profession.

Virtually everyone in law school and the legal profession today has talent: some combination of raw intelligence, analytical and logical adeptness, and/or communication ability. That’s primarily thanks to the undergraduate education systems that produced these lawyers, the Law School Admissions Test that judges them, and the law school admission personnel who value these criteria head and shoulders above any others.

So the talent is there. Virtually everyone who’s in or preparing to enter the legal profession has speed. But not everyone in the legal profession can run well. And the newer you are, the more this is true. It’s almost universally the case for law students and new lawyers, in fact, who have received almost no training to help turn their talents into skills with which they can serve clients and make a living. (And I don’t just mean “practice” training; the tools with which you become a great lawyer include a really solid grounding in jurisprudence, legal history, and ethical philosophy, and not many law degrees can say they deliver that.)

Law schools haven’t been much help in this regard; but in fairness, it really wouldn’t have made much difference even had they spent the last 20 years teaching students “how to be lawyers.” That’s because the market for which those fantasy schools would have been preparing students is quickly disappearing. Nobody (not least me) can say with certainty what law practice in 2026 will look like, but it seems a pretty safe bet that it’s not going to look remotely like it did in 1996. Just as well, then, that we have mostly raw talent that doesn’t need to unlearn old habits before acquiring new ones.

But we still need someone to lead the way in the new skills-acquisition process for the legal profession — and that leads me to think there’s a huge market opportunity, right now, for a legal skills training company geared towards early 21st-century law practice. Never mind preparing students for Skadden or Linklaters; prepare them for Axiom, Lawyers On Demand, Clearspire, Quality Solicitors, Eversheds Legal, and similar operations that look like they’ll be offering an increasing percentage of legal jobs over the next couple of decades.

But — and this is important — we need to skill lawyers up, not down. We don’t want to be developing data entry clerks or automated-contract proofreaders here, and tomorrow’s best legal employers won’t be hiring those people. We need to train new lawyers in leadership, problem solving, project management, cultural fluency, emotional intelligence, technology, entrepreneurship, and other traits that have a decent shot at being the skills future lawyers will need. Give them the tools with which they can harness their talent and take it into any high-value or socially meaningful career, whether it involves the sale of legal services or not.

Law schools, as mentioned, might as well not be in this discussion. I don’t have a great deal of confidence in the practicing bar, either, especially given CLE administrators’ continued fondness for offering legal updates and calling it “professional development.” These are yesterday’s approaches; we need to find tomorrow’s. Solo Practice University remains a powerful model for this sort of innovation; we need more organizations interested in training lawyers to be gainfully and usefully engaged as lawyers in the decades to come. We need far greater use of true, supervised, mentor-based apprenticeship, because “doing” has a multiplier effect on “training.”

What we need, essentially, is a new breed of coaches who can deliver future-oriented professional development. There is no lack of opportunity awaiting them. There are thousands upon thousands of lawyers out there who can run fast but aren’t getting anywhere. They need someone to teach them how to run well.

The new capitals of law

A minor parlour game for BigLaw cognoscenti is the question of which city will be the next world capital of law. New York has held the unofficial title for many years, although London made a powerful case throughout the 2000s. Down the road, who knows? Maybe Hong Kong or Shanghai, possibly New Delhi or Mumbai; real outliers might include Singapore or Rio De Janeiro. And of course, don’t count out London or NYC retaining the crown.

Allow me to suggest, however, that some of the future capitals of law have already been nominated. Here are seven worth considering, in alphabetical order:

  • Belfast, Northern Ireland
  • Carrollton, Texas
  • Dayton, Ohio
  • Fargo, North Dakota
  • Hamilton, Ontario
  • Overland Park, Kansas
  • Wheeling, West Virginia

These seven cities, of course, are home to low-cost law offices or legal outsourcing facilities, many of which have just opened or are in rapid growth stages. More specifically:

These law firms and companies are choosing these locations not just because of lower costs, but also because of good-quality legal talent in the area and proximity to transportation hubs. Skeptics who complain they’ve never heard of Carrollton or Overland Park should remember that no one used to know where Bentonville is, either. If our clients are in smaller regional locations, why shouldn’t we be there as well?

This is by no means an exhaustive list, of course — many Indian cities host legal outsourcing operations, and similar entities can be found in South Africa, New Zealand and Australia. But two factors in particular are marking many of these operations as a whole new animal. The first is closer physical proximity to law firms’ national headquarters — “onshoring,” if you like, as opposed to “offshoring.” This approach to outsourcing has long had political and public relations benefits — opening plants in Tennessee rather than Tianjin pays numerous dividends — but as wages in previous outsourcing hotspots start to rise, the cost gap is narrowing and other non-financial factors are coming into play.

The second element, though, is more interesting. Increasingly, these outsourcing centers aren’t just low-cost “drudge” work outposts — they’re growth engines. Orrick’s Wheeling office has increased from 75 people to 350 in the last two years alone, while Allen & Overy aims to have 50 fee earners join 250 support staff in Belfast by 2014. Pangea3, as this New York Times article points out, is busily hiring lawyers in the United States, which is more than a lot of U.S. law firms can say. These cities look like new magnets for legal talent in the 2010s and maybe beyond.

These legal jobs are for so-called “second-tier associates,” but the reality behind that insulting label is this: these jobs do work that isn’t extremely challenging and needn’t be performed in global financial centers. These jobs and their lower salaries are perfectly calibrated to the value of the work they produce. They aren’t based in New York or London because, as firms have been painfully learning the past few years, clients won’t pay the rates required to sustain mid-range jobs in high-priced locations. (And as the grim statistics make clear, new lawyers are paying the price for this change.) These jobs are in Dayton and Wheeling because that’s how much they’re worth, and there’s nothing the least bit wrong with that.

What we’re looking at here is the unbundling of law firms: the disassembly of the once-mighty law firm talent block into discrete groups of lawyers and para-professionals based in various locations to carry out several types of legal work in ways better aligned with its value. Law firms and legal enterprises are heading towards a hub-and-spoke model: small but focused strategic headquarters in a major financial center, revenue-producing satellites in a variety of lower-cost locations worldwide. Soon enough, we’ll look back and wonder why on earth a law firm ever kept all of its partners and all of its associates inside the walls of its major downtown office buildings.

It bears repeating: this is not a temporary, stop-gap response to tougher economic times and partner profitability demands. This is the beginning of a fundamental change in how law firms carry out the work their clients send them. Ron Friedmann, in a wide-ranging post that takes in both these developments and the emergence of a “Top 23” in the AmLaw 100 (related developments, Ron thinks, and I agree), puts it plainly: “As more work moves to an AFA basis, firms will have to examine how the work itself is done: they will need to minimize time spent on matters to protect and grow profits. Wasting time on repeatable, wheel-reinventing matters simply makes no economic sense.”

This isn’t really about outsourcing, although LPOs have played an invaluable catalytic role in this process. This isn’t about new lawyers getting stuck in low-paying jobs, although my heart goes out to law school graduates caught in the breakdown between the old system and the new one.  And this isn’t about partners being greedy — or at least, no more than it ever was and no less than should be expected and encouraged from equity shareholders in a business enterprise. This is about how legal work is priced and delivered in a newly competitive marketplace. That’s the prism through which you should examine almost everything currently happening in the law, including the emergence of some unlikely new capitals.

Jordan Furlong speaks to law firms and legal organizations throughout North America on how to survive and profit from the extraordinary changes underway in the legal services marketplace. He is a partner with Edge International and a senior consultant with Stem Legal Web Enterprises.

Are you selling the lawyer or the firm?

From England and Wales, the newest hotbed of innovation in the current legal marketplace, comes word that the first nationwide solicitor franchise is on its way. Legal Futures reports that Face2Face Solicitors “is initially aimed at small private client law firms and will provide franchisee solicitors with centralized back-office systems – including accounts, IT and regulatory compliance – and central marketing and business development, to enable them to focus on the legal work.” Face2Face would seem to fit the Alternative Business Structures model very well, and in fact, the company plans to register as an ABS when the starting gun sounds October 6.

Face2Face is compared to and contrasted with another British operation, Quality Solicitors, which has been around for longer. Quality Solicitors is a network of about 200 independent law firms across the UK, ranging in size from solos to firms with more than 40 partners. Face2Face characterizes QS’s business model as one that rebrands existing firms, whereas its own model is “targeting start-ups, breakaways and firms looking to be ‘reconstructed,’ especially if there is a need to consider succession/exit.” In practice, the two models probably won’t come across much differently to clients; in both cases, they’ll see a small law firm with a franchised brand and the promises that come with it.

The UK, of course, is also home to the still-mythical “Tesco Law,” the widely mooted example of what the ABS provisions of the Legal Services Act would enable: legal services sold by supermarkets. This too would be a franchise operation, albeit with the franchised firms operating inside the mega-stores rather than in downtown or suburban storefronts. Canada has something similar with the “President’s Choice” line of banking and insurance services offered through Loblaw’s or the Great Canadian Superstore supermarket chains. (I enjoy telling US audiences that the Tesco Law equivalent in Canada would be “Loblaw’s Law”).

President’s Choice aside, however, the idea of franchise law firms hasn’t taken off in North America. I still remember the launch, back in the mid-1990s, of First American Law (not to be confused with First American Title Insurance or the First American Law Center), which planned to build a fleet of small branded firms across the US and Canada. Perhaps because it was ahead of its time, FAL didn’t take. The idea hasn’t gone away, though: Richard Granat recently floated the idea that LegalZoom might get into the same kind of business, supporting small firms with a brand and a back-office processing center.

The common thread in all these companies and concepts is this: a series of small firms, from solos up to about five lawyers but conceivably larger, operating independently but under a single brand name and supported by centralized web-based back-office support and marketing functions, serving consumers and some small businesses in heavy-traffic areas of law like family, real estate, wills, and business law. Because the work is what lawyers like to call “commoditized,” the brand becomes extremely important. Among the promises that QS firms make to their clients, for instance, are “no hidden costs,” “direct lawyer contact,” “same day response” and “the first consultation free.”

That’s one vision of the future. At the opposite end of the spectrum lie the global giants, and they’re taking a much different approach. Most of these firms dread the “commodity work” label and strive to serve a high-end market of major corporate clients with complex, challenging, high-stakes work that engages lawyers intellectually and rewards them stunningly. And while smaller firms are turning to a faceless brand to give them an edge, the larger firms are counting on faces, very specific ones, as their salvation.

The Wall Street Journal‘s recent report on lateral hiring trends was one of a growing number of accounts of law firms raiding rival firms for superstar partners with large books of business. These laterals don’t come cheap: many new arrivals expect compensation up to ten times heftier than what some of their new colleagues are earning. The compensation gap is to be expected, of course: just as LeBron James is paid a lot of money because he’s expected to fill a lot of seats, laterals are expected to earn their keep and more. But it’s still interesting to hear DLA Piper chairman Frank Burch explain the rationale behind lateral hires: “We are focused on making big, strategic hires, who can allow us to achieve greater stature and visibility in the business community.” That’s not a productivity argument; that’s a marketing argument, a profile-augmentation rationale.

None of this is new, of course: smaller firms that sell what everyone else is selling need to find a market differentiator (hence the interest in brands), while large firms want to sell services of a type or quality that no one else is selling and make that the differentiator. The question, at this stage, is which of these approaches makes more sense in the marketplace of the near future? It seems to me that going forward, the branded commodity approach actually has more upside.

I was speaking at a retreat for an AmLaw 100 firm last summer, and one of the lawyers asked me about what the future held for both “commodity” work and “bet-the-company” work. My response was that virtually every law firm mid-size and higher insists that it wants to pursue the latter kind of work, that that’s what it wants to be known for in the market. The problem, I said, is that there’s actually relatively little work of that kind available — companies don’t bet themselves every day — and thousands of law firms are all chasing it. Compare that to the “commodity” work: there’s tons of it out there and hardly anyone wants to provide it (indeed, judging from the number of self-represented consumer clients, there’s a massive shortage of supply). Which of these two areas looks more promising from a business development perspective?

The high end of the legal market is over-served and the low end is under-served, and there’s two reasons for that. One is that many lawyers don’t find the low-end work “challenging” enough (to which I say, find me a high-paid M&A superstar who can last a week in family court without breaking down). The other, of course, is that the low-end doesn’t pay enough. But I’ve written before about how it doesn’t matter how much the client pays, it matters how much profit you make after the costs you incur are subtracted from the price you charge.

National branded legal franchises look like an excellent way to accomplish the goal of providing more with less to this market. Let us do the things you hate, the franchisors tell lawyers, like marketing and branding and administration and whatnot. You do the things you love, like practise law and serve clients. Our efficiencies reduce your costs, so you can price competitively yet still keep more of what you charge (with a slice to us, of course). As more and more legal tasks pass through Richard Susskind’s five declining stages of work, from bespoke to commodity, the “low-end” “commoditized” share of the market is going to grow. Firms that took a more enlightened approach to this sector should reap the rewards.

And the big firms, the global giants? They have plenty of marketing and branding firepower, without question, and they’re awfully good at what they do. But they’re also susceptible to the weakness inherent in the traditional law firm model: your assets walk out the door every night, and you need to pray they come back the next morning or else you don’t have a business. The Lawyer reported this month on a survey of nearly 2,000 partner moves in London from 2005-2010 that found almost half of those hires left their new firm within five years, and up to a third left after three. Do you think those acquisitions were good investments of those firms’ time, money and effort?

As legal work drifts towards commoditization, lawyers drift towards fungibility. All five partners in your branded storefront franchise walked out today? You can probably find five other lawyers with very similar skill sets to replace them — and in this economy, you can probably do so fairly quickly. But brand names and logos — they don’t leave. Now suppose that all five partners in your large firm’s biotechnology practice group walk out the door; you have a much bigger problem. A wise manager once said that if he discovers he has an irreplaceable employee, his mission become making that employee replaceable. Large firms that boast about the irreplaceability of their top earners perhaps don’t realize the double-edged nature of that particular sword.

The oldest axiom in the legal business is that clients buy the lawyer, not the firm. This is true and always will be true, insofar as the lawyer brings something unique to the table: extraordinary skills, outstanding personality, or perhaps most importantly, the ability to craft and perfect a trusted relationship. But absent those conditions — and those conditions, I expect, will become increasingly rare — and with bespoke legal work diminishing, clients’ buying criteria are going to expand to emphasize factors like price, accessibility and reliability. When you’re sliding towards those criteria, you’re walking into territory where national brands have developed a very strong home-field advantage.

Are you selling clients your lawyers or your firm? Think carefully about the ramifications of your answer, now and down the road, because clients are starting to ask themselves the same question.

Jordan Furlong speaks to law firms and legal organizations throughout North America on how to survive and profit from the extraordinary changes underway in the legal services marketplace. He is a partner with Edge International and a senior consultant with Stem Legal Web Enterprises.

The year of the free-agent lawyer

Thomson’s acquisition of Pangea3 last November capped off what I think we can fairly call the year of law firm outsourcing. Among 2010’s LPO highlights, in chronological order, were:

What’s clear by now is that law firms are sending increasing amounts of work outside the firm, in two streams: (1) back-office tasks (administration, financial support, etc.) and middle-office tasks (research, document review, etc.) to LPOs in lower-cost locations overseas; and (2) routine lawyer work to law firms in lower-cost nearshore locations (expect more of that, and soon). We don’t hear much about clients’ direct LPO activities, but like icebergs, those are 90% hidden from view. And Thomson’s Pangea3 acquisition promises intriguing new developments to come on this front.

So we’ve just come off the year of law firm outsourcing: traditional firms contracting with distant corporate entities in lower-cost jurisdictions to carry out basic or routine work. I think 2011 will see the further development of a related but more important trend: the shift of lawyer work away from full-time associates and towards independent, unaffiliated, networked and mobile practitioners. The corporate outsourcing stream is branching out into an individual outsourcing stream. 2011 should be the year of the free-agent lawyer.

Almost two years ago, John Flood and Peter Rouse pointed out that law firms’ historic tendency towards full employment — maintaining platoons of full-time lawyers on the immediate premises — might have run its course, in light of both the recession and new service models at “dispersed” law firms such as Axiom, Rimon and Lawyers Direct. “Although legal work has become more commoditised and an increasing proportion of it shipped offshore,” they wrote, “it is perhaps lawyers themselves, both associates and partners, who are the commodities, traded and marketed by recruiters and head-hunters.” The new law firm model will be based on “contract lawyers” — attorneys retained for a specific project or a limited time, then released back into the market.

Law firms themselves soon caught on to the fact that many of the associates they had cut during the financial crisis could be brought back into the fold at lower costs, with fewer benefits, at the firm’s sole discretion. Last summer, an Altman Weil survey reported that “a majority of responding firms expect that contract lawyers will become a permanent part of their firm’s structure.” Altman’s Tom Clay added: “As firms become more comfortable with contract lawyers, AFAs, fewer partners, and whatnot, they’ll see it as a way to deliver services more efficiently to their clients.”

This past December, contract lawyer hub The Posse List noted that temporary lawyers were becoming a permanent solution. “[D]uring the recession, in order to keep the troops busy, law firms gave their associates work that would have normally gone to contract attorneys,” TPL wrote. “But now, even as the economy continues to improve, the ranks of ‘other’ attorneys continue to swell due to their lower cost and often more targeted experience. We have seen that as many contract attorneys with specialized experience move out of the document review rooms and into more substantive work.”

CEOs in all industries, not just law, have concuded that their labour costs have been too “fixed” and insufficiently “variable” in the recent past — the shift towards contract employees addresses that perceived imbalance. This chart from a recent issue of The Economist starkly illustrates that although current unemployment rates remain very high, there’s one notable exception: temporary or contract workers:

It’s not just in North America — the Posse List reports a steep rise in European and foreign-language document review work for contract lawyers. It’s not just “temporary” or “contract” lawyers, either: the last few years have seen a steady growth in the percentage of part-time lawyers (including partners) in law firms. And even within the ranks of law firm associates, a two-tier reality is emerging, notes Jerome Kowalski: a small elite segment of associates paid top dollar and expected to slide smoothly into partnership, and a “vast underbelly” of staff lawyers who are paid much less and worked just as hard, but are not held to strict billing or business development expectations.

Law firms, for once, appear to be near the front of a business trend: the lawyer employment model is shifting away from full-time work in law firms towards temporary, contract, part-time, dispersed, and/or remote free-agent lawyers. And this should be no surprise, because legal work itself is making the same transition: from a model in which every task was performed (and billed) by full-time lawyers inside the law firm, to a model in which legal work is carried out by the most appropriate, efficient and cost-effective performer, regardless of status or location. Associate leverage ratios have declined from their historic mid-’00s highs and figure to stay lower for the foreseeable future; formerly bottom-heavy pyramid-shaped law firms have become and should remain noticeably slimmer.

It’s a rational development, and in the end, it will produce a legal labour model more aligned to marketplace reality than to lawyer traditions. But from now on, many lawyer jobs will be much less secure, and significantly lower-paying, than the last few decades have led us to expect. And it will give rise to a number of implications and repercussions:

  • Law schools have not seen this trend coming and they have not adjusted their business model, which still pretends that huge tuition fees can be paid off quickly with a high-paying law job. At least three years’ worth of students have graduated into an entirely different market than the one on which their schools’ economic assumptions were based, and every year that schools fail to adjust adds another year of graduates with misaligned expectations. The long-term impact: a winnowing of the number of law schools and a general (although not universal) slump in revenue among the schools that survive.
  • Professional responsibility rules and practices will prove equally unready for the new model. As a friend who operates professional development in a large firm asks: to which lawyers should PD be applied? The future stars, certainly. But what about the staff, temporary and contract lawyers who produce work for the firm’s clients but are not expected to stay long enough to be considered a good educational investment? If firms don’t provide associate PD, where will it come from?
  • And what about conflict of interest rules? The same friend points out that contract lawyers who work for multiple employers on numerous matters will accumulate many more conflicts at a much faster rate. If the current rules on conflicts of interest are maintained and enforced, these lawyers will rapidly find themselves ethically obliged to turn down work, eventually becoming effectively unemployable. If we consider that to be a perverse and impractical outcome — and I think we should — are we looking at a two-tier ethics system? Or the collapse of an already unwieldy conflicts regime in the face of market pressure?

Despite all of that, however, I do think that this trend will eventually prove to be advantageous for this new generation of lawyers. I prefer to think of them not as “contract” lawyers or “temps” — terms that, in both reputation and reality, often aren’t so great — but as “free-agent” lawyers: agile, versatile, flexible, low-cost and high-quality sources of legal expertise. I think this new model will end up a net positive for the current and coming generation of lawyers. The advantages of free-agent lawyering should include:

  • a wider range of work,
  • more flexible work schedules,
  • a greater ability to respond to changing market needs,
  • more time for family and personal priorities,
  • better and more efficient work habits,
  • less attention paid to timesheets,
  • more opportunities for niche careers,
  • greater freedom to chart your own developmental path, rather than one shaped by the firm’s immediate needs, and
  • the ability to carve out your own independent professional brand.

Interestingly enough, free-agent lawyers could ultimately make law firms less important in the legal services market. In sufficient numbers, they will effectively constitute a new set of competitors: armies of independent lawyers who operate without the overhead costs and institutional inertia of law firms.

Free-agent lawyers might work for Axiom-style dispersed firms for as long as it suits them. They might ply their trade as independents with the assistance of Posse List-like organizations. They might come together to form emerging legal business networks of their own and use them to build brands and careers. They won’t be “solos” in the traditional sense — they ultimately work for other businesses, not their own — but they will constitute a valuable option for clients who want legal work done quickly, cheaply and well. LPOs will have to keep an eye on free-agent lawyers, too: they could be each other’s primary competition. Equally, though, the two entities could form alliances and pose an even stronger challenge to law firms.

Make no mistake, free-agent lawyers have a steep hill ahead of them: it’s a legal career on the edge, providing little leverage or security and demanding an entrepreneurial spirit. They could use some organizational help. But it does seem like a career path custom-designed for millennial lawyers, who were raised to multi-task their way through numerous serial careers with maximum flexibility and personal fulfillment opportunities. They represent, if not the future of the legal profession, one of a growing number of available futures for a legal marketplace increasingly in flux.

Jordan Furlong speaks to law firms and legal organizations throughout North America on how to survive and profit from the extraordinary changes underway in the legal services marketplace. He is a partner with Edge International and a senior consultant with Stem Legal Web Enterprises.

Can’t buy me motivation

I still remember the story told by a friend of mine who quit his job at a large national law firm. The income, of course, was great. But he had become increasingly unhappy with the work he was doing, the people he was doing it for, and the culture of the firm for which he was doing it. After a lot of internal debate and many discussions with his wife about their financial future, he finally made up his mind, secured a position in-house, and went — with some trepidation and perhaps still a touch of doubt — to have That Conversation with the practice group partner. After hearing the news, the first thing out of the partner’s mouth was: “Can we offer you more money?” There went any last doubt whether he’d made the right call.

I’ve seen this scenario repeated many times, not only in law firms but certainly with unusual frequency there. The instinct to solve a problem by throwing more money at it — or more accurately, to interpret dissatisfaction primarily as something more money can cure — emerges with remarkable ease and frequency within law firms. Hardly surprising, since virtually every internal and external metric of success for law firms, and almost every major decision about strategy and tactics, involves revenue in the here and now. Money motivates. Money galvanizes. Money is why we’re all here, why we show up every day. So if you want something done in the firm, if you want to maximize your chances of success, just add money. Not happy? Here’s more money.

Yet while this belief holds firm inside partnership meetings, and seems to constitute the philosophical foundation of a remarkable number of law firms, a somewhat different picture emerges when you step outside that hothouse environment. The American Lawyer‘s most recent associate satisfaction survey (which, by the way, recorded its lowest levels since 2004) does highlight associates’ desire for salaries to return to pre-recession levels. But as Northwestern’s Steven Harper points out, the higher-ranked firms scored very well on factors such as “relations with partners and other associates, interest in and satisfaction level of the work, training and guidance, policy on billable hours, [and] management’s openness about firm strategies and partnership chances.” Associate salary does not drive associate satisfaction; there’s more to it than money.

Move outside the law firm world altogether and the evidence becomes more compelling. A widely circulated study of multiple Gallup polls found that on average, an annual salary of $75,000 correlates with the high point of people’s “day-to-day contentment.” Salary increases beyond that point improved people’s broader satisfaction with their place in the world, but it had no effect on their daily emotional well-being. The actual figure can be debated — it would certainly be higher or lower in various cities or industries — but the fundamental takeaway is that past a certain point, compensation fails to move the needle on happiness. Throwing more money at unhappiness is a waste of good money.

Then there’s the work of Daniel Pink, whose new book Drive explores what motivates people to do their best. His TED presentation on this subject is a masterwork. He describes extensive studies showing that people desire workplaces that give or encourage autonomy over their work, mastery of their subject and higher purpose behind their efforts. And he demonstrates not only that these intrinsic motivators are more important than extrinsic motivators (including money), but also that for certain types of work, increasing monetary rewards actually reduces people’s effectiveness. What types of work? Pink describes them as “right-brain, creative, conceptual kinds of [tasks, where] the solution, if it exists at all, is surprising and non-obvious.” That describes, among other tasks, most legal work of value. Monetary rewards narrow people’s focus, which is ideal for straightforward, mechanistic tasks. For creative problems, where the solution is on the periphery, monetary motivation does more harm than good.

This all matters if your firm wants to be successful for its clients and be competitive for legal talent in the 21st century. The factors that keep lawyers satisfied and that positively affect their ability to do their jobs are changing as we speak. Law firms that continue to act as if everyone and everything has their price, and that money is the fuel that drives performance, are going to struggle to keep the best talent and deliver the best results, and they’ll wonder why.

Now, of course money plays a role in satisfaction; but in most cases, what matters to people is less how much they make and more whether they’re being treated fairly. We all like to complain about new lawyers in large firms pulling down six-figure salaries that they “don’t deserve.” You hear the same criticism of professional athletes, whose income is wildly disproportionate to their actual societal contribution. But the measure to look at isn’t the stand-alone denominator of salary, but its percentage of the overall profitability of the company or industry: when pro athletes complain, it’s because they see the overall pie growing to mammoth dimensions and they want a proportionate share. Similarly, associates know exactly how profitable their law firms are. But when they see colleagues laid off and their own workload doubled while watching multi-million-dollar partner profits grow, they start to have understandable doubts about whether the firm is dealing with them in good faith.

So compensate your lawyers fairly, in the context of their contribution and your profitability. But once you’ve done that, turn your attention to ways in which you can improve their performance, illuminate their career path, and increase opportunities for communication. Focus on intrinsic motivational drivers of the best performance and attitude. And learn to de-emphasize the role of money in your efforts to motivate and satisfy your lawyers — especially if they’ve just walked into your office for That Conversation.