Natural Morality

David Brooks’ editorial in the Friday, July 23rd New York Times was on morality, in particular the type which naturalists view as another outcome of evolution. The naturalist position is that, much as we have over time developed receptors for sweetness and saltiness, we have also developed receptors that recognize fairness and cruelty. 

At a recent conference organized by the Edge Foundation, researchers attested to the evidence for that inborn moral sense. Paul Bloom of Yale reported on experiments in which babies were shown a figure struggling to climb a hill, another figure trying to help it, a third trying to hinder it and then the hindering figure being either punished or rewarded. Babies as young as six months clearly preferred the helping figure over the hinderer and by eight months preferred the punishing of the hinderer over rewarding her. While Bloom doesn’t pretend that this implies that people are born “good,” he does claim that it shows we are all born with an ability to distinguish basic right and wrong. 

But since we homo sapiens as a group don’t seem to suffer from a surfeit of morality, how do we each arrive on our moral path? 

There was some disagreement at this conference over how much we rationally control our moral behavior. The role of emotion has recently been emphasized as a critical part of decision-making (see our upcoming entry on decision-making).  Some have even suggested that emotion is the real basis for a decision with moral reasoning following simply to justify the decision, much like the proverbial man on the elephant who tells himself that he is the one moving the beast but is in fact only along for the ride. 

Studies done during the last couple of decades, which Brooks doesn’t mention, inquired as to why some gentiles, under no external compulsion, risked their and their families’ lives to protect Jews during the holocaust. The studies found that the gentiles in question viewed themselves as “just that kind of person,” people who had been raised with the sense of obligation to do whatever they could to help others in need, a morality which they practiced without a whole lot of forethought. That is, they performed those heroic acts essentially out of habit.

With the pressure of the economic downturn, the temptation to bypass ethical constraints is evident.  Bill-padding and double-billing have increased dramatically this decade over last, as have frauds and conversions of trust and other third-party funds.

Is there also a laxity in morals, as opposed to ethics?  Professional lapses not expressly prohibited but simple failures to be fair and straightforward?

Perhaps there is no mandate for lawyers to act morally or even room for moral considerations in our profession.  We are, after all, supposed to be zealous advocates, and no doubt many (possibly emotion-based) ethically close calls are strenuously defended as being in clients' best interest. 

But  it is also possible that high standards of morality may be a obligation owed to our clients in the interest of providing them with the best result.  As reported in our entry "What's Morals Got to Do With It?,"  a study by the Consortium for Research on Emotional Intelligence found that financial advisors who demonstrated high levels of “moral and emotional competency” nearly doubled the return on their client portfolios over the S&P 500 average. “Results showed that Integrity was the key behavioral competency which predicted the most positive returns for clients."  Integrity was seen as someone who "walked the talk."

If morality can change a financial advisor's returns, might not a lawyer armed with morality sway judges and opposing counsel? 

Then there is the matter of how we treat each other in our law firms and law departments, where we are less burdened by the goad of zealous advocacy. The Project for Attorney Retention and the Minority Corporate Counsel Association recently reported that nearly one- third of the 700 women partners surveyed had been “bullied, threatened, or intimidated out of origination credit.” This is not a backwoods phenomenon--three-fourths of these women are in firms of over 250 lawyers.  A frequent complaint is that their partners trot out women for client pitches and then exclude them from the work (and of course the origination credit).   "Clients will be surprised that the attorney that they think [is working on the matter] is not getting the credit," says Roberta Liebenberg, chair of the ABA Commission on Women in the Profession.

One of the more interesting points made at the Edge conference is that “people who behave morally don’t generally do it because they have greater knowledge; they do it because they have a greater sensitivity to other people’s points of view,” otherwise known as empathy.  Marc Hauser of Harvard reported that bullies—people clearly not acting morally-- are surprisingly sophisticated in the ways of interpersonal commerce, particularly in reading others’ intentions, but they are not able to "feel their pain." Which makes them good manipulators and strategic operators for their own benefit without the drag on their trajectory of caring about the impact of their actions on others.

Empathy is one of the traits that lawyers often score low on--all the better to not deter us from surging onward on behalf of our clients, certainly some would say.  But firms might consider steps to counter that tendency by adopting compensation and other encouragements to "feel each others' pain."

As Brooks says, it is good to ground virtue in the day to day. 

Diversity at SCOTUS and Beyond

In addition to the factors we pointed out as relevant in evaluating the Sotomayor Supreme Court nomination, recent studies provide some additional insight into the impact of minority judges just in time for consideration of Kagan’s SCOTUS nomination.

The ABA Judicial Division reported this spring on two studies conducted by the University of Pittsburgh School of Law and Carnegie Mellon University’s Tepper School of Business, one of which examined 40% of reported racial harassment cases from six federal circuits from 1981 to 2003 while the other reviewed over 500 Title VII sexual harassment and sex discrimination cases. In the second study, plaintiffs were at least twice as likely to win if a female judge was on the appellate panel.

 

In the racial harassment cases, African-American judges were significantly more likely to find for plaintiffs (46%), compared to Hispanic (19%), white (21%) and Asian American (33%) judges, a finding which both supports and refutes the idea that those who have experienced being a racial minority may be more sympathetic to minority plaintiffs. While Kagan is Jewish and results for that ethnicity were not reported, the general conclusion remains that diversity breeds diverse trends.

 

Does this mean that the law is so variably applied as to preclude justice? 

 

One of the authors of the study, Professor Pat Chew, takes the position that the rule of law in these cases remains intact—all judges, regardless of their own profile, took the same procedural steps to reach their decisions, while taking different approaches to interpreting the facts. She compared these disparate results to those obtained when controlling for judges’ political affiliation—a factor that also significantly affects outcomes.

 

In a federal court system where 20% of judges are women and 15% are members of minorities, the decisions currently being made are obviously more reflective of those of white males than the spectrum of American ethnicity and gender. But in an increasingly diverse world, that is likely to change.

 

These kinds of studies always segue into an examination of the feeder systems for the judicial system—law firms across the country. The stats there, particularly as a result of the Great Recession of 2009, are not encouraging for the future. While large firms lost about 6% of their total lawyers in 2009, 9% of Asian-Americans, 9.7% of Hispanics and an astounding 13% of African-Americans (and 16% of African-American non-partners, or roughly 1 in 6), lost their lawyering jobs there. While some firms have been able to register gains (seeDiversity Scorecard 2010”), these statistics on overall loss of diversity show what a major setback has occurred in those firms where the resolve to improve law firm diversity is fragile. SeeLaw Firms Must Act to Offset Diversity Setbacks.”

 

At a time when the number of non-whites in the workplace will start to outstrip whites, building an environment that acknowledges and addresses the challenges that diversity presents is a priority for all firms. Understanding differences in the “interpretation of facts,” as the studies above noted, is an important part of understanding diverse perspectives—and succeeding in court. 

 

Another factor that invariably impacts the rise of minority lawyers is a firm’s compensation system, and specifically origination credit. We already are documenting the difficulty that women partners have in capturing their share of origination. SeeFemale Partners Bullied Over Compensation.” Helping minorities and women realize their share of law firm success in the increasing diverse world where firms will be forced to operate should be on every firm’s agenda.

Muir Leads Associate Seminar on Business of Law

Muir recently led an Introduction to the Business of Law seminar for junior associates at an AmLaw 100 firm. The presentation is customized to the firm and is gauged to bolster associates'  engagement and loyalty and to improve their productivity. 

Topics include a definition of terms, such as utilization, realization and cash management, and a discussion of what drives the economics of law firms, the impact of current marketplace trends, as well as how all these factors influence every associate's career, and what they can do to benefit themselves and their firm.

Director of Professional Development: "Associates called me specifically to thank me for setting this up; others said that the topic answered a lot of questions they wanted to know about (but probably wouldn't have asked). Several who didn't make it called to ask if I had recorded it because everyone said it was a good presentation...plus I appreciate that you were great to work with."

Partner in charge: "This was a very helpful presentation--a number of associates came up to me afterward to say how thought -provoking it was. It is difficult at times, particularly with the most junior associates, to get them to ask the questions they want to ask. You answered many of them in your presentation. We look forward to doing this again."

Firm Consultant: "The presentation was excellent. Law is a business like any other business. Every attorney, particularly at these large firms, should know about what you discussed in your presentation."
 

Trimming to the Bone

As our entry Barbarians at the Partnership Gate? on January 10 predicted, the great partner smack down is getting under way, and the first out of the box is Howrey's announcement last month that it was dismissing up to 10% of its partners. Mayer Brown's recent firing of 28 lawyers included counsel, another tier of long-term lawyers, in addition to associates.

Howrey's Managing Partner Robert Ruyak was a panelist at the Georgetown Center for the Study of the Legal Profession's conference entitled "Law Firm Evolution: Brave New World or Business as Usual?" last month.  He and other managing partners there acknowledged that, in addition to pruning partner ranks, lower compensation expectations are likely part of the longer-term fallout of the recent downturn.  Those lower levels will put partner compensation, Ruyak pointed out, closer in line with the historical pace of increases that existed before the irrational exuberance that we all enjoyed over the last decade.

Managing your partners' expectations regarding compensation over the next few years will be a monumental task.  Partners are going to be expecting, impatiently, for compensation to rise and will look to push out older partners, drastically reduce expenses, and advocate for anything else, short of scorching the very earth they occupy, that will help drive up compensation. Firms must be well-equipped to deal with the conflict, attrition and problematic morale that compensation issues will generate.

Now is the time to start that process of managing expectations.  The first step is to reassure partners that the firm has a strategy for stability and and even growth over the next years ahead. Are you prepared for the first step?

  

Muir to Lead Discussion on Lateral HIring and Integration

From 2:00 pm to 3:15 EST on Thursday April 29, 2010 Muir will lead an audio conference discussion hosted by the Center for Ccompetitive Management (CCM) entitled "Lateral Partner Hires: Selecting and Integrating the Best Fit for the Firm," centering on the issues associated with hiring and integrating lateral partners. A record number of lateral partner moves were made in 2009 and 2010 is shaping up to be another record year.  Don't miss this chance to maximize your firm's efforts to grow while avoiding the expensive pitfalls of lateral partner attrition.

For further information and to register, go to http://www.c4cm.com/lawfirm/lateral-partner-hires.htm

 

Georgetown Law School Center for the Study of the Legal Profession's Conference -- "Law Firm Evolution: Brave New World or Business as Usual?"

It was my great pleasure--something I don't often say about a conference-- to attend this invitation-only gathering last week, March 21-23, of both august and up-and-coming law industry professionals as they prognosticated the future of our practice and what that might in fact look like up close for a broad array of providers and clients. 

While I will digest and relay over the next few weeks a number of interesting findings and tantalizing predictions that were discussed, let me summarize a few currents that are of particular interest to me.

One, notable is the influx and rising success of non-lawyer services in this emerging marketplace, whether those services are provided by in-house specialists in law firms, wholly-owned subsidiaries of firms, or independent companies.

Two, changes making their way into law firms are both reducing incoming associate classes and also raising the ante for efficiently training and promoting those associates, with the result being that firms are experimenting with more discriminating approaches to hiring and more sophisticated methods of providing professional development.

Three, perhaps as a corollary of at least the first point above and probably the second point as well, law firms are becoming truly more diverse workplaces that respect and rely on the contributions of non-lawyer sociologists, MBAs, IT specialists, project managers, psychologists, accountants and other professionals to more efficiently analyze, structure and deliver services responsive to client needs.

Stay tuned for the  review of this conference's exciting topics.

 

Muir to Participate in ALAS Panel on Lateral Partners

Muir will participate in a webinar entitled “Think Like a Lateral—How to Hire and Retain Quality Lawyers” to be presented on Tuesday, March 9 for the members of the Attorneys' Liability Assurance Society (ALAS). 

Muir to Speak on Business Development as Part of Partner Compensation

Ronda Muir is participating as a panelist in CCM's audio conference on "Compensation for Client Development: Tracking, Measuring and Rewarding for New Business Origination" being held at 2pm on Thursday, February 18, 2010. To register, please go to http://www.c4cm.com/lawfirm/compensation_client_development.htm.


 

Barbarians at the Partnership Gate?

The partner smack down has begun.

Here’s the most recent tally for equity partner announcements: Skadden, Arps named 8 new partners, down from 25; Debevoise & Plimpton named 2, down from 6; Weil, Gotshal promoted 3, down from 7; Cleary Gottlieb elected 4 new partners, half as many as in 2008; Ropes & Gray named one-third fewer with 8 new partners; Latham & Watkins cut promotions 25% to 23; Davis Polk & Wardwell named 4 partners compared to 6 a year earlier; Proskauer Rose named 4 to partnership, 1 less than in 2008; Gibson, Dunn & Crutcher named 11 new partners, compared to 13 in 2008; and Wachtell, Lipton, the most profitable firm in the country, named 2 new partners, down from 6 last year. The grand finale is that Cravath is making no new partners this year. Zero.

And it’s not just the firms based in New York and LA that are promoting fewer associates: Mayer Brown named almost half the number of partners compared to 2008, or 14 partners, down from 27, as did Paul, Hastings, naming 6 new partners, down from 11 the prior year. Kirkland and Ellis in October promoted 51 lawyers to non-equity partner (which all partners start out as), constituting a 27% drop from last year.

Clearly part of the reason for the recoil at making new partners is that law firm net income through the third quarter of 2009 was down 6.1 percent industry-wide, according to a survey by Wachovia Legal Specialty Group, part of Wells Fargo Corp, with top-tier firms experiencing a 4.3% decrease.

In reaction, firms have cut expenses, summer and associate ranks, delayed starts, reduced salaries and bonuses and have even cut the compensation of non-equity partners, in some cases clawing back additional capital contributions.

According to The American Lawyer, the number of layoffs stands at more than 2,900 associates since the start of 2008. The average summer class size was 20% smaller this year than last, and of those summers who got offers from Am Law 100 firms, all but a handful are looking at delayed start dates. Most firms have cut back sharply on recruiting for next summer; with at least nine firms, including Morgan, Lewis, Pillsbury Winthrop and Milbank Tweed, having canceled their 2010 summer programs in all or some offices.

Many associates still working have seen their compensation frozen or cut, typically by about 10%, or from $160,000 to $145,000 for first-year associates in major cities.

 For example, Pittsburgh-based Reed Smith is reducing by 20% annual salaries and hourly billing rates for first-year associates and slicing all other associate salaries by 10%. The firm also has introduced merit-based promotion and has had two rounds of layoffs of more than 200 people over the past year. Reed Smith also recently told non-equity partners that they would have to contribute 15% of their base pay to the firm as capital or relinquish their partner status — a move estimated to save the firm $18 million.

Drinker Biddle & Reath has lowered salaries and enhanced training for first-year associates, replaced lockstep promotion with a merit-based program for associates and gone through two rounds of layoffs. Chairman Alfred Putnam notes partners will have made less in 2009 than they did in 2008 and that there will be continued downward pressure on compensation.

But Putnam says firms are loathe to cut partner compensation across the board. “You might have two or three practice groups doing well, and they might say they are not going to take a cut and if the firm makes them, they will just walk across the street [to a competitor].”

So what we have now is the perfect storm for producing class (law class, that is) warfare. Having made all the other conceivable cuts and reductions and clawbacks that partnerships can think of, a number of them are staring at nonetheless reduced partner profits. And those reduced profits look so bad, partners are not willing to cut them further by sharing with additional partners.

The implications of making fewer partners are not pretty, however. Boomers are going to be hanging on longer because of their career-centered lives and their reduced portfolios. Rumbling among the troops will escalate, young turks are likely to go elsewhere because of the uncertainty, new lawyers will have to carefully assess partnership portential before joining a firm and ever-younger clients will find themselves with aging service partners.

Of course, not all firms are cutting the number of partners they are making. Sullivan & Cromwell in October elected 5 new partners, the same as a year earlier. "We're obviously not going to stop making partners because of the financial conditions," said H. Rodgin Cohen, chairman of the firm. Obviously.

And a few brave firms are actually making more partners. Milbank, Tweed recently elected 5 attorneys to partner, up from 4 in 2008. "We certainly pay attention to the economy in making new partner decisions, but we also pay attention to the fact that we're strong enough that we should mostly be focusing on long-term investments," said Mel Immergut, Milbank's chairman.

Fried, Frank named 7 new partners, up from 5 a year earlier. The promotions followed a year where Fried Frank shrank firmwide more than any other law firm, according to data collected by The National Law Journal, with the number of lawyers falling 26.4% to 468 attorneys.

Partners may be tempted to wait out this “downturn” thinking it is a recession and not a reset, but eventually the prospect of lower profitability and therefore lower compensation for partners will have to be confronted and firms are at hazard if they do not deal with the implications. 

What's an Hour Worth Now?

While no one in his or her right mind yet concedes it, let's just assume that the tides have turned and the billable hour is a thing of the past.  What becomes of all the firm procedures and evaluation and promotion and compensation systems triggered or run by billable hours?

How do you tell your associates how much you expect them to work?  What do you do about all those compensation systems--some affecting associate salaries and bonuses, but certainly many determining partner takehome--that require the input of some measure of billable hours--pro bono hours, firm management hours, marketing hours, hours of originated work, hours of work serviced, etc.? 

As a Hildebrandt entry points out: "One thing is for certain... Bonuses based on the number of billable hours will have some unpleasant consequences in a fixed fee environment."  In effect, firms will be caught paying their lawyers for the same inefficiencies that clients are complaining about.  The efficient lawyers, with lower hours, will be the losers.

But changing incentives in an environment where there is no history of change can be challenging.  Author Jim Collins suggests asking this question: "'What is the economic denominator that best drives our economic engine?"  Every firm should be asking itself that question. Is it number of hours? Profit per matter? Profit per lawyer? Profit per dollar spent on labor?

So when that fateful time comes, what will the hour be worth?  Frankly, given the jeers from the client galleries, what's an hour worth now?  

More Accolades for "What the New Law Firm Looks Like"

From Mitt Regan, Professor of Law and Co-Director of the Center for the Study of the Legal Profession at Georgetown University Law Center: "I’m using your piece on 'What the New Law Firm Looks Like' for the Law Firms course that I will be teaching at Harvard Law School this spring. It does the best job I’ve seen of succinctly describing in one place the various trends that are likely to be transforming law firm practice." 

So reassuring to see your offspring make it to Harvard! 

You too can have the benefit of Ivy League-worthy insight. Now is the time to arrange for your managing partner, executive committee, general counsel or partnership to dialogue with Ronda Muir on what the new law firm looks like and where on that continuum your firm is headed. 

Making it Personal

Following up on our November 1 entry "The Importance of Glue" is an article by Patricia Gillette, a partner at Orrick, Herrington & Sutcliffe, published December 9 in The American Lawyer, and reproduced below in its entirety.

"The Message That Will Seal Law Firms' Doom: 'It's Nothing Personal'

It's not personal.

This is the current mantra of law firms with regard to their staff members, associates and partners.

"Sorry, first-year associate, you won't be starting work when we said you would. Come back in a year."

"After careful consideration, tenth-year associate, we just can't make you partner yet. Maybe next year."

"We're sorry to do this, twenty-year legal secretary, but we have to cut back on costs and so we're letting you go."

The messages all inevitably are followed by the exculpatory: "It's not personal, it's business."

There is no question that change is coming to the legal profession -- in the way firms are structured for advancement, in the career expectations of associates and in how work gets done. But law firms have yet to come to terms with the fact that these changes might also impact profits, in the same way that changes to the medical profession affected the profit margins of physicians. As such, in many law firms, change is embraced as long as equity partners can continue to earn salaries that will be reflected positively in the almighty profits per partner competition. (And make no mistake that it is a competition, as are most things with lawyers. Thus, we see firms stretching the definitional limits of "profits per partner" as they vie for the top spots on the "list.")

In the resulting wreckage, personal connections are lost. Because what these firms fail to realize is that managing only to the bottom line is a short-term strategy. And while that might be OK with the megafirms that want to see their shadows cast further into the global market and higher up on The Am Law 100, it is not strategic and it ignores the reality of the changing market. Still, large law firms continue to march down this path. And that is the path that has led to the depersonalization of large law firms.

Depersonalization is what allows big-firm associates to come and go freely (no question, when the economy comes back, they'll start moving again). It allows powerful partners to take large books of business to competitors so they can make more money. And, in many of these firms, depersonalization means that quality work plays second fiddle to realization, and good citizenship and mentoring are trumped by profitability.

This phenomenon doesn't stop at the entrance to the law firm. It has spilled over to the clients. The lack of a relationship-driven business model permits clients to be arbitrary and fickle. Historical relationships are traded for "what have you done for me lately" and "how much did it cost." Years of good work and great results are thrown out for the low-cost leader, or a change in the general counsel. Because it's not personal ... not for you, not for anyone, not anymore.

Law firms used to be about relationships. Relationships between partners and partners, associates and partners, clients and lawyers. Law firms used to be about retention and growth of lawyers and client relationships, mentoring and development, loyalty to the institution and to each other and respect for those who came before. Law firms used to be about trust.

That trust, however, has been broken. Witness the demise of giant firms like Heller Ehrman, Thelen and Brobeck -- all big firms that appear to have traded their culture for currency. As a former partner of Heller, I saw our firm, with its rich culture of consensus and collegiality, collapse in part because some partners thought it would be OK to trade core values and firm identity for a moment at the top of a list; because some partners favored the elusive "global reach" over more realistic ambitions; and because some partners chose more immediate returns over the history and tradition of the firm. In big firms that have survived, loyalty is too often defined by the portability of a partner's business, associates are seen (and see themselves) as fungible commodities in whom no one has a stake, and fudging numbers of women and minority associates and partners is justified, if it gets the firm to its rightful place on yet another list.

Is this bottom line/list-driven model sustainable? The answer has to be "No." Because, it ignores what law firms need to fuel their engines: associates who are invested in the firm and the future of the institution. There is no question that the new generation of lawyers is relationship-driven -- social networks define their reality; connecting with others and sharing experiences is their passion. Money is important, but community is more important. Loyalty from young associates cannot be bought with law firm logo-emblazoned swag and big pay checks. It must be earned by good and meaningful work assignments, team approaches and a feeling of being an integral part of the firm.

If Big Law wants to have a sustainable and renewable model, these law firms will have to re-engineer their models. Some law firms are making efforts to do just that by:

Reconnecting with clients for the broader and longer relationship.

Looking at associates as valuable assets that have to be mentored, developed and retained by the firm incentivizing firms to deepen their relationships with associates through active mentoring programs, investing in training and instituting career development programs that recognize and support a nonlinear path to partnership.

Developing a skills-based evaluation and compensation system that rewards teamwork, productivity, quality work, loyalty and competence.

Valuing institutional maturity, diversity and historical contributions along with immediate returns by crediting nonbillable hours spent on broadening client relationships, rewarding partners for retaining associates and increasing diversity, recognizing the need to pass the baton through institutionalized succession planning on client relationships.

Finding ways to truly partner with clients so that law firms and clients have shared risks and rewards by encouraging and supporting alternative billing arrangements, knowing the client's business and recognizing its needs and seconding associates when needed.

Big law firms simply cannot continue to trade relationships with their associates and clients for the prospect of raising profits. In fact, firms that ignore this do so at their own peril. Firm leaders need to recognize that it is relationships and culture that bind people to their firms -- because, for the best and the brightest lawyers in big firms and for the clients who want quality legal work, it is personal."

 

Thanks, Patricia.  Couldn't have said it better.

  

Muir on the New Law Firm: IOMA's Thought Leader

The IOMA Law Firm Leadership Alert on November 19, 2009 calls Ronda Muir this month's Thought Leader, saying she "...presents as cogent an expression of what the future of law firms and law practice will look like as we have yet found." Her article is published in the December issue of the IOMA Partner's Report - a Monthly Brief for Law Firm Owners and will be the featured cover-page article in December's Compensation & Benefits for Law Offices newsletter.

The People Factor Critical to Reinvention

One of the important implications of Muir's article "What the New Law Firm Looks Like: The Reinvention of a Reluctant Industry" is that going forward firms will require the close involvement of sophisticated management professionals who are not necessarily or even preferably lawyers to help design and manage change.  These critical players will not only assist in initially envisioning the goals of the firm and its related programs and in easing the various players toward them through the transition period, but will also remain important in ongoing firm management in order to make those initiatives fully operational and successful over the long term.

In the past many law firms have often taken a pass when it comes to building the depth and quality of their non-lawyer professional staff.  For the most part we aren't that focused on these "unseen" professionals--there are going to be complaints about them within the firm anyway and rarely does a client interact with them.  So the firm librarian could be a dud, and the head of recruitment simply cheerful. 

We seem to realize marketing and technology advisers (and at the bigger firms, the professional development directors) have some importance, but still we often opt for less sophisticated, less expensive personnel who act more as placeholders than change agents, undercutting their potential effectiveness from the start. We tend to hire them young and tell them what to do and even sometimes how to do it.  After all, lawyers are the ones who really head all of these areas: the non-legal staff are simply assistants and overhead to boot.

The problem is that lawyers are no longer the experts in all the areas that law firms need expertise in. 

For example, Muir notes that firms will develop "serious project management skills that focus on evaluating and reviewing client goals (both fee-related and outcome-related) and managing matters to reach them."  Such skills include the technological capacity and human expertise to analyze, bid on and track client matters, including producing interim progress analyses to manage staffing and expenses and keep the client up to date.  Lawyers working on those projects need to be spending their time doing what they do best--providing legal services, and should rely on non-legal professionals to fine tune the timing and extent of those services. 

Similarly, "staff managers" acting like purchasing managers are likely to be responsible for engaging and managing a complex and highly changeable array of lawyers and services for specific and often fixed-term projects.  They will need the technology and expertise to manage a large database of information on individual lawyers, temp providers and outsourcers, produce contracts, evaluate performance and follow up complaints and contract violations.

Making "frequent and accurate evaluations of lawyers and staff and effectively using targeted training" are not only complex processes in themselves requiring careful analysis but become critical to morale and retention as these evaluations and trainings impact compensation in the new merit and competency models (see, for example, "The Issues in Moving From Law Firm Lockstep to 'Levels' Compensation").  And those charged with determining compensation based on multiple indices and complex formulas applied across numerous parties similarly need to have reliably sophisticated expertise.  The mid-level partner who doesn't have a lot of client work these days isn't the best choice to run with these valuable, exacting tasks.

Finally, "building relationships, which is key to exerting leadership influence, will be more challenging," and firms are likely to require more leadership time from their leaders--whether firm-wide or practice group leaders--which implies more time diverted from practice to firm management and more reliance on professional assistance.  Work assignment evaluation and management, leadership development, diversity compliance, client succession planning--these tasks can be taken on or assisted by non-lawyer professionals with the appropriate skills.

Of course, these professionals mean a rise in overhead--whether you obtain your expertise by in-house personnel or from outside consultants, another reason profits are likely to be diluted going forward.

But we lawyers can't effectively do all these jobs.  We can't because we are not diverse enough in our approaches and talents (see "The Unique Psychological World of Lawyers").  We not only haven't been trained in the relevant areas--project management, talent  evaluation, competency testing--but we also aren't likely to be naturally inclined toward or good at the process, patience and attention to the types of details that are required. Or if per chance there are lawyers among us who are so inclined or talented, we are not likely to know who they are.

There is the problem of overcoming the legal ego--it's not important if we can't do it well, and conversely, if it's important, then we can do it--but don't let that attitude be what keeps your firm from moving ahead.  Good management these days lies in identifying and locating needed expertise, not in attempting to be it.

What the New Law Firm Looks Like: The Necessary Reinvention of a Reluctant Industry

Yes, Virginia, there is a future for law firms, but it is a strikingly different one from the law firm of the past. 

Not Your Grandfather's Firm

What would have been bombshells ten years ago, and maybe even five years ago, continue to drop from the legal firmament: Double digit reductions in revenues and profits; big shops--Bingham McCutchen, Howrey, Orrick, DLA Piper, Morgan Lewis--shelve or reduce their reliance on lock-step promotions; many firms cut back or eliminate summer programs; salaries are frozen or reduced; behavioral interviewing becomes the newest buzzword in recruitment at Vinson & Elkins and elsewhere; old-line English firms Slaughters, Linklaters and Clifford Chance all acknowledge engaging outsourcers for their clients' low-level legal work, in some cases after years of deriding the practice; and English firms Addleshaws and Linklaters take steps to convert to all equity partnerships, while a number of American firms secretly consider it.

What the New Law Firm Looks Like

Muir's article What the New Law Firm Looks Like: the Necessary Reinvention of a Reluctant Industry reviews some of the areas where changes are sure to appear, and are often already in motion: the rise of merit compensation, multisourcing, non-lawyer stakeholders and the demands made on leadership generally and practice group management specifically; the decline of mergers, hourly billings, big real estate holdings, compensation generally, and fixed levels of staffing. 

In other words, transition is the keyword.  Your competitors are leaving no stone unturned in their search for an edge in a difficult market--neither should you. 

Let us know what steps your firm or your outside counsel are taking to better position themselves for the road ahead.  We will compile these results and pass on the best to you.

 

Muir Leads APLF Roundtable on Leadership

Muir led an inter-active limited-attendance roundtable on Law Practice Management for Current and Prospective Law Firm Leaders at the 12th Annual Meeting of the Association of Patent Law Firms (APLF) in Chicago, Illinois on Thursday, September 17, 2009.  Topics discussed included the distinction between managers and leaders, the importance of values-driven firm identity, the role of practice group leaders in moving the firm forward, and transitioning from consensus-led management to more executive approaches.

Muir a Panelist at ALAS General Meeting

Ronda Muir will be a featured panelist at the annual general meeting of the Attorneys' Liability Assurance Society (ALAS) in Quebec City, Quebec to be held June 25-26.   ALAS is the premier provider of professional liability insurance for large law firms in the United States, currently insuring 237 firms.  Muir will discuss lawyer personality, firm culture and other aspects that impact risk particularly in the context of mergers and lateral hires. Over 250 loss management and managing partners are expected to attend. 

Muir Participating in CCM Audio Conference on Associate Compensation

Ronda Muir is participating in an audio conference on Thursday, June 11, at 2pm presented by CCM on the topic of Retooling Associate Pay: Key Strategies to Adapt to the New Economy.  To register, go to http://www.c4cm.com/lawfirm/associatecompensation.htm.

Innovation during the Downturn

Innovation may be coming to law firms the hard way—prompted by crippling economic conditions. As pointed out in our entry “Fearing Fear“ on February 9, a natural reaction to the downturn is fear, which often neurologically prompts “pencil counting,” or furiously holding on to whatever you still have. Fortunately, if you push through the fear, there is the possibility of another response, and that is creative innovation. So far there are not any major revisions to the business model, to be sure, but at least there are some spasms of change.

Law firms are notorious lemmings, hesitant to do anything everybody else isn't doing.  But in this downturn firms are starting to take more individualized approaches to managing their businesses, particularly with respect to reducing their largest expense: compensation.  Reducing compensation costs through across-the-board associate salary and bonus freezes, delays, or cuts, jettisoning practice groups that are not deemed profitable or imposing layoffs have been the most common steps taken.  Another approach is a reduced hours work week--targeted, across-the-board, or by invitation to those who want a period of work-life balance that errs on the "life" side.  Even “furlough,” a fancy corporate word for temporary unemployment, is appearing in the downturn vocabulary of law firms, with the promise of holding on to talent for when business returns.

Pillsbury, one of the firms whose layoffs were outed by Above the Law because of a partner's indiscreet cell phone conversation on a commuter train, has preempted those layoffs with a “voluntary departure plan” for lawyers who want to leave of their own accord.

But some firms are also paying new associates to arrive later, to work at public or non-profit organizations, or to be seconded to clients, a move that can cement wobbly client relationships.

Another approach is to manage compensation by changing or expanding tiers. A number of firms have de-equitized partners and quite a few are considering thinning their non-equity partner ranks by moving those attorneys into different tiers. 

WilmerHale is putting more steps firm-wide on its attorney ladder. To the titles of associate, counsel and partner will be added senior associate, special counsel, senior partner (for those approaching retirement) and senior counsel (for partners practicing beyond normal retirement age). Co-managing partner Bill Perlstein hopes the move will increase flexibility and allow attorneys a greater choice for their career path. Given increasing attorney preferences, particularly among Gen Xers and Yers,  for more personal control over their schedules, additional tiers, if announced and managed thoughtfully, can help create a more satisfied, productive team.

Partner compensation is often the “untouchable” at firms, but even there, change is in the offing. Chicago firm Much Shelist Denenberg has announced a temporary across-the-board 10% pay cut for all lawyers, partners as well as associates, through the end of its fiscal year. Sharing the pain can promote those firms that pride themselves on their egalitarian treatment of all lawyers.

Patton Boggs recently announced that it is replacing its “eat-what-you-kill” partner compensation system with one that also rewards cooperation and firm-wide business development, associate mentoring and training, and moving clients to the next generation of client managers. The compensation review will look back three years instead of two to give partners longer to realize on business development efforts.  Under this system, a partner’s income cannot fall in any given year more than 25%. Over 90 percent of equity partners voted for the change, which managing partner Stuart Pape called an “incentive for doing things that are supportive, collaborative and productive…In bad times, a meritocratic system is absolutely the best model.” 

On the other side of the pond, similar tactics, and innovation, prevail.  Allen and Overy, when axing 450 attorneys and staff, announced that it was spinning off part of its practice, imposing a pay freeze and asking remaining partners to each contribute an average of about $50,000 in additional capital to the firm.  That move is expected not only to boost the firm's coffers but to raise the commitment to the partnership and its success of those partners willing to put their dollars there.

Doing It Right

The way that these initiatives are both announced and carried out have a major impact on firm culture and morale. Latham & Watkins’ stunning announcement recently of layoffs of 12% of its associates was accompanied by very generous (six months compared to three months) separation payments and health insurance, as well as interim salaries for new associates who delay their entry a year. In spite of the severity of the layoffs and questions about what the firm will look like in the future, the street buzz on the firm's handling of the layoffs has been positive—“classy” is Bruce MacEwen’s assessment. Similarly, the Philadelphia District Attorney's Office rescinded offers to its incoming attorneys only after several attempts to cut costs, and, when the inevitable occurred, actively sought jobs at other DA offices for those dis-invited, hoping to preserve relationships with lawyers who they might one day want to extend offers to again.

Latham and others have also received kudos for making the cuts in one whack instead of dribbling them out, as Dechert, for example, seems intent on doing.  Although the realities of the downturn may drive some firms to second and third whacks. In one of the largest cuts of this layoff season to date, Orrick sent home 12 percent of its nonpartner lawyers on Tuesday, the second cut after a November 2008 one that promised to be the one and only. Those laid off Tuesday didn't fare as well as those cut in November: they got three months' severance instead of five.

Sign of the Times or Window into the Future?

Are these fairly modest innovations we are seeing now simply a sign of these difficult times, or do they signal a growing snowball of changes that could well roll far into our future? 

These changes are not in and of themselves going to make any major inroads on the broken business model that now exists, but hopefully they signal a greater willingness (ok, motivated by a gun to the head) to get out there and slog through the swamp of uncertainty until we find firmer ground.

Experimentation is what will drive innovation, and up till now law firms have been fat and sassy enough to be able to afford not to experiment. But the old "one size fits all" attitude about how firms should be run is beginning to fray.  Unusually bad market conditions have freed firms to stop copying what everyone else is doing and look more carefully at and respond more creatively to who they specifically are, where they are headed and what resources and skills they need to get there. 

Given the layoffs across the country, if a recovery is not in motion soon, the next issue for firms to grapple with creatively may well be the dissonance between recruitment and retention that the current structure produces.  How long can firms withstand waves of painful and expensive "forced attrition" at the same time they are undertaking time-consuming and expensive recruitment and training of new incoming associates, who may well then be forced to move on in a few years?   

After arrival dates, compensation, bonuses and tiers have been manipulated, we can then start facing the decisions that will direct innovation toward the very structure of our firms and the traditional lawyer life-cycles there. 

Muir Lectures on Improving Management Decision-Making

On February 18, 2009 Muir will lecture students at Northwestern University's Business Institutions Program on how to improve management decision-making. Based in part on the article "Promoting an Effective Board or Management Group," the discussion will explore, among other subjects, optimal personality traits for good decision-making, constructing effective teams and avoiding extreme decisions.

High Performance Coaching for Low Performing Times

This is the time of year when many of us take stock of our direction and goals and make plans to step up our effectiveness.  This particular year, 2009, many lawyers are facing an extremely difficult once-in-a-century marketplace for which no one has been truly prepared.  So we may also find ourselves questioning our ability to successfully grapple with the challenges ahead.  

How to acquire the skills that will improve your practice and advance your leadership in such a disorienting environment?

The old adage of two heads being better than one is born out by the data available on the results of coaching.  According to a January 13, 2009 article by Susan Letterman White in The Legal Intelligencer, "a research report by Diane Coutu and Carol Kauffman in the January Harvard Business Review found that coaching is a business tool most often used to develop the capabilities of high-potential performers or facilitate leadership transitions," and one which produces quantifiable benefits. "The Journal of Occupational and Organizational Psychology has reported that coaching leads to higher interview ratings for individuals. Telecommunications Weekly reported in November that a change program, which included coaching, improved customer satisfaction by 10 percent and call resolution rates by 56 percent at Motorola. And according to a 2008 article in The Chronicle of Higher Education, coaching of university faculty improved the writing process of professors who were under pressure to publish."

As Ms. White states, "coaching is to a lawyer what organizational development is to a law firm; they both foster intentional change toward particular goals through a collaborative process. The goals are those that move the client to a higher level of professional effectiveness...Most importantly, a good coach is paid to ask the right questions."

In addition, a good coach is one who listens.

Sheryl Axelrod of Hepburn Axelrod & White, a Philadelphia firm, was quoted in the article as extolling the benefits of coaching in a law firm context. "We worked with a coach who had an uncanny ability to not only listen to our needs, fears and desires for our firm, but our own internal dilemmas and concerns about each other."

Of course, after listening, a coach must also be able to help coachees arrive at and implement beneficial changes.  And those changes are sometimes unexpected.  In the Hepburn Axelrod case, "one of our partners...reach[ed] the difficult decision to leave the partnership."

But the proof is in the pudding.  "The result of the coaching is that our firm, on our own, and our former partner, on his own, are each thriving in a market in which most firms are doing worse, not better, than the year before, " Axelrod said.

Quantitative evaluations of coaching are rare, but those that have been done demonstrate conclusively its effectiveness and bottom-line contribution.  In an evaluation by MetrixGlobal of an executive coaching program provided by the Center for Performance Excellence in 2004 to Booz Allen partners and principals, results indicated that "all leaders readily applied what they gained from their coaching experiences to make significant strides in self-development, while over half (53%) made significant improvements in their relationships with peers and team members and some  leaders (19%) went on to significantly improve client relationships; gaining greater clarity about how their behavior impacted clients and being better able to respond to client issues."

Of eight business areas senior leaders expected executive coaching to impact, "two were found to be positively impacted by at least half of the leaders who were coached: teamwork (58%) and team member satisfaction (54%). Three other areas were selected by 31% of the leaders as having been impacted: quality of consulting, retention and productivity."

Monetary benefits were rigorously documented in this evaluation. "The total monetary benefits were $3,268,325 with four impact areas each producing at least a half million dollars of annualized benefit to the business: improved teamwork ($981,980), quality of consulting ($863,625), retention ($626,456) and team member satisfaction ($541,250). Given a total, fully loaded cost of the coaching of $414,310, the ROI was 689%."

Coaching can provide to all lawyers the simple but valuable assistance of a supportive yet out-of-the-law-firm-box perspective that can be critical when steering through dangerous waters--and that can positively impact the bottom line. That perspective can help you become a more effective  partner, develop individual business, expand your expertise, master management responsibilities and otherwise plan and implement the next step in your career (whether you are motivated to do so proactively or reactively).

At RRR, we offer confidential high-performance coaching programs of six to eighteen months that are tailored to your objectives and your schedule.  Contact us for a consultation on how we can help you achieve your goals in 2009.

Happy new year!

 

Coping With More Bad News

Results from two surveys show growth at the country’s largest law firms to be down significantly in 2008 although employment is generally still on the rise. The National Law Journal’s 31st annual survey of the NLJ 250 reports that those firms added 4.3% more attorneys in 2008, consistent with increases in 2006 and 2005 but at a lower rate than 2007’s 5.6%.  Partner growth in 2008 averaged 3.5%, which was down from 4.6% in 2007 and 5.1% in 2006. Non-equity partners increased 9.2% compared to 2007, when their ranks increased 8.2% compared with 2006. The average number of women partners stayed stable.

The West Peer Monitor Index, a measure of legal market conditions, reported in late November that large law firms had the lowest productivity during the third quarter of 2008 since keeping records, on average down 4.5%. Productivity at the largest firms, the AMLaw 100, was down even more--6.5%, largely as a result of continued increases in hiring at a time when there is less (particularly transactional) work for those associates to do. Often it takes two years for large firms to respond to market conditions in their hiring practices.

According to the Index, average associate hiring at all firms declined 6% in the 3rd quarter of 2008 compared to 2007, with firms offering equity partnerships to half as many attorneys as they did last year (including mega-firm Mayer Brown, which recently announced making 27 partners worldwide compared to 43 last year). Average lateral growth remains comparable to 2007.

Billable hours for all firms dropped 2.5% in the 3rd quarter after declining 2% in the second quarter. Overhead expenses grew 6% compared to 8.3% in the 3rd quarter 2007 and direct expenses grew 8% compared to 9% last year. 

The short-term tact many firms are taking now is to lay off lawyers. According to the U.S. Bureau of Labor Statistics, 7,300 lawyer jobs were lost nationally between June and October, with an expectation of far more shrinkage when November and December numbers are tallied.       

                                                                                                       

Big firms, and particularly the big New York-based firms who draw much of their work from transactions for or financed by Wall Street financial institutions, have been particularly hard hit, and are responding accordingly.  The tally of recent attorney layoffs from New York offices includes 96 lawyers dropped from Cadwalader, Wickersham & Taft, 20 from Clifford Chance, 40 from Orrick, Herrington & Sutcliffe, 35 from Proskauer Rose, and 70 from White & Case.  Clifford Chance attorneys have been quoted questioning whether it's worth having a New York office at all. The fact that major transactional firms--Heller, Thelen, and now Thatcher, Profitt--have already folded this early in the recession may well presage more big firms collapsing in 2009.

                                 

Freezing salaries, as Latham & Watlkins has announced, and cutting bonuses in half and eliminating special bonuses, following the lead of Simpson Thacher, Davis Polk, Skadden Arps, Cravath and others in the US and Allen & Overy and Clifford Chance in the UK, are among the other responses to all this bad news, as well as cutting staff, reevaluating off-shore back office services, and trying to offer more flexible fee arrangements.  The recent explosion of non-equity partners is also being scrutinized for its impact on firm finances during these difficult times.  

Hard-pressed law departments are taking another look at the pros and cons of outsourcing, as well as insisting on more accommodation from their firms on staffing and pricing. 

There are a few benefiting from the downturn. The work of outplacement firms has expanded exponentially and attorney recruitment firms have had an influx of talent.  In recognition of this growing pool of lawyers, LegalOnRamp, among others, has added a legal positions component to its site. So those firms looking for talent are at an advantage now.   

Is there any silver lining?  Firms can take this time to experiment with different fee arrangements and also to shore up organizational fundamentals--enhancing performance evaluations, professional, leadership and business development training, and succession plans--so as to be better able to weather the continuing storm, and to be poised to take advantage of the economic improvements that will eventually come.  

Although some pundits are claiming that the economic impact on the law business hasn't been as disastrous as first expected (which we may have to wait a while longer to fully evaluate), there is no denying even at this stage a sea change of sorts---if only that the current fear and trembling in the legal community, historically one of the most economically stable professions, will cast a long shadow over firms as they embark on 2009 and the years to come.

Bad Financial News Before It Got Worse

Citibank's Law Firm Group has recently issued its mid-year financial assessment of the legal industry and it is not a pretty sight.  But that bad news is based on results as of June 30, 2008, well before the takeover of Freddie and Fannie, the bailout of AIG, the disappearance of WaMu and Wachovia and Merrill, and the bankruptcy of Lehman, not to mention the failure of the Congressional rescue plan, all of which portends even worse carnage to come.

The first half of 2008 looks very different from the previous six years.  Revenue growth was the weakest it's been in seven years--averaging 4.8% compared to the 10.6% 7-year average. With law firms continuing to add lawyers to their ranks (up 5.6%), a slowdown in productivity comparable to mid-2001 is taking hold, with expenses (up 10.1%) increasing faster than revenue.  Compensation costs are up 15%, well above the 7-year 10.1% average increase.

Practice areas like restructuring and bankruptcy that have been anti-cyclical in the past have not yet helped cushion the fall. 

Profits per Equity Partner dropped 9.1% during the first half of 2008 even though the 1.8% increase in the number of equity partners is substantially down from the 2.9% seven-year average.  Top tier firms suffered the most, falling from a 11.7% increase in PPEP in 2007 to a 11.8% drop, victims of the languishing deal/financings markets and an inability to be nimble in changed circumstances--the big firm head count increase doubled that of smaller rivals, which is in part why smaller firms had only half the drop in PPEP (5.3%) for the first half of 2008.

Interestingly, "international firms," those who have 10-15% of their lawyers overseas, have been subject to the same downturn, while "global firms," with 25% or more of lawyers overseas, have fared much better.  However, it may just be a matter of time before the global economy starts to throw out the same challenges to those firms.

Projections as of June 30 of PPEP for the year 2008 are flat to down 10%, indicating top-tier firms risk up to a 15% decrease, putting 2008 on track for the worse year since at least 2001 and maybe earlier.

Unfortunately, those numbers are likely to be rosy.  They do not take into account the recent paralysis in the credit markets, the enormous financial burden the government (and ultimately taxpayers) has taken on and the disappearance of several major banking clients.  Word of mouth indicates that many firms are holding back distributions to a level as much as 30-40% below last year's. Given the fall of Heller Ehrman and the teetering of a number of other law firms, those who register a 15% decrease in profits this year may be the winners. 

How to make the best of a difficult situation?  Tying associate bonuses to their and/or the firm's profitability may help motivate young lawyers and limit expenses.  Attrition has recently dropped dramatically so firms can winnow out unproductive lawyers and cherry-pick lateral hires that are consistent with their strategic plan, making sure they really know why those lawyers are leaving their old firms.   Making sure collections are current is also critical.  And this is the time to clamp down on administrative and other non-essential expenses. Finally, robust business development is more important than ever.

Girl Power at Work

In a recent article in The New York Times entitled “Girl Power at School, But Not at the Office,” Hannah Seligson gives some good advice to all working women, even those of the “post women’s right movement” generation in which she grew up. 

After feeling self-assured and equal to men in academia, Hannah found the workplace to be different: women undermining other women, men not taking women seriously--focusing on their appearance and “assistantizing” them.  

But she also recognizes that women can get in their own way in the workforce. Work skills women must develop, in her opinion, are a thick skin, the ability to promote oneself, and the ability to negotiate. She also recommends that women dump the perfectionism and create a professional network.

Here are some jewels to consider:

Rather than getting rattled by their feminine “sensitivity,” women have to “become impervious to the daily gruffness that’s a part of any job.”  

Seeking perfection can lead to paralysis and keep women from speaking up or taking risks. 

“Soliciting feedback… demystifies what your boss thinks about you and it also gives you the data to become a more valuable employee.”

“Reprogram your brain to think that girls do brag. Your job is a two-part process: one is actually doing the work and the second is talking about it in bottom-line terms.”

Since “women don’t have as much of a tradition of business networking (‘Do you want to go grab a beer?’ doesn’t quite roll off our tongues),” learning to ask colleagues specific questions about how to advance can be the organic approach to mentoring. 

Finally, women need to “speak salary.” Women often think they will be paid what they deserve, as long as they do the work. Follow the example of men who fearlessly ask for a raise over and over again, regardless of the response. As a Harvard Business School faculty member explained: ‘By and large women believe that the workplace is a meritocracy, and it isn’t.”

Developments in Associate Compensation

Muir will be participating in an IOMA audio conference presentation entitled "Associate Compensation: New Alternatives for a Difficult Economy" on July 22, 2-3:30 pm EST.  For more information or to register, go to www.ioma.com/audioconferences/1053.html

Muir Conducts Associate Compensation Audioconference

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.

Look Who's Changing Now!

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.

 

Will You Ever Get Rid of Those Baby Boomers?

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?

 

The Fracturing World of Lock-Step Compensation: The Beginning of the End of Big-Firm Glory?

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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