The revenue-neutral associate

by with 8 Comments

Posted in: Law Firms, New Lawyers, Talent

Last month, while writing an article about professional development in the law, I impulsively posted the following question on LinkedIn:

Quick survey for those of you who began your careers as law firm associates: How many months and/or years did it take before you felt like a reasonably competent and confident lawyer?

The answers came rolling in — more than two dozen in a couple of days. The lowest number of years offered was two, the most was ten, but the frequently cited median was five. Only one person said they never felt unready for law practice; everyone else said, essentially, “It took me years to feel like I knew what I was doing.”

Yes, small sample size and all that, but I think there’s a lot you can take from this. One takeaway is solace: If you felt overmatched and out of place during the opening months and years of your legal career, you were far from alone. Another is insight into the lawyer mindset: For all we try to project confidence in ourselves and our abilities, most of us suffered from impostor syndrome for years after our call to the Bar, and I’m sure many of us still do. A third is confirmation that, yup, law school really does do a terrible job of preparing us to be lawyers.

But what those results also affirmed for me was a strong suspicion I’ve harboured for years now — that expecting new law firm associates to perform billable work is kind of ludicrous.

There’s a widely held assumption in law firms that new associates should be billing hundreds of hours within their first months on the job, and many thousands of hours within their first two or three years. At more than a few firms, an associate’s failure to meet his or her first-year billing targets can permanently dim that lawyer’s prospects in the eyes of management or can even result in early termination. Associates learn this quickly, and drive themselves to generate work that can be added to a client bill regardless of its utility. Because most new associates possess low skill levels, their work product tends to be either (a) utterly rote and low-value, (b) riddled with errors, (c) subject to massive editing and/or discounting by partners, or (d) all of the above.

Clients, of course, figured this out years ago. Some of them indirectly advised firms of the problem when they began refusing to pay the billed hours of first- and second-year associates. Those clients without the confidence or leverage to withhold payment on first-year bills pushed for discounts or just gritted their teeth and signed off. But the message they were sending was the same: “Your least experienced people add very little to your value proposition. We don’t want to pay for their efforts. You should do something about that.”

Firms say they are doing something: investing in professional development, sending their new associates off for business training, and so forth. I’m sure many of these activities pay at least some dividends immediately, and others further down the line. But almost all these efforts share a fundamental drawback: they treat associate professional development as a part-time endeavour. Taking courses and acquiring skills is something associates do in between their “real work” of serving partners and billing hours. They’re expected to generate billable work with 90% of their time while slowly learning how to produce that work in the other 10%. It’s like having to earn a living as a cab driver while still enrolled in driver training school.

This drawback, in turn, is founded on a more serious issue: the common belief throughout law firms of all sizes that inexperienced, low-skilled lawyers should be generating revenue within weeks of their arrival in practice. Law firms that push law schools for better “practice preparation” and train their new associates intensively upon arrival are certainly trying to do right by their associates and their clients — but their good efforts nonetheless stem from an assumption that new lawyers should be “ready to bill” at the earliest opportunity.

I wonder if that’s realistic, and I wonder even more if that’s healthy. I don’t think a person can switch from being a full-time student (even an articling student) to a full-time fee-earner that quickly without experiencing some mental and emotional whiplash. By forcing new lawyers into high-target fee-earning roles this early in their careers, we’re trying to radically accelerate a development process that’s meant to take much longer — maybe as long as five or ten years.

My modest suggestion, therefore — especially modest because I suspect few firms will adopt it — is that law firms consider re-envisioning the role of the new associate, de-emphasizing the importance of billing and emphasizing instead the primacy of training and experience. What I’m suggesting is the revenue-neutral associate.

For at least their first two years in the firm, possibly longer, make the development of skills, knowledge and experience the primary activity and responsibility of new lawyers. Enroll them for months-long training in process improvement, customer service, business management, and new technologies, testing them at regular intervals throughout this period to assess their progress. Send them to client meetings to watch and listen and report back on what they learned, at no cost to the client. Take all the piecemeal, intermittent professional development that law firms provide to associates in between their “real work,” and make that their real work. Take seriously the process of turning raw prospects into polished professionals, because it’s really not a part-time exercise.  (I argued almost ten years ago that we should consider the lawyer development process to be seven years of education and practice, not just three years of education).

Can firms bill their associates’ efforts during this period? Yes, but only work that has legitimate value, and only to the extent necessary to help the firm to recoup some or most of the lawyer’s costs — that is to say, his or her salary, benefits, and associated support costs. That might come to only a few hundred hours in the first year, several hundred in the second, a thousand or more in the third — although smart firms will be pricing their associate-level work on a non-hourly basis anyway, making it even easier to support this kind of role. 

The goal of a revenue-neutral associate program should be that at the end of the designated period — two to four years — the new lawyer has been rigorously and professionally educated, mentored, trained, and skilled to such an extent that he or she can deliver real (if not extraordinary) value to the firm and its clients — and that in doing so, the lawyer has undertaken enough billable work to help cover his or her training costs for that period. A lawyer developed in this fashion will be equipped to provide much more valuable and expensive services than a typical third- or fourth-year associate who has had to figure things out on the job under tremendous billing pressures — if the associate has even stuck around that long.

Would this approach be workable for a $180,000 first-year associate? No — but then again, the $180,000 associate is a market abnormality based solely on big law firms’ desire to draw the attention of the most attractive law school graduates. The reality is that no $180,000 associate, no matter how smart or hard-working, is worth his or her salary — and the billing pressure firms place on these young people to justify their inflated salary damages these assets in their formative years. A revenue-neutral associate would be paid in line with greatly reduced billing expectations — and the promise of much higher-earning potential after a few years of high-calibre development. 

There is precedent for this idea. Back in the late 2000s, firms such as Frost Brown Todd, Ford & Harrison, Drinker Biddle & Reath, Strasberger & Price and the late Howrey LLP all experimented with “apprenticeship models” by which new associates were paid less but received extensive training and mentoring. It was a good idea that unhappily arrived ahead of its time — these programs were launched during the post-crisis recession, when it was hard to persuade new graduates to turn down high starting salaries in favour of lower-paying “training opportunities.” It’s a different world now: Graduating lawyers understand that they need marketable skills and know-how in order to have sustainable legal careers. Law firms that can offer a path to that future will have a competitive recruitment advantage.

This would, obviously, be a major change in how law firms view and use their associate lawyers. But I also think it’s a necessary, and in fact an inevitable one. For decades, law firms have been getting their clients to pay the training costs of their newest and lowest-skilled workers. No other business has the gall to do this — to send customers bills for all the low-value puttering around by the firm’s least useful employees and justify it as “training.” It’s not training — it’s years of immersion in the law firm’s least valuable and interesting activities, subsidized by the client.  

But now that train is coming to a halt. You know all about the myriad game-changing substitutes that have entered the legal market over the past decade — technology that can carry out basic legal tasks, outsourced platforms of flex-time lawyers and managed legal services providers, insourcing of work by corporate law departments themselves. These alternatives have arisen precisely because the market is tired of paying law firms inflated rates for low-value work by low-skilled associates.

Clients want a less costly and more effective replacement for the labour of unskilled yet expensive junior associates, and the market has been more than happy to oblige — it is offering equal or better options for “associate work” at a superior price. These options are not going away; if anything, they’re gathering momentum and increasing sophistication. The hard truth is that the day of the billable young associate is drawing to a close anyway. 

So think about the possibilities of a “revenue-neutral” approach to associate hiring and training, and how it could change the nature of professional development in law firms for the better. Law firms will have to find a solution to their associate-lawyer challenges before too much longer. The sooner this option is considered, the sooner solutions can be tried and a new approach to law firm associate development can be found. 

=================

From now until the end of September, or while supplies last, Law Is A Buyer’s Market: Building a Client-First Law Firm is available at a 10% discount. Visit the sales page for Law Is A Buyer’s Market, proceed to the checkout, and in the “Discount Code” slot, enter “SEPT”. The discount does not apply to bulk orders of 10 or more copies, for which reduced prices are already available.

Pandemic IX: Law firm transformation

by with 7 Comments

Posted in: Law Firms

Someone asked me the other day my opinion on where the pandemic is taking the legal profession, given my status as a “legal futurist.” I’ve never much liked that term and have never used it to describe myself, so I was happy to reply, “You know, I think we’re done talking about ‘the future.’ There’s not much point anymore. The future’s here.”

SARS-CoV-2 has convulsed the world and created extreme uncertainty in every facet of our lives, such that there are few benefits of trying to predict, today, what the world will look like after the crisis ends. Predictions based on what data? Relying on how much evidence?

We can make educated guesses and we can map out various scenarios, and I don’t want to discourage those attempts. But we know less than 10% of what we’ll eventually know about this disease and its impact on humanity. We’re in a whiteout blizzard; we need to wait for the storm to ease a little before we can start to make out the unfamiliar terrain around us.

What I’ve instead striven to provide in this series is not so much prediction as prescription: Here’s what we can do right now to get through the initial onslaught of the storm, and here’s what we should do to start building better structures and systems to replace the ones that won’t make it through to the other side. I don’t think we should expect more of ourselves than that, at least until the outlines of our situation become clearer.

In today’s entry, the second-last in this series, I’m not even going to do much prescription, because been there, did that. I’ve spent much of the last 10 years recommending a new purpose and business model for law firms — as you might know, I wrote a book on the subject almost three years ago.Law is a Buyers Market - book cover thumbnail

So the first thing I’m doing today is making that book — Law Is A Buyer’s Market — essentially free for anyone who wants it. The hard-copy version is out of print, but you can download the PDF right here and distribute it as widely as you want. You can also still buy the Kindle version at Amazon, where I’ve reduced the price to US$2.99, the lowest Amazon will allow.

Secondly, I’m going to provide links to articles about law firm strategy and management that I’ve written in those intervening three years. You can consider these links to collectively constitute a de facto second edition of the book, or additional chapters that I would have included had they been written before the book was published.

    1. Clients. How can we prioritize our clients’ interests above all else? How to improve our law firm client experience and Is our law firm fulfilling its purpose?
    2. Service. How can we measure and improve our client service? A simple measurement of client value and As good as it gets?
    3. Business Model. How should we reconfigure the business of our firm? Rethinking law firm productivity measurement and Break the law firm business model
    4. Practice Groups. How do we manage our practice and industry groups? Law firms’ shopping mall problem
    5. Partners. How do I manage my powerful partners? Who really owns our law firm? and Don’t fear the rainmaker
    6. Associates. How should we rethink our associates and talent development? The revenue-neutral associate and Law firm culture and the “war for talent”
    7. Pricing. How should we price our services? The problem with value pricing and The rise of market pricing
    8. Compensation. How should we (not) compensate lawyers? How compensation plans are wrecking law firms
    9. Diversity. How do we completely change our approach to diversity? Law firms’ problem with women
    10. Technology. How should we incorporate AI into our firm? Getting over technology and Thinking differently about legal AI
    11. Innovation. How can I encourage more innovation in the firm? Faster horses and What will lawyers do now?
    12. Collaboration. How can I encourage more collaboration in the firm? The reality of collaboration and The price of collaboration
    13. Culture. How do we strengthen our law firm’s culture? Re-personalizing law firm culture
    14. Wellness. How can we ensure our lawyers’ wellness? Crushed and How to make less money
    15. Change Management. How can I lead change in my firm? Changing the lawyer assessment system and How to bring about change in law firms
    16. Future. How do we plan for our firm’s future? We’re here for a good time, not a long time and Fight the future
    17. The Big Picture. What does the really big picture look like for law firms? The cause of, and solution to and The new legal economy

And thirdly, in the balance of this post, I’m going to share with you my early thoughts about how this pandemic and its aftermath will eventually change the nature of law firms of all sizes, especially large full-service firms.

To be clear, this isn’t a prediction about the future of law firms — we don’t have nearly enough data yet. Nor is it a deeply detailed blueprint for the completely transformed law firm — I’m still working out what that might look like, and when I finally do, the result will probably be a major standalone article rather than a blog post. But I think I can delineate the outlines of one possible “future law firm” at this stage:

The thing about law firms is that they have always been home to two warring forces: the interests of the firm, and the interests of the firm’s individual partners. I wrote about this idea years ago here at Law21, and it constituted a cornerstone concept of Law Is A Buyer’s Market.

The interests of the firm include growing the business of the firm as a whole, building strong relationships with clients, amassing a powerful knowledge and data core, developing standalone lines of revenue independent from individual lawyers, and other goals consistent with making the firm as a business entity more capable, independent, and dominant in its chosen markets.

For the most part, the interests of individual partners run counter to these goals.

  • Whereas the firm wants to strengthen ties to key clients, so as to reduce the risk that the client might someday depart the firm along with their relationship partner, the partner wants the opposite: weak ties with the firm that virtually oblige the client to follow the partner wherever they might go.
  • Whereas the firm wants the partner to cross-sell the services of their colleagues in order to generate more business, the partner wants to avoid any risk that the cross-sold lawyer will disappoint the client (bad) or absolutely delight the client (maybe worse).
  • Whereas the firm wants consistency of retainers, communication, pricing, and billing, in order to maximize brand value, the partner wants complete autonomy to run their business the way they want, and to keep the firm brand from overshadowing their own.
  • Whereas the firm wants to grow overall revenue and profits, so that a rising tide will lift all boats, the partner doesn’t care all that much whether anyone else’s boat floats a little higher or lower, because the partner is concerned with only one vessel: their own.

You could think of these opposing forces as “centripetal,” or centralizing (the firm tries to strengthen the forces that pull key elements of the firm towards the centre), versus “centrifugal,” or decentralizing (the partners react against these efforts by asserting their own autonomy, keeping firm management within tight boundaries, and threatening to fly the coop if they don’t like how things are going).

Now, as you already know if you’ve worked in a law firm anytime during the last 30 years, individual partners have been winning the war against their firms so thoroughly that they look like the Harlem Globetrotters wiping the floor with the Washington Generals. Centrifugal > centripetal, and it hasn’t been close.

But the other premise of my book was that after countless years of ignominious defeats, the law firm as an entity was mounting a comeback. Driven by factors such as dedicated and professional leadership, the unstoppable rise of technology, and the growing power of a dominant and differentiated brand, firm managers and leaders were starting to assert more control over individual partners and enabling their firms to act more institutionally than they ever had.

And there was reason to think that the comeback was accelerating. As firms set up more subsidiaries, created more R&D functionalities, and brought in more technology-powered client-facing sources of revenue that they controlled and directed centrally, rather than being dependent on individual partners, the firm’s power base would grow and those centripetal forces would become stronger.

That was the theory, at least — a pretty good one, if you ask me. And I still think that for many types of legal service providers, that’s the model that will eventually win out. But the pandemic has exploded onto this battlefield, and in the initial stages at least, it is lending its strength to the centrifugal, decentralizing forces within law firms.

Consider some of the early impacts and likely knock-on effects of the pandemic:

  • At the most basic level, physical distancing requires everybody in the firm to stay away from each other, working from home and connecting only by audio and video, thereby weakening the ties that everyday physical proximity help to bind.
  • As lawyers work from home, carry out tasks, and docket their time, it becomes ever clearer to both the lawyers and the firm that billable legal work can be carried out without the firm’s active presence or involvement. Lawyers are busy; the firm is dark.
  • In a crisis situation, decisions frequently have to be made on the spot with limited consultation opportunities. Lawyers really don’t like this, but they’re doing it — and as they do it successfully, their sense of autonomy and independence grows stronger.
  • Firms are unlikely to press their lawyers to maximize billings during a pandemic, reducing the relentless pressure most lawyers experience. Lawyers will see that this and other supposedly “impossible” changes turned out to be possible after all, and they will remember it.
  • As physical distancing relaxes or becomes less frequent as the pandemic slowly runs its painful course, a certain percentage of partners are not going to return to their offices — they’ll have made alternative arrangements that they prefer, and they will not be told when and where to go to work.
  • Other lawyers and staff will follow these partners’ lead, and firms will increasingly find themselves with vacant offices in expensive high-rises. In an effort to cut their losses, they will downsize their physical footprint or convert unused offices and cubicles into high-tech conference spaces.
  • Satellite offices in suburban parts of the city will soon start to spring up, where partners in a practice or industry group gather their associates and support staff. These groups had long been firms’ true power centres, and physical independence will strengthen them further.
  • Law firm headquarters will become home to senior management, a few aging traditionalists, and client meeting areas. In an effort to maintain presence and relevance, these HQs will also host training academies for new hires and fully staffed R&D divisions to develop new client-facing products.
  • Within three short years of the pandemic’s arrival, then, law firms could change from highly centralized collections of disparate lawyers sharing a common space and culture to hub-and-spoke arrays of high-powered legal experts held together by a valuable brand and not much else.

Again, this is just one possible path forward among many, and I want to keep these possibilities deliberately vague at this stage, because the absence of meaningful data about our current situation and immediate future renders any attempt at prediction little more than speculation.

But any one of these paths forward could spawn multiple second- and third-order effects. There’s no obvious reason, for instance, why one of these satellite offices could not be embedded onsite with a major client, or why any law firm so decentralized should bother maintaining the traditional full suite of service areas with widely varying client types and profitability levels. And what about multi-disciplinary workforces? What about non-lawyer ownership? Both of these innovations are much nearer today than they were just two short months ago.

So I invite you to use the foregoing thought exercise to consider how this pandemic — a shattering force of chaos, anxiety, dissension, fragmentation, and isolation — is likely to forever alter the trajectory of law firm transformation. Which existing virtues of law firms will the pandemic undermine? Which elements of discord will it aggravate? Or, if you prefer to approach the question more optimistically, which positive aspects will it encourage and which negative tendencies will it ameliorate?

Or — and we have to consider the possibility — will the impact of the worst worldwide health emergency in more than 100 years, coupled with a potentially Depression-scale economic contraction on a dangerously interdependent planet, simply blow “the law firm model” to pieces? And if so, what do we do next?

I don’t have answers to any of these questions yet — I’m still trying to work out the right questions to ask. My book, the foregoing links, and these last three posts are the best advice I can currently give to law firms about their eventual future state.

But I remain confident that if we can keep our core principles about the professional business of legal service, the well-being of our colleagues and employees, and the interests of our clients firmly and foremost in mind throughout this ordeal, we’ll do okay. Maybe a whole lot better than okay, in fact.

And one last piece of advice: Stay connected with each other. This pandemic, like I said, is a shattering force of dissension, and it aims to both literally and figuratively drive us apart from each other, to divide us and isolate us. In that regard, it has plenty of allies, especially in certain governments.

Whatever the merits of centrifugal force in law firms might be, I urge you to resist its rupturing and fragmenting effect in your communities and in our society. We are better together, stronger together, and strange as it might seem, healthier together. No one individual can stop COVID-19. But one whole planet can — and will.

Law firm culture and the “war for talent”

by with 2 Comments

Posted in: Strategy, Talent

This is a moment of opportunity for law firms. As systems and technology transform the engines of legal services and a new legal economy emerges, firms have a rare chance to strengthen their competitive positions and grow their market share through innovation and investment for the future.

A few firms are doing exactly that; but most are not. And what’s weighing down many of those firms is a cultural millstone that we don’t talk about enough. It’s not the tired excuse of “our lawyers are too risk-averse.” It’s something more formidable: a toxic mix of owner complacency and employee intimidation. It’s a culture of timidity.

At these firms, serious investment in meaningful innovation doesn’t happen, partly because the partners won’t sacrifice individual profits and comfort for the firm’s long-term strategic advantage — but also because nobody else in the firm is willing or able to confront this unpleasant truth and challenge the firm’s owners to do better. At exactly the moment when bold leadership would pay huge dividends, nervous silence predominates. The partners are afraid of risk and sacrifice, and everyone else is afraid of the partners.

A useful illustration of the culture of timidity in many law firms is the so-called “war for talent,” which apparently is still going on about 20 years after it first broke out. Law firms love to talk about how they’re “winning the talent war” by acquiring this lateral or appointing that director or paying first-year associates a little more than the firm down the street.

The thing about wars is that they’re expensive and destructive, even in the business world, and you don’t get involved in one if you can avoid it. But if you are going to get involved in one, you better have a plan for how to win it and an ironclad resolve to pay the costs you will incur.

As far as I can tell, no law firm has tried to actually start, or win, a war for talent. No law firm has been willing to make the sacrifices necessary. For the benefit of any law firm that might like to try someday — and more importantly, to illustrate how a culture of timidity hobbles the effort — here’s a suggested blueprint. A few caveats:

  • I’m focusing here on new legal talent, the kind law firms (often) hire straight out of law school and (occasionally) develop into partners, but the principles here can apply to acquiring more experienced talent too.
  • I’m discussing this in the context of large law firms, but the principles absolutely apply to midsize or regional firms, with appropriate changes to elements like quantum of compensation and range of law schools.
  • I’m restricting my definition of “legal talent” to just lawyers, which is unfair, but designing a full-spectrum legal talent strategy is beyond this blog post. Most of the reasoning below applies to acquiring all legal value providers, however.

1. Hire for your firm, not anyone else’s. The purpose of a talent strategy is to help implement a pre-existing firm strategy. Consult your firm strategy (if you have one) and ask yourself: What business are we in? Who are we serving, what do they need from us, and what is our differentiated value proposition to them? You are hiring people for that firm, and no other. Law firms that hire “the best and the brightest” (however they define that nonsensical term) end up with a generic pool of talented lawyers who could work anywhere. You want lawyers who will do better at your firm than they would anywhere else. But getting ruthless clarity about your firm’s nature and purpose can be a long, brutal slog through your partners’ selfish priorities and comfort zones. Effective strategic planning starts with honest self-assessment, and that is not most partners’ strong suit.

2. Hire for tomorrow, not yesterday. Law firms routinely make the mistake of looking for new lawyers who’ll “fit their culture.” That’s a problem — not only because “culture” invariably justifies and perpetuates the exclusion of women and visible minorities from the firm’s ranks and power structures, but also because your firm’s culture is old and your incoming talent is young. You’re not just hiring for 2020 — you’re also hiring for 2025, 2035, and 2050. You need lawyers who won’t “fit” your culture so much as make your culture new and better. You’re hiring leaders for a diverse future, not worker bees for a monochromatic past. But your partners, especially the older white guys, want to hire the candidates they’re “comfortable” with, and you know what that means. They need to be persuaded otherwise, or you’ll wind up building a law firm ready for all the challenges of 1998.

3. Cast the widest net for new talent. Most firms hire from a small group of favourite or “safe” law schools every year. It’s easy, convenient, and uncontroversial, which means all the other firms are doing it too. Look everywhere for talent. Your very specific needs will be hard to fill, so broadcast them to every school in the country through social media and targeted ad placements. Visit more “lower-ranked” schools in person and meet their brilliant, hard-working, creative, empathetic students. Your rivals are ignoring these rich veins of talent, but you’re smarter than they are and you’re willing to spend more than they do. But first you’ll need to persuade the partnership to increase your recruiting budget, and to consider schools other than their alma maters or those most highly ranked by some penny-ante online magazine.

4(a). Pay twice the going rate for new talent. A New York firm raises its starting associate salary to $190,000, and the rest of the industry either meekly follows along or clutches its pearls in dismay. That’s not a “war for talent,” that’s a PR exercise. You want to win the war for talent in New York? Pay new associates $350,000 a year. Or pay $240K in Chicago, $190K in San Diego, $140K in Halifax, whatever. Publicize it far and wide, make sure the whole industry (and every law student) knows that your firm crushes everyone else in this category. Or, if you simply can’t persuade the partners to ramp up associate salaries that much, try this cheaper alternative:

4(b). Take over your associates’ student loan payments. Pay the top-ranked salary as well as all your new associates’ loan instalments, and keep paying them until the associate becomes an equity partner or leaves the firm. Nothing preoccupies new lawyers more than their debt loads, so take this burden off their minds; you’ll be inundated with applications. Either of these tactics would vastly increase the size of the talent pool from which you can draw. It would also blow partners’ gaskets, not just for the hit to their profits but also for the exposure they’d feel from adopting such a bold tactic. Most firms that have made it this far into the list would falter at this step. For those that soldier on, we’ll add another outrage:

5. Don’t bill your new associates’ work. I campaigned for the revenue-neutral associate a couple of years ago, and you can read all my arguments for it there. But the upshot is that even your hand-picked high-paid new associates don’t have the skills to produce work of value that clients want to pay for, and forcing them to do so creates enormous negative pressure. “But, but,” the partners sputter, “Who will pay for the associates if we don’t bill their time?” Here’s a radical answer: The owners of the business can pay employees out of their own profits, like in the rest of the world. Another hard truth for the partners, another differentiating factor for candidates. And here’s one more.

6. Immerse new lawyers in a world-class training program. Take a group of brilliant, diverse, highly motivated, well-paid new lawyers, and instead of pushing them to bill thousands of low-quality hours, spend their first two years on the job equipping them with a suite of 21st-century legal business knowledge and skills. Which ones? Customer service, process improvement, project management, human-centred design, cultural competency, financial literacy, artificial intelligence, knowledge management, industry intel, time management, I could go on and on. Embed them on cases, in transactions, and especially on-site with clients, as observers and apprentices. Can you imagine what you’ll have on your hands at the end? What a contrast they’ll present to the exhausted, disheartened second-year cohort at every other firm?

All of the foregoing can be yours — probably yours alone, because how many firms will copy you? And to get it, all you have to do is pay the price for it. But this strategy would cost something even more valuable than money: It would cost political capital.

A senior staff member who seriously brought this proposal to the partnership at most law firms might not have a job this time next year. A senior partner who tried to sell their colleagues on it would suddenly stop getting invitations for dinner or golf. Breaking the culture of timidity in law firms, speaking truth to power, can come at a high price.

The path to winning the legal talent war is simple. But it’s not easy, and it’s not supposed to be. If it was easy, everyone would do it.

Will a law firm’s owners yield a fraction of their profits to help make their firm the undisputed winner of the legal talent wars, year after year? Will a firm’s leaders gamble their status, risk their relationships, or spend their political capital to make it happen? In the great majority of firms, maybe 99 out of 100, the culture of timidity ensures that these questions won’t even be asked, let alone answered.

So how about your firm? Are you one of the 99? Or are you the 100th out of 100, where someone was brave enough to raise this and the partnership was bold enough to try it? I’m not saying every law firm should mount this talent strategy — frankly, many firms shouldn’t. But every law firm should be a place where it could be openly considered, where employees feel empowered to raise difficult issues and owners are mature enough and secure enough to be told things they’d prefer not to hear.

Because of course, this isn’t just about the “talent war.” This is about everything coming our way in the legal economy over the next decade or more. Every law firm is going to experience the same storms, go through the same crises, and glimpse the same opportunities. The firms that come out of this gauntlet leading the pack will be those that found their courage, empowered the right leadership, galvanized the partners, accepted the sacrifices, and committed to act. They calculated the steep price of starting and winning a war, as well as the risks of breaking the code of silence around that price — and they chose to pay it nonetheless.

There’s no other requirement. There are no other tests. Is this your firm? Are you ready?

How to save the lawyer development system

by with 10 Comments

Posted in: Governance, New Lawyers

I bring news from the places where lawyers gather. In addition to presenting at several law firm retreats in 2019, I’ve also spoken to meetings of law firm administrators, law firm knowledge officers, legal industry analysts, and law students and professors. As you might imagine, these are disparate groups that tend not to agree on a whole lot.

Yet consistently, in audience questions and hallway conversations, one common concern kept arising at all these events — that the lawyer development system is in serious trouble and could be headed towards collapse. This post is intended to describe the problem and propose potential ways for us to avoid what might otherwise be a professional disaster.

Let’s start by defining our terms. By “lawyer development system,” I mean the structured yet largely informal process by which a law student on her first day of classes eventually becomes a confident, competent lawyer providing legal services of value to clients. Obviously, this process stretches well beyond one’s call to the bar: Way back in 2010, I suggested that it takes seven years for a first-day law student to reach that point, although in a brief survey I conducted in 2017, some lawyers said it took an additional five to ten years after graduation before they felt like a “reasonably confident and competent lawyer.”

So by these lights, the lawyer development process requires anywhere from seven to thirteen years of a person’s life, starting from their first day of law school. I need hardly point out that in most countries, we credential lawyers three or four years into that process and expect them to bill well over a thousand hours annually by the end of their fifth. Much of the lawyer development process, therefore, involves experiential learning on real client matters, long before the point of confident competence has been reached.

Most importantly, responsibility for the lawyer development process is diffused throughout the legal ecosystem, with no single entity holding full authority over and answerability for the process and the results. This is what I mean by “structured yet informal” — if it takes a village to raise a child, then it takes an entire legal market (including law schools, bar examiners, law firms, and clients) to raise a lawyer, without anyone technically in charge of the whole process.

I personally think that’s a pretty ragtag way for one of the world’s great professions to sustain itself. But to all the criticisms we can level against this system, one defence is hard to refute: It works. Lawyers are here, and we provide people with legal services, and the world hasn’t ended. It might not be a thing of beauty, but the system works.

Until it doesn’t. What people in law firms and law schools have been telling me over the course of this year is that they’re deeply worried about the lawyer development system. Specifically, they’re saying: “We don’t know where the next generation of lawyers is going to come from.”

Let’s start with one of the legal profession’s oldest truisms: Law schools don’t teach people how to be lawyers. Not only is this inarguably true, I don’t see how it could be otherwise. If it takes an average of 7 to 13 years to really “become” a lawyer, law school can do no more in its three years than get the ball rolling. Law schools are not set up to teach people how to deliver legal services to clients, and they can’t be reconfigured to play that role without gutting them and converting them into completely new entities. If we want to have lawyer development academies that mix classroom instruction with supervised work opportunities for ten years before granting a license to practise law, that’s fine; but that’s not the world we currently live in.

And anyway, law schools haven’t had to “teach people how to be lawyers,” because the profession has effectively outsourced this job to the private sector. Most lawyers’ early development time — say, between three and eight years after their first day of law school — is spent working for more experienced lawyers (usually in law firms) rather than directly for clients. The well-worn path looks like this:

  • Step 1: Get hired as a new associate at a law firm.
  • Step 2: Work really hard.
  • Step 3(a): After a period of six to twelve years, accept an invitation to join the equity partnership, after which you can continue to work really hard while getting a cut of other lawyers’ revenue.
  • Step 3(b): Alternatively, anytime between the first and twelfth year on the job, leave the firm to join (i) another law firm, (ii) a corporate or public-sector law department, (iii) sole practice, or (iv) some other type of employment inside or outside the legal market.

I expect that would describe the path into the legal profession for at least 90% of the lawyers reading this post, as well as for their colleagues and supervisors. It’s so ingrained into the profession that we scarcely notice it anymore. We take it for granted that once we leave law school, a wide range of private businesses will welcome us into the working profession and pay us an annual salary to bill thousands of hours to clients while learning the intricacies and nuances of law practice.

Not every law firm does a good job of developing lawyers, of course. At many law firms, the quality of these early years of lawyer development is pretty abysmal: On-the-job experience substituting for actual training, trial-and-error learning taking the place of mentored instruction, and crushing billing pressures outweighing almost all other considerations. But this system more or less does the job of getting new law graduates from knowing nothing about law practice to knowing something about it, inside a (relatively) quality-controlled environment.

To be clear, law firms don’t play this critical role in the lawyer development system just to help the legal profession. It’s not an act of charity. They do it because they can bill their associates’ time spent working on basic, low- to medium-level tasks, pay them less than the revenue they generate, and pocket the resulting profits. And even though attrition will cost them most of these lawyers over the years, one or two will make it through this gauntlet ready to buy equity in the firm and keep the place solvent for another year. The rest of those new hires will eventually fan out across the legal market and keep the lawyer landscape populated.

This entire system, however, with all its benefits and faults, rests on a single and increasingly fragile foundation:

  • Step 1: Get hired as a new associate at a law firm.

Law schools, bar admission personnel, and (without realizing it) clients all assume that law firms will keep doing what they’ve been doing for years: Hire new lawyers and show them the ropes. The entire lawyer development system hinges on law firms acting as that bridge out of law school. If law firms were to stop doing that, or even to severely curtail their new-lawyer hiring, it’s not an exaggeration to say that this system would simply break down.

I submit that we’ve already entered this process, right now. It looks like this:

1. The “low- to medium-level tasks” that used to occupy associates’ time have been migrating from law firms to more cost-effective performers such as software, ALSPs (including a growing number of law firm spinoffs and subsidiaries), and clients themselves. These tasks are routine and highly procedural, yet law firms still want to perform and bill them the same way they perform and bill highly specialized partner tasks. That value mismatch means firms have difficulty competing for this work. The US economy has been surging for almost a decade, yet “the overall growth trend for demand for law firm services [in that time] has been essentially flat to negative in every year.” That lost demand for law firm hours is very probably “associate work” that is no longer being given to associates.

Courtesy Prof. William Henderson. Click to enlarge.

2. As the volume of (formerly) “associate work” coming to law firms declines, firms respond by employing fewer new lawyers. It’s not as if firms actually need more than a handful of new associates in any given year to become future partners — the rest are hired only to bill hours, and if there are no hours to bill, why hire them? The essential Prof. Bill Henderson crunched the data last year and found that the number of entry-level jobs in private practice in the US declined from 20,611 in 2007 to 16,390 in 2017, a 20% drop. Large law firms, which shoulder about a quarter of first-year lawyer hiring, brought in 139 fewer first-year lawyers in 2017 than in 2007, even though these firms’ non-first-year lawyer population grew by nearly 40% during that time (from 65,212 to 90,867).

3. Now consider that the migration of low- to medium-level tasks from associates to more efficient providers has only begun. The development of technology for automating basic legal work is accelerating, along with growing acceptance (by both buyers and sellers) that legal work should be carried out by the most appropriate performer or platform. The Law Society of England & Wales studied this phenomenon and concluded that “the number of jobs in the legal services sector will be increasingly affected by automation of legal services functions” — in fact, it estimated that over the next 20 years, the equivalent of 67,000 full-time legal jobs will be consumed by technology. Note that the US has about 10 times as many lawyers as does England & Wales.

In “Legal Professionals of the Future: Their Ethos, Role and Skills,” Prof. John Flood writes that “the effect of automation here could be dramatic, in that if junior associates were to be gradually culled from firms, the entire reproduction of the legal profession could be jeopardized, since law firms are structured around associates being promoted to partnership.” Joe Patrice at Above The Law calls this the path towards “the death of the junior attorney,” writing: “Sooner rather than later, firms are going to slow their junior hiring and focus on a narrower range of candidates. … If the training regime for young lawyers isn’t addressed, the population of competent attorneys … will simply dry up.”

Are law firms aware of this issue? Of course. But they are neither structured nor incentivized to do anything about it. They are far more interested in acquiring established partners with mobile clients to boost immediate revenue (even though those efforts frequently disappoint), in shrinking the size of the equity circle (thereby growing profits for those inside), and delaying partnership admission for their remaining associates as long as possible. They are fixated on maximizing short-term partner profitability, and first-year associates could not be further removed from that goal. Rightly or wrongly, law firms do not consider the future of lawyer development to be their problem. They are increasingly less willing and less able to take on this job.

So whose job is it? I come back to my initial observation that the lawyer development system has been outsourced to and diffused among many different stakeholders. Each of those stakeholders will be happy to tell you that it’s someone else’s job to train and develop lawyers; none of them wants to step up and take on this immensely important (and expensive) responsibility. But the outsourced-and-diffused solution has just about run its course, and something has to replace it — something unified, principled, systematic, and clear about its purpose and goals.

For my money, there’s only one correct answer to the question of whose problem this is, and who is responsible for finding a solution. In a self-regulating profession, responsibility lands squarely on the professional regulator. Whether that’s a state bar, a state court, a law society, or a special regulatory board, this entity is statutorily charged with ensuring that the lawyers who deliver legal services to people and businesses are competent, trustworthy, and reliable. That is job #1. If the entity cannot do that, then it might as well close its doors and forfeit professional self-regulation to the government. (Governments might be only too happy to take on the job if they feel lawyers aren’t up to it.)

Too many regulators are currently obsessed with pursuing “unauthorized” legal services providers, or with defending their own territory, or even with laudable goals like increasing access to justice. I submit that none of these activities is as central to the self-regulatory mission as saving and enhancing the lawyer development system, and I believe that regulators should make this their primary focus immediately. Governments can punish malevolent or rogue legal providers through criminal prosecution, and they can increase access to legal services by legislating open markets and restoring public funding for legal aid. But only lawyers can fix the lawyer development system.

How could we go about this? Here’s one suggested route forward for a professional legal regulator to consider.

  1. Drop all the extraneous activities and functions described above and concentrate your limited resources and political will on this subject.
  2. Identify the core professional competencies lawyers must possess at various stages of their development. Canada and Great Britain have already done this for you, although neither jurisdiction has yet implemented these competencies as part of their lawyer admission regime.
  3. Accredit any educational or training institution that will develop these competencies in lawyers over a minimum period of five to seven years at the start of lawyers’ careers. Inform law schools that they can keep their accreditation if they agree to deliver these competencies and prove they can do so.
  4. Invite law firms interested in participating in the development of competent lawyers to submit detailed plans for the hiring and close supervision of lawyers, in conjunction with an accredited competence delivery institution.
  5. Credential lawyers in stages, much as novice drivers are allowed to drive only at certain times and with adult passengers, or as medical interns are licensed only to carry out certain basic procedures. Abandon the absurd fiction that a newly called lawyer is entitled to do anything a veteran lawyer can do.
  6. Be fully transparent about this process to government and especially to the public. Let people access detailed assurances about the nature, quality, and reliability of what they’re getting when they hire a lawyer.

The foregoing is only an outline, and professional development experts can surely improve on it. But I don’t see that the task in front of us can be accomplished by anything much less radical than this. Law schools would fall and rise, creating a brand new educational landscape for lawyers. Professional self-regulation would be transformed into what it should always have been: keeping our own house in order so that society is demonstrably and thoroughly well-served by lawyers. Lawyers themselves would become confident and competent much earlier in their careers, accelerating their timelines for delivering real client value and improving their mental and emotional well-being in the process. By resolving one impending crisis, we can tackle and solve many other lingering problems.

It’s time to stop blaming law schools for not doing regulators’ job. It’s time to recognize that law firms won’t do this job anymore and shouldn’t anyway. It’s certainly past time to stop making clients do this job through lawyers’ trial-and-error learning process. It’s time the legal profession took the privilege of self-regulation seriously by unifying, clarifying, redesigning, and transforming the lawyer development system.

How to make less money

by with 8 Comments

Posted in: Law Firms, Purpose

I can’t tell you how many times a law firm leader has said to me recently, “Jordan, we’re simply making too much money. We’ve got a profit epidemic on our hands, and frankly, it’s causing some serious damage to the fabric of our firm. Something has to be done about it.”

Just the other day, in fact, there I was in my local fair-trade coffee shop, sipping organically roasted java with the powerful leaders of three immensely profitable BigLaw firms. They clutched their artisanal ceramic mugs tensely, lines of worry creasing their brows.

“I’m really concerned about how much money my firm is making,” confessed the managing partner. “We broke into the AmLaw 50 a couple of years ago, and I just learned to my dismay that we moved a few spots higher this year. Half the partners in my firm — including me! — made more than $1.6 million last year. Can you believe it? I’ve got a B.Comm. and a J.D. from a top-14 law school, yet despite that flimsy track record of intellect and success, I’m going to make insane amounts of money again this year. I can’t offer any excuse — it just happened. But I need to find a way to staunch the fountain of dollars.”

“I know exactly what you mean,” said the chief administrative officer. “Even lower in the AmLaw 200, we’re in the same boat, and it’s having some serious negative effects. The partners have become obsessed with nonsensical metrics like PPP and look jealously at lawyers in higher-ranked firms. I’m reluctant to admit it, but some of them are even putting their own financial interests ahead of their clients’, pushing their juniors to stay late on evenings and weekends, billing every client-related thought. It really saddens me to see it, and there’s no denying that it all flows from these geysers of revenue.”

“It’s worse than you think,” said the AmLaw 100 senior rainmaker. “You should see the caliber of people who are applying to join our firm these days. Rapacious partners from other firms who want to be guaranteed higher profits than they’re making now. Mercenary law school graduates prepared to sacrifice their health and well-being for six-figure starting salaries. And every day, it seems, another lawyer comes skulking around my office wanting me to share my secrets. I have no secrets! My law school roommate became the GC of a pharmaceutical company; that’s why I own three Porsches. I’m an ordinary schmuck who was in the right place at the right time. But can I convince them of that? Not a chance.”

I held up my hands. “Ladies and gentleman, I understand completely,” I said. “And honestly, I have to shoulder some blame. I’ve spent the last ten years advising law firms how to be more innovative, productive, and client-focused. Of course I meant well. But how could I have failed to see that many firms would focus solely on how much more profitable my advice could make them? I’m as guilty as anyone of recklessly encouraging this mania. And it’s high time I made amends.”

But if you ask for a rise, it’s no surprise they’re giving none away.

So that’s why I’m writing this post, offering law firms my best advice on how to make less money and be less profitable. I recognize that it might be too little, too late for the current generation of senior lawyers, clutched inescapably in the claws of six- and seven-figure annual incomes. But maybe this advice will do some good for future lawyers who, against all expectations, somehow form the notion that law firms exist for some purpose other than generating truckloads of cash for their owners. In hopes that such a future might materialize, here are my suggestions.

1. Stop billing your junior associates’ time. For some of you, this will seem redundant: Your biggest corporate clients have already told you not to bother billing anything performed by first-or second-year associates, because they won’t pay for on-the-job training of unskilled workers. But many other clients haven’t written that memo yet, allowing their outside counsel to generate millions of dollars in low-quality revenue from youngsters who don’t know what they’re doing half the time. Those firms could easily reduce their revenue just by turning off those taps.

Some partners will object, of course. But you can point out that giving these lawyers real skills training, supervised non-billable client access, and one-on-one mentoring opportunities (all of which could helpfully reduce revenue from other lawyers) will not only remove brutal billing pressures on these associates, but will also accelerate their development, improve their morale and well-being, and increase their retainability. “Revenue-neutral associates” could pay for themselves, assuming you stopped overpaying for academic high-achievers from famous law schools and instead started recruiting future star lawyers from law schools all over the map.

First- and second-year lawyer billings are the empty calories of law firms: They give you a temporary high, but leave you feeling bloated and regretful afterwards while compromising your long-term health. Start cutting revenue right here.

2. Place limits on your lawyers’ annual billing totals. This goes for all your fee-earners, not just the rookies. Most firms institute minimum expectations for how many hours they expect lawyers to bill, and that’s fair. But they don’t institute maximums: there’s no limit to the number of hours lawyers can churn out, leaving a dangerous outlet through which lawyers’ workaholism and competitiveness can spiral up into an eruption of revenue. (And, for firms concerned about that kind of thing, widespread lawyer burnout.) Before you know it, industry commentators are mocking your firm for employing a lawyer who bills 4,200 hours a year.

A simple solution to this problem would be to effectively cap lawyers’ billable hours. Most firms can’t actually order partners to stop working past a certain number of hours, of course. But you can tell your lawyers that they will not receive any compensation for hours worked past a given number. “Feel free to bill 3,000 hours if you like, but we stop counting your hours at 1,800 when calculating your annual income.” Deprived of financial rewards for non-stop billing, many lawyers will ease off the gas pedal, planting an elegant disincentive at the root of your runaway revenue problem.

Well, really now, who doesn’t?

Revenue caps are difficult to impose from the outside, but with the right planning and execution, you can incentivize performers to install them from the inside. The end result for your firm: Not just less revenue, but also more predictable levels of revenue. Oh, and I guess healthier lawyers, too.

3. Increase your pro bono commitments. I admit, it’s difficult to keep lawyers from working. Like small children, they need something to occupy them; if you don’t watch them like hawks, they’ll wander off somewhere and start making money for you. So give them a way to do lawyer work without getting paid. Sounds like some crazy magical thinking? Not at all. That’s the beauty of pro bono publico work: Lawyers get to practise law and sharpen their skills while working for the public good, but without any of the attendant risks of unwanted revenue.

I’m sure your law firm already encourages its lawyers to perform pro bono legal work; but let’s be honest, we both know that the billable work always takes priority, financially and culturally. So you need to do more than just double your hourly pro bono expectations: you need to develop a culture in which lawyers genuinely feel that paid and unpaid hours are worth the same. That’s a long-term project, absolutely; but the sooner you start, the sooner you’ll see the benefits, and the likelier that you’ll bring about a permanent shift in how lawyers view the value and purpose of their time and efforts.

You might be thinking, “But we already provide legal support to the local opera house and the junior yacht club! What more can we do?” Here’s one suggestion: Have every litigator in your firm spend one day a month in their local family court, representing pro se parties who’ll lose child access or support if they go into court alone. Do good for people who will never be able to pay you back. You’ll make the world a better place, but far more importantly, you’ll make less money.

4. Give all your staff members a 15% raise. Despite your best efforts, the fact remains that it’s hard for law firms not to make money. Even in a highly competitive market and with increasingly cost-conscious clients, large law firms remain cash-printing machines. So in order to really take a bite out of profitability, you’ll also have to find ways to increase your costs. No, not by reverting to rampant inefficiency and the daily reinvention of wheels: Encouraging procedural sloppiness will kneecap your competitive strategy. You need to spend more money usefully.

An easy place to start is with your “non-lawyer” staff. I don’t know how much you’re paying your secretaries, law clerks, librarians, paralegals, marketers, IT people, etc. to labour inside your cash factories while having to deal with your lawyers day in and day out, but it’s almost certainly not enough. Give them all a 15% raise across the board; but don’t stop there. Cover daycare costs for employees with preschool kids. Extend medical, dental, and vision care benefits to their families. Find creative ways to spend money on your staff.

I grant that this will create unintended consequences, including happier employees, rising retention rates, higher-quality performance, and more qualified job applicants. Also, you’ll inadvertently pressure your competitors to match your raises while enjoying a PR bonus from adoring media coverage. But let’s keep our eye on the ball here. The point is to make less money, and this will help your firm move towards that goal.

5. Fund 100 full law school scholarships for underprivileged students every year. I know what you’re thinking: That’s not really going to make much of a dent in our revenue. And you’re right. Even at the highest-ranked law schools in the United States, the total cost of law school attendance is around $80,000 a year, or $240,000 for three years. Underwriting that cost for 100 students would generate an annual bill of $24 million.

That might sound significant to the casual observer. But let’s look at how much money law firms actually make. The entire AmLaw 100 generated $98,748,110,245 in revenue last year. (Yes, that’s $98 billion). I don’t have access to median revenue figures, but if you divide that total by 100, you’ll get an average revenue of $987,481,102 per firm. Subtracting $24 million from that total would lower revenue to $963,481,102 — a decrease of 2.4%. Firms would still retain 97.6% of their earnings, so no, this isn’t going to move the needle that much by itself.

But it’s a good start. And at least you can take solace that 100 deserving young people who’d never otherwise even dream of becoming lawyers will be able to attend law school every year, lifting up their communities and enhancing the legal profession in ways we can’t begin to imagine.

So there you have it: Five simple steps towards corralling your big law firm’s runaway revenue. But these steps can also be followed in proportion by smaller or regional law firms whose leaders are equally concerned that the single-minded pursuit of ever-more money and ever-more profit has transformed their firms from proud bastions of professional service into brutalizing pyramid schemes that enrich a small few at the expense of too many. Not that they’d necessarily put it in those exact terms.

As for my BigLaw friends, they rinsed out their mugs, tipped the barista, and trundled wearily out the door, already thinking of the burdens awaiting them in Accounts Receivable. I only hope their successors can use this advice to pull their firms back from the brink of death-by-revenue and to plot a course towards a future where law firms aren’t focused on profits above everything. We can but dream.