Law Practice Management, Law Firm Coaching : Ronda Muir of Robin Rolfe Resources : Law People Blog

On Wednesday, March 12, 2-3:15 pm EST, Muir will be conducting an audioconference for the Center for Competitive Management on Associate Compensation: Remain Competitive Without Breaking the Bank.  Included in the discussion will be a review of current trends and out-of-the-box ideas for dealing with the impact of escalating associate compensation, how to find the best strategy for your own law firm and overcoming the problems and pitfalls in making that strategy work.

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Lawyers have been making it into the big-time news lately.  That is, not just into the AmLaw publications, where spots about closely-argued decisions vie for those on the merger of the month, but onto the front page of  the New York Times SundayStyles section in early January  ("The Falling Down Professions") and more recently the front page of the NYT ThursdayStyles section ("Who's Cuddly Now?").  And they're not talking about what celebrity lawyers are wearing, or about those errant lawyers taking their clothes off in the conference room or screaming obscenities at the judge. 

What's making the news these days are regular law firms and the vast universe of everyday lawyers--and the bedeviling challenges that they face:  declining law school applications over the last few years, plummeting retention rates, rising dissatisfaction among lawyers and clients.  But while some law firms have been bemoaning how hard it is to get lawyers to stay in place, just doing their job, servicing their clients, it is occurring to a number of other firms that--drum roll--some tweaking of the business model might be in order.

So it is, as persistently promoted here, and now even trumpeted in the style sections of the news, that law firms, they are a'changin'. 

Why are they changing?  Richard Florida, the author of “The Rise of the Creative Class: And How It’s Transforming Work, Leisure, Community and Everyday Life” (Basic Books, 2003) says the old grand professions have “lost their allure, their status. And it isn’t about money.”  The money, as firms contemplate a $200,000 salary for a brand new law school graduate, is still pretty good. But especially among young people, according to Mr. Florida, professional status is now inextricably linked to ideas of flexibility and creativity, values not traditionally nurtured by the legal industry. 

But exactly how are law firms changing?  They are experimenting with different fee structures for their clients, and experimenting with different compensation and engagement arrangements with their associates and even partners (see our The Fracturing World of Lockstep Compensation).  They are contracting, out-sourcing and e-commuting. They are introducing sensitivity, transparency and flexibility not only into their vocabulary (see our entry Sullivan & Cromwell Proves Mom Right?) but also into their culture, providing professional development that promotes leadership skills and career planning in addition to CLE mastery, and reworking their retirement, work sharing and required billable hours policies.  In fact, there are so many changes afoot, that there is a good chance that not only will law firms of the mid-21st century look very different from their 20th-century antecedents, but they may also not look much like each other.  See our Leaving Behind the Medieval Model.

Lawyers are well-known for their risk aversion, and personality assessments bear out that propensity on the individual level.  But ruminating over these forays in experimentation brings one to the conclusion that the biggest change amongst us lawyers is that we are becoming demonstrably capable of, and willing to, change.  Ok, maybe only after a short walk past the gangplank, but still, at least when prodded, able to change.  Or at least willing to try to change.

And that's how we are going to get better at this business.

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Baby-boomers are making their mark on the demographic frontier again--this time valiantly fending off the mandatory retirement that generations of law firm partners before them submitted to. 

The Sidley Austin age-discrimination case, which arose when 32 partners lost their full partner status, ended last fall after two-and-a-half years and seven court decisions (all lost by Sidley Austin) without a decision on the merits.  It did end with a large payment of cash, $27.5 million to be precise, to the aged-50-something+ lawyers, and an uneasy feeling in the pit of many legal bellies.  Left unanswered was the question of whether and when law partners are employers or employees for purposes of the EEOC, a determination which may be even thornier with the proliferating partner tiers in partnerships.

Even if they don't sue, baby boomers don't have to take being put out to pasture lying down--they can usually find a firm that will appreciate their talents.  Barry Bryer left Wachtell, Lipton for Latham & Watlkins in 2005 to escape a mandatory retirement policy, and antitrust specialist A. Paul Victor left Weil, Gotshal for Dewey & LeBoeuf for the same reason. 

So what's the right tact for law firms to take today?  Over half of law firms have age-mandated retirement policies on the books, with a majority of those requiring retirement at 70.  An Altman Weil study found that only 38% of lawyers in management roles agree with having age-mandated retirement policies, although given that nearly 60% of law partners are now over 55 years of age, there's a good possibility that the disapproving 62% may have their own self-interest in mind.

Many firms argue that these policies are necessary for the transitioning of client relationships, firm leadership and firm profits to more productive, younger partners.  The policies also, of course, automatically trigger firm action, avoiding the firm having to find the will and the muscle to individually evaluate older partners and confront those who are not productive.

Advocates for dropping these age-driven policies point out that, at a time when firms have been bemoaning recruitment and retention challenges, 80% of the growth in the U.S. workforce over the next 15 years will be in the "over 50" age bracket.  And nearly 80% of all baby boomers, according to the US Census Bureau, want to continue to work during retirement.  Why isn't retaining lawyers who are healthier at their ages than earlier generations, who have proven capable and dedicated, and whose experience makes them highly valuable in a global market, a win-win solution for all involved?

But even without the impetus of a court declaring such a retirement policy illegal, the trend toward dropping aged-mandated policies is clear. The American Bar Association House of Delegates passed a resolution in August 2007 calling for law firms to end age-based retirement policies.  A special committee of the New York State Bar Association concluded that mandatory retirement within law firms at an arbitrary age is not an accepted practice and sent a letter to major law firms in New York asking them to pledge to end those plans, which a number of firms have signed.  

Last year Pillsbury Winthrop announced the abandonment of its mandatory retirement policy and instead supports partners in developing an individual approach to transition.  Senior partners build three-to-five year career transition plans, receive financial planning services to make sure financials don't drive the decisions and consult professional career consultants for additional support and advice.

According to Holland & Knight,  "We do not have a mandatory retirement policy, although our partnership agreement now requires a conversion from equity or nonequity partner to senior partner status at age 70.  We have many active senior partners in their 70s and 80s and greatly value their contributions."

So are we ever going to get rid of them?

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It is a scenario we in the legal field have come to expect--announcements of associate compensation increases are responded to in waves. First the largest firms rush to match them, then the mid-size firms determine how much they are going to raise compensation, often not in a dollar-for-dollar match, and then there is the soul-seeking by the smaller firms.  Can they afford to raise compensation at all? 

In the aftermath of Cravath's recent announcement of special bonuses this year--bonuses ranging from $10,000 to $50,000 on top of the normal annual bonuses ranging from $35,000 to $65,000--a number of large firms have, as expected, followed suit:  Davis Polk & Wardwell, Debevoise & Plimpton, Sullivan & Cromwell, Milbank Tweed, Paul Weiss and Simpson Thacher & Bartlett.

Presumably the mid-size firms are weighing their options and the smallest firms are shaking their heads.

LOWERING COMPENSATION

What is interesting at this juncture is that there are significant developments at the other end of the compensation continuum as well, particularly among mid-size and small firms. 

Chapman and Cutler, a 220-attorney firm in Chicago, this fall started offering second-year associates the opportunity to choose between two pay plans-- one with lower hourly billing requirements and less pay and the other with higher billing requirements and more pay.  Based on both associate and client feedback, Dallas-based Strasburger & Price has replaced over 400 of its required 1900 annual billable hours for first-year lawyers with training hours devoted to associate development--mentoring, leadership development and pro bono projects, while keeping compensation at the same level. 

Boston-based Lowrie, Lando & Anastasi, an intellectual property boutique launched in 2003, has grown to 27 attorneys in part by requiring just 1,600 hours from associates while starting them at $130,000, $30,000 below what large firms in the area offer.  And Ford & Harrison completely abandoned billable-hour minimums for new attorneys, shocking the legal world that views billable hours as the bedrock of the business model, while also earning it some good publicity with potential clients.

In a particularly dramatic development, McDermott Will, a 1,000-attorney firm, has announced that it is hiring a cadre of attorneys to populate a new track the firm is creating-- one that is not en route to partnership, works less hours (30-40 @ week), is paid less (@25% less) and is evidently billed out at lower rates.  With the escalating volume and cost of e-discovery, contract attorneys have become fairly common, flying mostly below the firm/client radar.  These McDermott Will attorneys, however, are being given a permanent, formal position in the structure of the firm.  "The cost of document review has become intolerable for everyone," according to David Balabanian, head of Bingham McCutchen's litigation group.  In the world of full service firms, adding this track allows McDermott Will to retain both the quality control and the profit margin of work that might otherwise go elsewhere-- to lower-cost attorneys, such as SQ Global Solutions in India, or to outside document review firms.

The coup de grace goes to Washington's Howrey, with 618 attorneys, who earlier this year dropped lockstep completely in favor of a performance-based associate compensation system.  We noted in our entry A Small but Important Step in Associate Compensation? DLA Piper's distinction in paying associates differently based on practice area, and the potential that that raised for other types of compensation distinctions. Howrey has taken that to its logical extreme.  It hasn't been easy.  Modifying evaluation forms, adding training programs and hiring personnel to implement the system has been a "tremendous amount of work," according to Edward Han, hiring and development partner.  But the proof will be in the pudding.

THE IMPACT ON NIMBLENESS

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