The obsolete associate

As red herrings go, you will not find a fish more scarlet than Cravath, Swaine & Moore’s recent announcement that it would raise its starting salary for first-year associates to $180,000 per year. Now granted, it was great fun watching many other AmLaw 100 firms trip over each other in their haste to match the raise. Had these firms all issued press releases titled, “Cravath Is The Firm That Matters: We Play Follow-The-Leader Because We Possess Neither Gumption Nor Initiative,” they could scarcely have communicated their own positions and vindicated Cravath’s move so well.

But while the predictable grumbles were reported shortly afterwards from corporate law departments, I have a hard time imagining that it’s this particular straw that will shatter the camel’s vertebrae. Clients have enough serious complaints about outside counsel that this probably would register mostly as a stinging but still fairly trivial annoyance.

Cravath’s $180K announcement looks to me primarily like a marketing play — a reminder to clients and competitors alike of the firm’s alpha-dog status: “We decide how much we pay our people, and if you don’t like it, do something about it.” Until such time as other firms decide to stop playing Cravath’s game, or its clients decide they’ve had enough of rate increases for lower-value work, nothing much will change.

But it’s important to note that whatever Cravath’s $180,000 announcement was meant to achieve, it wasn’t about “attracting the best talent,” regardless of what the firm might claim. For one thing, if a firm really wanted to own the market for new lawyers, it would raise starting salaries to $300,000 or more. That’s how you clear the field of competitors: either they match you dollar for dollar at significant expense, or more likely, they drop out of the race and concede victory.

But $180,000? Pfft. In the context of how much these firms make, a $20,000 annual increase is chump change, a painless way to generate some publicity, assert market leadership, and maybe get a few more students clamouring for OCIs. Do we really suppose there were top-ranked law students who weren’t angling to land a spot at Cravath before now — who were just waiting around for that $20K pot-sweetener?

"A 12.5% salary increase? Where do I sign?"

“A 12.5% salary increase? Where do I sign?”

But there’s another, more significant reason why Cravath’s salary move wasn’t really about attracting new associates: because new associates mean less and less to law firms all the time.

There are only two reasons why a law firm employs associate lawyers: to breed future partners and leaders, and to provide leveraged labour. The first reason is not especially compelling to many law firms these days, as they’re either busy poaching partners from other firms or de-equitizing the partners they already have. Promoting promising talent from the minor leagues, although it should be a priority, often isn’t.

The second reason is far more important for most firms: they developed a tournament system in which attrition would eliminate 80% to 90% of an associate class in its first ten years, while these associates churned out backbreaking amounts of billable work to fuel the firm’s profitability engine. That function has become the overriding raison d’être for associates in law firms.

But throughout the last five to ten years, this rationale for employing associates has weakened dramatically. First, work gradually began moving off the desks of junior associates, largely because clients no longer trusted the competence of first- and second-year associates and resisted paying (or refused to pay) their billed hours. That work found its way to “non-equity partners,” superannuated associates who could bill at higher rates but weren’t otherwise that productive, and equity partners themselves, who needed the hours to meet the perverse demands of their own compensation systems. Associate leverage, which was once 3-1 and 4-1 in most large firms, fell to 1-1 or even less in many places.

Then, as the post-crisis economic situation became bleaker and the mood of the legal market darkened, the supply of associate-level work dropped significantly. Law departments began insourcing straightforward legal work, tired of paying a 50% premium for the efforts of law firm lawyers. Layoffs and hiring freezes at many law firms, occurring both in the immediate financial crisis and during the malaise that followed, contributed to a growing pool of unemployed and under-employed young lawyers and recent law graduates. And that created a new presence in the legal market: companies and agencies that offered the services traditionally performed by law firm associates at lower prices.

“There aren’t as many law firm jobs for graduating students anymore,” Integreon’s Caragh Landry told Corporate Counsel last summer. “There’s a trend toward large pools of contract attorneys who have great degrees, they have maybe done some practicing and they’re looking for jobs.” What we once called “law firm jobs” increasingly are being provided by companies like Axiom and United Lex, which appear more and more as if they’ll supplant large full-service firms as the primary provider of entry-level lawyer experience.

That short-term contract and temp lawyer situation has now blossomed into a long-term project and flex-work legal talent market into which law firms themselves are dipping (and not always nicely).

  • More than half of the firms surveyed by Altman Weil this past spring reported that they’re using part-time and contract lawyers to meet demand, including 75% of firms with 250 or more lawyers.
  • Several large law firms around the world —  Fenwick & West (US), Blake Cassels (Canada), Simmons (UK), and Corrs (Australia), to name just four examples — are establishing their own flex-time, contract, or project lawyer divisions.
  • DLA Piper even partnered with agile-law pioneer Lawyers On Demand rather than create its own division.

Nor is this entirely being driven by the firms: the emergence of secondment and project lawyer agencies is proving attractive to millennials. Lawyers On Demand’s new Spoke service is reporting immense interest from lawyers. Essentially, law firms are outsourcing a growing amount of their “associate work” to freelance lawyers, saving themselves pension, benefit, management, training, and overhead costs in the process.

And it increasingly appears that whatever hasn’t been outsourced will soon be automated. In a survey last October, says The American Lawyer, “35 percent of law firm leaders said they could envision replacing first-year associates with law-focused computer intelligence within the next five to 10 years. That’s up from less than a quarter of respondents who gave the same answer in 2011.” Deloitte estimates that 100,000 legal roles could be automated in the next 20 years. In this respect, law is simply experiencing the same job squeeze that many other industries have gone through: thousands of US manufacturing jobs that have been automated out of existence simply aren’t coming back.

Leverage this.

Leverage this, Your Honour.

The connection between more automation and fewer associates is pretty clear. “It is easy to imagine a world where partners rely on machines instead of associates to do work that is already being done,” Casey Flaherty wrote recently. “It is much harder to configure a future where the machines have taken on those tasks while leading to employment of additional associates to perform higher value work that (a) no one is currently doing and (b) the capable machines, who replaced the associate in the previous work, cannot handle.”

All of this helps explain the stubbornly high levels of unemployment experienced by US law graduates over the past several years, numbers that have mostly held steady despite an historic drop in the number of law school applications (and in Canada, too). Associate hiring among the National Law Journal 350 largest US law firms was flat in 2014, the most recent year for which I can find a report, while “MidLaw” firms of 11-100 lawyers rarely hire new lawyers at all. The number of salaried positions offered by law firms for lawyers for their first few years of practice is at a standstill, and it’s inevitable that these numbers are going to start sliding backwards very soon.

What we’re seeing, as I predicted a few years ago, is the accelerating diminishment of the law firm associate. Certainly, law firms still compete hard for the “best and brightest” new lawyers to become their future leaders and rainmakers, and perhaps that’s what will eventually drive us towards $300,000 first-year salaries at the largest and richest firms.

But law firms are no longer sifting through each year’s graduating law classes searching for raw sources of leveragable labour. Instead, firms are finally going to join other businesses in other industries by getting most of their leverage from software and systems, rather than from humans. As a class of lawyers within law firms, associates are becoming obsolete: there’s just not going to be much need for them anymore.

This development represent a profound shift in the nature of law firms and legal work, and as it continues to unfold over the next several years, it will have equally profound effects throughout the legal market.

  • Law firms’ new lawyer classes will become permanently smaller, as firms focus on fewer candidates and conduct far more intensive assessments to see which of them will become future rainmakers and practice leaders.
  • Law firms will no longer be the career launching pad for so many new lawyers as they’ve been in the past, meaning other entry-level lawyer platforms will have to emerge (and competence training will become a more acute need)
  • Law firm pricing will slowly be transformed, as productivity will be measured less in billed work hours and more in products and services generated by both external talent and internal systems and software.
  • Law schools will have to reconfigure their curriculum to produce fewer general-purpose plug-and-play law firm associates (which is what the current system seems geared to produce) and more lawyers ready to provide value to law firms through technology, systems, and knowledge management skills.

I have a hard time seeing how law firms will ever return to the days when associates outnumbered partners and served as the primary source of leveraged revenue generation. The original strategic purposes and business functions of the law firm associate don’t really fit this market anymore. And there’s at least a little irony in the fact that those original purposes and functions are frequently traced all the way back to a law firm named Cravath.



3 Comments

Comments are closed.