Coping with fewer associates

The Ottawa Citizen ran an article over the weekend that caught my eye, thanks in part to this succinct summary of the gigantic demographic challenge facing the North American economy:

Baby boomers are retiring and the number of young adults behind them is on an irreversible slide. Starting in 2011, Canada’s workforce will lose two workers to retirement for every one that enters it. The ratcheting price on youth is a sign of things to come for the rest of the country as an aging population forces provinces to compete for dwindling numbers of young people.

Law firm associates’ salaries are already rising separate and apart from a talent shortage; in time, firms seeking to hire new lawyers are going to find out just what a full-blown seller’s market looks like, and they won’t enjoy it. I can see two long-term trends emerging from this.

First, those organizations and regions in danger of losing talent (i.e., most of them) will continue to look for ways to staunch the flow. Nova Scotia, according to the article, is introducing tax breaks to entice younger Nova Scotians to stay or return. The drawback to that approach is that if you’re trying to compete with Toronto or Calgary (or for that matter, London or Hong Kong) on money, you’re outgunned from the start. It will likely be a stretch just to be in the ballpark of the highest offer, and there’s only so much you can spend to keep up.

Consider instead the lawyer in the Citizen article, who’s returning home to Halifax because it’s a better community for her than Ottawa. Successful lawyer recruitment could in future be less about the firm and more about its environment. Forward-looking law firms could start getting actively involved in their own communities’ efforts to become more attractive to tomorrow’s scarce young worker. They’d join forces with other local organizations and identify potential opportunities and obstacles to young professional recruitment and retention.

Are local schools plentiful and effective? Is broadband access easily acquired and reliable? Are there parks and green space for families? Or, do poor transportation facilities and few cultural centers make for a sense of isolation? Are break-ins and petty crime more than just a nuisance? Are property taxes spiraling out of control? These are the sorts of questions that potential law firm recruits will be asking, as much as (maybe even more than) salary, benefits, hours and advancement opportunities. It stands to reason that the stronger your community base is, the more benefits you’ll have to offer — benefits that won’t cost your bottom line.

The second potential trend is that associates — or, to draw it more broadly, non-equity employees — could simply become too expensive to keep. Associates’ billable hours prop up a lot of PPPs (partnership profit pyramids, to hijack the acronym), but corporate clients in particular are losing patience with the current model and starting to push hard for cost containment. The supply of young talent is now beginning to dry up, so its price will only continue to rise just as clients apply more sophisticated analytics to their legal bills. It’s not hard to see a point where the traditional associate becomes transparently too expensive for the value provided.

What will happen then? Maybe we’ll see more firms unwilling to take on and train a junior lawyer through the first three years of his or her practice, preferring instead to hire only experienced laterals. Maybe we’ll see law firms finally take offshore legal service providers seriously. Maybe, in the most radical scenario, we’ll see firms forced to rethink and perhaps restructure their business models altogether, to cope with more exits at the top and fewer entrances at the bottom. Law firms are built the way they are in part because of the accident of late 20th-century demographics; the availability of talent in the early 21st century might just require a new model altogether.

Most firms haven’t been especially rigorous in defining the roles and supervising the development of their associates. It may well be that associates are about to become too scarce and too expensive for that to continue.

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