Law People : Law Practice Management, Organizational and Personal Dynamics; Talent Management : Ronda Muir of Law People Management, Inc.

A number of corporations are taking steps to restrict which of the associates at their outside firms work for them, according to the Managing Outside Counsel Survey Report prepared by the Association of Corporate Counsel and Serengeti Law of Bellevue, Washington in late 2006.  In some cases, corporations specify that only attorneys with at least five years of experience be assigned to their matters.

Given the billable-hour fee structure that most firms retain, if such requests become a trend, it could play havoc with the traditional law firm business model. Currently, firms hire three times or more the number of associates that the firm expects to stay, immediately putting those young associates on clients matters in order to push down less complicated work, provide training and make a proving ground to determine who should stay and who shouldn't.  OK, let's admit it:  and also maybe sometimes to plump up some of those thinner bills.

If clients start demanding only more senior lawyers on their matters, the high cost of young associates would immediately become much higher, since it would be even longer before they could reasonably be expected to produce a return on the firm's investment in them.

Of course, one way to counter such a trend would be to use a more carefully calibrated hiring process that relies less on "where ever the outstanding offer chips may fall," and more on knowing the best fit for the firm.  We at RRR advocate the use of culture and personal style inventories as a way to fully understand your firm's prevailing attitudes, values and attributes and also to identify the areas where it needs to grow or broaden.  

Aggressively pursuing those candidates who meet that profile not only results in spot-on hires more likely to contribute from day one, but also produces a mountain of "I'm special-- you really-really-like-me" feelings in your incoming class that could make even Sally Field shed a tear, and also produce the kind of we're-made-for-each-other associate loyalty that not many firms currently enjoy.

Targeted hiring should then be followed by an equally targeted training program of the sort that few firms currently offer.   Information gleaned from the inventories would make this training much more efficient, so as not to necessarily require more time.   We at RRR also offer targeted associate training in the areas of understanding the business of law, professional performance and career development, business development, client relationship management and communication, among others.   

Together, these two strategies--targeted hiring and targeting training-- are likely to produce young lawyers who are valuable to clients and profitable to their firm.

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Temple University’s Beasley School of Law is including a course on law firm management in its curriculum for third–year law students starting this past month.

Called "Legal, Professional and Business Aspects of Law Practice," the class is divided into four sections:  law firm economics, time management, client development, and ethics related to the business of firms.  Some of the topics included are fee structures, accounting, partnership and tax law as related to firms, firm organization, and referrals.

The textbook for the course was written by a professor who teaches a similar course at Pace University. Stephen J. Friedman, dean of Pace University School of Law, and formerly commissioner of the SEC, general counsel of The Equitable and E.F. Hutton, and co-chairman of the corporate department at Debevoise & Plimpton, finds law graduates to be "ill-equipped to be effective beginning lawyers" and wants curriculum at law schools to be "more purposeful, more focused and more integrated." 

And evidently particularly more attuned to the challenges of effective legal practice and good law firm management.

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There is an associate recruitment and retention crisis looming for which there are no easy solutions.

Supply and Demand

Law schools continue to graduate 40,000 students a year, as they have for the last 20 plus years. The AmLaw 200 law firms have been steadily hiring an average of 4%+ more associates each year, resulting last year in an average incoming associate class of 50. That means that AmLaw 200 firms now hire about 10,000 new associates a year, or about 50% of the graduates from the top 100 (hardly the Ivy League elite) of the nation's 200 law schools.  

Every year the number of associates those firms will be trying to hire will be higher.  And the competition from hedge funds and investment banks offering attractive alternatives will increase.  Not far along the horizon is a point when nearly every associate in the top half of every law school, whatever the law school, is likely to have several high-dollar offers to choose from.  Which means many firms will be left with fewer incoming associates than they want, or certainly fewer of the caliber they are seeking.

The Starting Salary Piece

As day follows night, associate salaries are rising.  Entering associates are now earning $160,000 before bonuses at the largest law firms across the country (essentially the same that federal district judges make), thanks to Simpson Thatcher’s opening volley. Starting salaries (not including bonuses) at firms of 500+ lawyers are thus up 130% since 1994, with the annual rate of increase averaging more than 10%--significantly above both the rates at firms of other sizes and the average for all firms (6%). And with each new class's salary increase, the salaries of associate classes up the ladder must also be increased.

The Profitability Piece

One estimate is that this year's salary bump will result in an average hit to partners in big firms in the range of $40-70,000 per partner. But that is hardly where the impact on profitability stops.  Until this year, associates were usually not profitable until their third or fourth year.  Higher salaries stretch that time out even further.  With average associate attrition rates at big firms pushing above 20% annually, culminating in 78% of associates leaving by their fifth year, firms have less and less time to recoup their initial recruiting/training/salary/overhead investments in associates, let alone realize a significant profit.  

The graph showing the curves of how long it takes to realize a profit on associates and how long they are likely to stay make it clear that these two lines are coming perilously close.  What used to make for good document review/bill plumping fodder may start looking more like loss leaders in the business of looking for good lawyers who will actually stay.  It has already been noted that we have reached a state where partners often bill more hours than their associates.  How does it  feel to be working for those you supervise?

What's to Be Done?

The traditional solutions are few and running out of steam.

As always, billable rates can be raised, banking on good evidence that at least some clients will pay whatever they have to to get the best legal advice.  But there will be some clients insisting that their rates be reduced or hours written off while others may simply leave. 

You can try to recoup salary increases by raising billable hour requirements. But given the current associate sentiment about billing, ratcheting requirements up runs the risk of ratcheting up attrition rates as well. See our February 14, 2007 entry "What All That Money Is Buying You."

Recruiters may have to become modern conjurers, ranging broader among law schools and deeper down classes, looking for the proverbial gem in the rough.  Medium and smaller law firms may have to change recruitment strategies altogether.  Some have already publicly declared themselves to be out of the business of hiring first-year associates, like Philadelphia's Kleinbard Bell & Brecker, or recruiting at national law schools, like Pittsburgh-based Tucker Arensberg.  Instead, they will wait for those associates to come to their firms after they've spent a few years at larger firms willing to bear the cost of training them. 

The dire truth is that what ultimately may have to change is the current law firm structure, and possibly in several respects.  See our upcoming entry "Leaving Behind the Medieval Model."   And the fallout may include the hardest pill to swallow:  a reduction in the high profitability that partners have long enjoyed.  See our upcoming entry "The End of Profitability As We Know It?"

There are ways to read your firm's tea leaves and then progress toward a new vision, cognizant of the prevailing hiring and retention realities.  Is your firm taking the steps necessary to survive the looming associate crisis?

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The legal industry's current strategy for hiring and keeping lawyers seems to be to throw more and more money at them, a strategy which has succeeded to date in producing unprecedented attrition and dissatisfaction rates.

Major law firms around the country just upped the ante for hiring a baby lawyer to $160,000 @ year, before bonuses, or roughly what seasoned federal judges in our country make.

Why more money?

Jack Nusbaum, Chairman of Willkie Farr & Gallagher, says "We expect our associates to work hard… maybe this will make them feel better about the Saturdays and Sundays."  

Has anyone taken note of the American Bar Association survey conducted just this past November?   Of the 2,377 respondents (most of whom were between 26 and 35 and had been practicing law for five years or less), 84.2 percent said they'd prefer to work fewer hours for less money.  More than 30 percent would like to work 20 percent less and said they'd give up between 25 and 30 percent of their pay in exchange.  The next largest group-- 27.8%--would settle for a 10% cut in hours.  Did you get that?  Associates would prefer to give up proportionally more money for incrementally less work.

So are we paying these high salaries--surprise!--for the clients? To show them that our firm can attract the best players?  

"When I saw the announcement about the raises, I said ‘Oh God,” says Michael Roster, executive vice president of World Savings, a subsidiary of Wachovia Corp.  But maybe not for the reasons you would expect.  Salary raises mean law firms will put more pressure on associates to bill, but paying more for legal services, Roster says, is less bothersome to him than associate turnover.  He says he and other general counsel prefer to work with associates with whom he has a history and who know his business well.  "It hurts when firms can’t keep qualified people.”

“From my standpoint, I would view [lowering billable hour requirements] as a creative and enlightened way to reduce associate turnover and keep the best and brightest young lawyers,” says Barry Nagler, who chaired in 2006 the Association of Corporate Counsel’s board of directors.

Susan C. Robinson, associate dean for career services at Stanford Law School, also thinks that lowering billable-hour requirements could be a great recruiting tool, particularly for attracting lateral associates.

There is no question that firms are struggling with the phenomenon of associates not wanting to work as hard as generations past.  Many studies indicate, in fact, that partners often bill more hours than their associates, turning the law firm pyramid model topsy-turvy. 

And attracting and retaining associates over the next decade may be even harder. The standard characterization of “millennials”—those who graduated from high school after 2000 and will be graduating from law school starting in 2008--is that they are unwilling to compromise life and family for work.

The obvious hit from reducing billable hour requirements would be to partners' bottom lines.  See our upcoming entry "The End of Profitability as We Know It?"  But there are some countervailing tactics that can help improve profitability.  Ida O. Abbott, former partner at Heller Ehrman White and McAuliffe, contends that billable-hour requirements could be lowered without cutting partner profits if the change involved more planning and better management.  And law firms have not yet even begun to explore the types of management strategies that have produced the super-sized profits recounted in the newly released Firms of Endearment: How World-Class Companies Profit from Passion and Purpose by Rajendra Sisodia, David Wolfe and Jagdish N. Sheth.  See our January 31, 2007 entry "Firms of Endearment."

Steve Susman, whose 85-lawyer Houston/New York litigation firm Susman Godfrey gave 2006 associate bonuses of up to $125,000, contends that "Any lawyer who is unhappy with their compensation should check into a mental institution."

Based on the adage about the mental state of people who keep doing the same thing but expecting a different result, there may be a few managing partners who should be joining those associates there.

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The Center for Work-Life Policy’s latest research, titled “Extreme Jobs: The Dangerous Allure of the 70-Hour Workweek,” published in the December 2006 Harvard Business Review, reports that 35% of high earners work more than 60 hours a week and 10 percent work more than 80 hours a week.  Their conclusion is that 20% of high earners in the US have “extreme” jobs, that is: 60 hours or more of work a week that often includes unpredictable work flow, tight deadlines, work events outside of regular work hours, availability to clients 24/7 and/or a large amount of travel, among other things. And 48% of extreme workers say they’re working an average of 16.6 hours more per week than they did five hours ago.

Sound familiar?

The reasons for such long hours?  Among the external drivers: globalization and the round-the-clock availability it requires; vastly improved technology, allowing same-day delivery everywhere around the world; enhanced communication; increasing competition; and decreasing job security.  Among the internal motivators: stimulating work, high quality colleagues, high compensation, power and status.

Sound familiar?

Noted were the sacrifices that these schedules require in personal and family life.  More than two-thirds (2/3) do not get enough sleep, half don’t get enough exercise, and a significant number use alcohol, drugs, or food to alleviate their stress.  The sleep deprivation alone can work havoc on professional and personal lives:  a week of sleeping 4-5 hours a night induces an impairment equivalent to a blood alcohol level of .1%, which is legally equal to being drunk.  Forty-two percent (42%) of extreme workers take 10 or fewer vacation days a year and more than half regularly cancel vacations. This in spite of data that shows that regularly taking vacations lowers the risk of death by nearly 20% among men between the ages of 35 and 57, often your most valuable age-range.

More than half say their sex lives have suffered; and nearly half say their work has interfered with their ability to have a strong relationship. According to the report, it is physically impossible to have a meaningful conversation with your significant other after a 12-hour work day.  The American Academy of Matrimonial Lawyers identifies a preoccupation with work as one of the top four causes of divorce. 

Extreme workers also note the negative impact their work has on their children.  The study pointed out that women, 20% of the extreme workers, are more likely to feel personal responsibility for these down-sides, particularly with respect to their children  Three-quarters (3/4) of the women said their work interfered with their ability to maintain their homes (66% of men said the same thing),and 57% of women (and 48% of the men) do not want to continue their work pace for more than one year.

The part that doesn’t sound familiar is that two-thirds (2/3) of high earners in a range of professions and three-quarters (3/4) of top managers in multinational corporations say they love their jobs. “The big surprise of the data was just how much these extreme professionals love their work,” said Sylvia Ann Hewlett, president and founder of the Center.

Surprise, indeed.

Many doctors, lawyers and candlestick manufacturers may fall into the extreme category based on many of these standards but one thing is for sure:  loving their jobs is not usually part of the extreme lawyer package.  Attrition rates and simple "expressed dissatisfaction"--whether in surveys or on-line-- that have reached astronomical levels attest to that. 

The take-home is that we can not blame the hours alone on lawyer dissatisfaction.  There could be such a thing as an extreme lawyer who loves his/her job.  And there are steps that can be taken to move your extreme lawyers towards that happier (and ultimately more profitable) place.  Are you taking them?

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One difference in Dewey and Orrick, and perhaps the biggest one, that may lie behind their inability to get in bed together is their management structures. Adhering to the old school, white-shoe model, Dewey management is accomplished by a rotating "good lawyer" who is engaged primarily in what (s)he wants to do and, one might argue, does best—lawyering. According to a January 22, 2007 Wall Street Journal article, Dewey Managing Partner Morton Pierce spent 3,300 hours last year on billable client work, or an average of 12.6 hours every weekday, raising the obvious question of how much time, if any, he spent on management. "Management is not my passion," Pierce admitted. 

Orrick, on the other hand, is managed by Ralph Baxter, Jr., who hasn't practiced law since 1992, and who spends his annual 3,300 hours-plus on firm-wide town-hall meetings, informational web casts, and on-site and in-person office and partner meetings, exhibiting what David Wilkins, director of Harvard Law School's Program on the Legal Profession, calls "the epitome of 21^st century law-firm leadership." 

While those in academia may have easily come to that conclusion, in the industry trenches what constitutes the best firm leadership is still very much open to debate. There are plenty of issues raised by the 3-5 year rotating model vs. the long-term model, including the impact on long-term vision and strategy and succession planning, that we won’t go into here. But the even narrower discussion about whether firms should have full-time or part-time managers, regardless of their length of tenure, can start to sound positively moral, with both sides claiming rectitude. 

The word that crops up is "professional." One of the Dewey partners supports the part-time manager concept because someone "who practices is more tuned into the professional philosophy." And if that's not clear, Cravath's managing partner, Evan Chesler, also a part-timer, points out that "the law is a profession—not merely a business." (Note the "merely.") 

Of course, managing partners who enjoy only short terms would be foolish to give up their clients and cutting edge expertise for what might be a short round in management hell. Their “professionalism” is another word for survival. On the other hand, they are right that lawyers respect no one as much as another lawyer: what managers lack in management skills they may be able to make up for with sheer lawyer-to-lawyer hubris: my book beats your book.

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