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

At this year's Annual Meeting of over 2000 general counsel and senior in-house counsel, the Association of Corporate Counsel continued its promotion of the Value Challenge--i.e., making sure outside counsel understand what corporate counsel expect from them. So far, over 5000 lawyers have been rated on their competence in six critical areas.  And ACC hopes to double that number soon.

Janine Dascenzo, a member of the ACC Value Challenge Steering Committee and chief litigation counsel at GE, noted that her CFO expects legal spending to be reduced by 25% year-on-year, which far exceeds the savings some firms propose by holding rates for 2011 to 2007 levels. She advocated for lawyers adopting skills business has long used to realize profits on fixed-price contracts. 

Aileen Leventon of QLex Consulting, Inc. led the basic skills session on Legal Project Management, with three firms--Shook Hardy & Bacon, McDermott Will & Emery and Kilpatrick Stockton--demonstrating how they use project management principles and technology applications to profitably manage work priced at fixed fees or other value-based fees.

Leventon has learned a lot about client expectations in the course of teaching project management skills to more than 200 General Counsel over the past year.

According to Leventon, here are the six things GCs want their law firms to know:

1. Law firms fundamentally do not understand that legal spending is corporate overhead and has to be managed aggressively - consistent with every aspect of the corporate budget. Expenses are scrutinized by many internal stakeholders: CFO, Controller's, Investor Relations, and Procurement.

2 .Legal is not only not exempt, but is held to a higher standard because of the widely-held business perceptions that law firm lawyers make too much money and that legal work is rarely revenue-producing for the client.

3. Law firms must recognize that legal work is not an end in itself. Law firms are engaged because there are business problems - not legal issues. Business problems need results. Legal issues are only one of many factors that are brought to bear in addressing client matters.

4. Law firms must learn how to manage their work better. They need ongoing communication within their firms about how specific work links to the client’s budget so that matters are properly staffed. Firms must learn how to use planning and forecasting tools, just as the general counsel have learned to use matter management systems and e-billing.

5. Law firms should communicate at the beginning of the matter about assumptions supporting budgets and then initiate conversations when matters are coming in over budget. Too many law firms think that if an interim bill is paid, they do not have to discuss being over budget with the client. "They paid my bill so they know what is going on" isn’t sufficient.

6. Predictability is key. Even if a matter is coming in under budget or additional resources will not be required, the client needs to know that as soon as possible. The client's budget is a portfolio of matters--not just those handled by a particular law firm--and the surprise of coming in under budget at the end of the year is not received as favorably as a law firm might think.

How is your firm doing?

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Further to our earlier entry on diversity and the recession, here is some additional data.

The New York Law Journal reported that the percentage of women partners and associates working at NLJ 250 law firms this year fell to its lowest point since 2006, accounting for 29.2% of all attorneys at NLJ 250 firms, compared to 32% of attorneys at those firms 5 years ago.  That is the lowest percentage since the NLJ began reporting gender breakdowns in 2006. Since 2006, the percentage of women partners and associates has declined slightly each year even as firms got bigger in each of those years.

The results have prompted a number of attempts at explanations.

Stephanie Scharf, president of the National Association of Women Lawyers Foundation, attributes the decline to a number of factors, such as structural changes in law firms, the increased use of staff attorneys and more lateral hiring, as well as the overall reduction in.associate ranks,where women are more highly represented.

Jessie Kornberg, executive director of Ms. JD, an online resource for women attorneys, contends that practicing law is simply becoming less attractive to women, particularly in light of the discouraging lack of improvement in hiring and work/life balance.

That opinion is supported by the reduction in the number of women admitted to law schools. According to the Law School Admission Council, in 2009 the number of women admitted was up by 3.9%, while the number of men rose by 5.7%.

Student group Building a Better Legal Profession, which is based at Stanford Law School and advocates for lawyer diversity, cautions that the data it has compiled indicates that much of the decline in diversity can be attributed to a small group of firms that have lost an outsize percentage of minorities.
 
Their diversity results varied greatly among firms, and even among different offices within the same firm, with the attrition rate among white associates in DLA Piper's New York office, for example, much higher than the attrition rate among minority associates there, putting it near the top of the list of New York offices that retained minority associates, while the minority attrition rate in the firm's Washington office was higher than the white attrition rate during the same period. 

The group  intends to present these findings in a searchable online database for the use of law students and clients looking for firms committed to diversity. 

The upshot seems to be (apart from the usual "if you torture statistics enough, you can make them say most anything") that some firms are showing what looks like at least even-handedness (to the extent they choose who is leaving), if not downright determination to keep their workforce diverse.  And some clearly aren't.

Diversity is what firms do.
 

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In the wake of all the steps taken over the past few years to cut expenses, expectations might be that partner compensation might be stable or even going up again anytime soon. 

So let's be very clear about what may have gotten lost in the webinar discussion last month on partner compensation: after marching up conservatively but reliably for decades and then shooting up wildly from 2001 through 2007, partner compensation is likely to stay essentially flat, if not decrease, over the next decade. 

That's right.  Partners are not going to be paid as well--whether in terms of absolute dollars, average dollars, percentages of the pie or even relative to other growing professions--as they have been in the past.  The "reset" that is used to describe the transition happening in the law firm industry will also result in a reset of compensation for a lot of partners.  And their expectations should follow along.

 Here is the reality:

• Flat or Lower Revenues--After increasing at double digit rates for years, total revenues for 2010, 2011 and beyond are projected to remain fairly flat due to flat demand, i.e. no built-in pay raises.
• Lower Leverage--As we have projected and Hildebrandt's recent guesstimate supports, many fewer associates--perhaps in the short-term only two-thirds to three-quarters of the old levels--will be required to accomplish what law firms need to deliver, so the profits from that old higher leverage will disappear. And firms replacing that cadre of associates with contract-type lawyers won’t be able to realize comparable profits from the new bunch.
• Lower Profit Margins--Even those firms who do continue to hire won’t be able to bill at the old rates (particularly the old cost-plus-37%), thus lowering profit margins overall.
• More Mouths to Feed--The rising tide of non-lawyer professionals in law firms--specialists like the traditional CEOs, COOs, CMOs, and CIOs supplemented with the newer  Chief People Officers, Chief Value Officers, non-lawyer Practice Group Managers and the legions of estimators, project managers, discovery managers and litigation managers--will all take a toll on the bottom line. True, their expertise will make it possible to obtain, keep and grow business and deliver products more efficiently, but no one ever promised that efficiency would in the end be more profitable than the old bill-everybody's-time-and-then-raise-rates approach. It just means you may keep the business you have.
• Increased Low-Cost Competition--Achieving a more business-like approach to the delivery of legal services will hopefully keep firms in business in an environment in which client budgeting pressures would otherwise move their work to a “good enough” option that has a lower cost structure, and is perhaps not even a law firm.
• More Top-Heavy Firms--Baby boomers with their boots on trying to rebuild their portfolios, the ABA recommendation to eliminate mandatory retirement, and the Kelly Drye & Warren and Sidley Austin discrimination decisions chilling reduced compensation and other prods to retirement based on age are going to increase the number of seniors in your firm.
• Increased Spread--Of course, among those people at the top are ones that your firm wants to keep.  And if you don't give them a high enough compensation, they are quite able and increasingly willing to move to another firm (perhaps with a chunk of their group), particularly if they are in high-demand/high-profitability practices. Before the recession, the average spread in high-to-low compensation in a firm was typically 5-to-1. Often it's now 10-to-1, or even 12-to-1.  Which means that the other partners' compensation goes south and (law) class warfare intensifies, with a significant hangover effect on senior associates wanting to move up.  See Barbarians at the Partnership Gate. 
• Weakened Infrastructure--Infrastructure is unfortunately the casualty of all that cost-cutting that was supposed to keep partner compensation up.  In the long run, firms are weakened and then are at a tremendous disadvantage when they try to be responsive to new revenue opportunities, usually as they simultaneously try to rebuild internally from a barebones platform.

Of course, there will assuredly be those partners in the years to come whose star will rise and who will recognize significant increases in their compensation. It's the average junior and mid-level partner who will be most impacted by these trends.

Don't look to PPP (Profits Per Partner) to see evidence of this phenomenon.  As we have noted, the calculation of and reporting of PPP is a separate issue, one that is amenable to manipulation and will also likely decline in use or transform over the next few years. 

So even if your firm is able to maintain respectable revenue stability or realize some growth, it is still likely that most partners will see their compensation lower, stagnate or certainly rise at a much lower rate than during the last decade due to lower leverage, lower profit margins, more hands in the till, more low-cost competitors, more and higher-comp senior partners staying in the firm and the costs of working from a weakened infrastructure.

What to do?  First, rebuilding, even at the expense of short-term profitability, the firm's critical resources is essential.  Then take a long hard look at each partner's goals and  delivery.  Firms tend to make the calculation of who should be partner and then, once those partners are made, leave them be. Making partner feedback--from above, across and below--coupled with targeted partner education and coaching an annual staple of your professional development program will insure that each partner is contributing and will help those partners who can make a bigger contribution to firm progress.

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The results of the AmLaw 200 Midlevel Associate Survey make for some interesting prognostications about our future. The average composite score from 5,092 associates fell to 3.728, the lowest overall score since 2004, which includes one of the lowest scores--3.96--for the associate's own firm in recent years. 

While worries about being laid off declined significantly and 72% believed they were on track for partnership, they gave low scores to their benefits and salaries, communication by their firms (especially about becoming partner), depleted staff levels, heavier workloads (double the complaints from last year) and new promotion models. The upshot was that the number of respondents looking for another job nearly doubled to @16% and those who thought they would still be at their firms in 5 years as a partner or senior counsel dropped 9% to 35%--even though twice that percentage considered themselves on a partnership track.

First, it's important to point out that these are the very associates who weren't axed over the last few years. They are the lucky ones who kept their jobs, the survivors, or in the old parlance, the "keepers"--the ones that firms are hoping to keep. 

So what do they have to say about their privileged position?  They are more likely than in previous years to want to leave their firm, both now and in the near future.  Why would they leave? Nearly 45% said if they left, it would be for a better work/life balance, a 5% increase from last year. It's apparent that many feel their workload has been ratcheted up while their salaries and benefits have been put on hold or reduced. And as a Morrison & Foerster associate wrote, “Work/life balance is important to more people than . . . [just] mothers and lazy people.”

It's easy for firms in this economy to blow off concerns about associate work/life balance and other "soft" benefits, assuming that most associates are white-knuckling any job they have. 

That would be a mistake.  Associate morale still matters and firms will pay a price in the currency of keepers if they are not able to figure out a way to both be profitable and allow their talent to lead reasonably balanced lives.

So here are the top ten firms, where associates are feeling pretty good:

1. Nutter McClennen
2. Thompson Coburn
3. Gibson Dunn
4. Harter Secrest
5. Best Best
6. Dorsey & Whitney
7. Paul Hastings
8. Harris Beach
9. Gibbons
10. Ropes & Gray

And here are the firms that should definitely be worrying about their future:

128. Dechert
129. Armstrong Teasdale
130. White & Case
131. Stroock & Stroock
132. Bryan Cave
133. Winston & Strawn
134. Taft, Stettinius
135. Kaye Scholer
136. Curtis Mallet
137. Blank Rome

And for the full list... 

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Just a heads up on those initial reports that the recession has not impacted minorities and women in the legal profession.  The most recent data from a survey done by the Minority Corporate Counsel Association shows that fewer minority candidates are being hired and promoted, and they are leaving their jobs at a faster clip, while women seem to be holding their own.

The number of summer associates hired in 2009 dropped by 20%, and the past year's summer class had the lowest percentage of minority students in three years. The percentage of minorities hired by law firms at all levels in 2009 was 19%, compared to nearly 22% in 2008.

And for the first time in seven years, the percentage of minority equity partners did not increase but remained virtually flat, nudging up from 6.05% in 2008 to 6.06% in 2009 at the 263 law firms surveyed.  Meanwhile, minority attorneys left their firms at higher numbers in 2009. They represented 13.4% of the attorneys at the firms surveyed, but accounted for nearly 21% of those leaving during 2009.

The survey did find a little good news on the diversity front: there was a small increase in minority non-equity partners — from 8.5% in 2008 to 9% in 2009, and the percentage of minorities serving on management committees and in executive positions inched up to 5.5%.

Women evidently came through the year with a small gain, constituting 16.8% of equity partners in 2009, compared to 16.5% in 2008. Their numbers also grew in the non-equity ranks and on management committees. 

Of course the concern is that in a continuing hunkering down mode, firms will not return to pre-recession diversity levels any time soon, presenting the danger that what is for now a one-time drop in minority recruitment, promotion and retention could have a long-term impact on overall law firm populations. And thus on the integrity and effectiveness of client service and therefore on the future growth of revenue.
 

P.S. As a follow-up, NALP just published their own survey data with substantially similar conclusions. Nationally, the proportion of women and minority associates in law firms dropped slightly for the first time since NALP began collecting statistics in 1993. The percentage of women associates slipped from 45.66% to 45.41%. The percent of minority associates dipped from 19.67% to 19.53%. Partner ranks showed gains nationally for women and minorities, though the drop in associates meant law firms as a whole became less diverse.  

In New York, minority associates dropped to 23.25% this year from 23.95% in 2009, and minority partners dipped to 6.29% from 6.38%.  The proportion of women associates was relatively flat at 44.97%, and women partners increased to 16.99% from 16.85%.

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