FED TO DEATH

Most of today’s big law leaders think they’ll be able to avoid traps that have destroyed great firms of the recent past. Are they that much smarter than their predecessors? Or are they oblivious to the lessons of history?

My article, “Fed to Death,” in the December issue of The American Lawyer, suggests that most respondents to the magazine’s annual survey of Am Law 200 firm leaders have have forgotten what true leadership is. Consider it my seasonal gift to those who need it most — and want it least.

Happy Holidays and thanks for your continuing attention to my musings. I’m especially grateful to the thousands who have kept my novel, The Partnership, on Amazon’s Kindle e-book Legal Thrillers Best-Seller list for the past six months.

OCCUPY BIG LAW

The encampments are gone, but Occupy Wall Street leaves behind a slogan that should make any history student shudder and some big law leaders squirm:

“We’re the 99-percenters.”

It’s not a leftist fringe rant. During a recent Commonwealth Club of California appearance, presidential debate moderator Jim Lehrer said that, if becoming President turned on the answer to a single question, he’d pose this one to every candidate:

“What are you going to do about the growing disparity of wealth in the United States of America?”

Once-great civilizations collapsed under such weight. A similar internal phenomenon is quietly weakening some mighty law firms.

Destabilizing trends

“Don’t redistribute wealth — that’s class warfare” has become a popular rhetorical rallying cry. (See, for example, the Wall Street Journal‘s lead editorials on December 2  and 7.) But a stealth class war has already produced massive economic redistribution — from the 99-percenters to the one-percenters.

Nobel laureate Joseph Stiglitz writes in Vanity Fair that the top one percent control 40 percent of the nation’s wealth — up from 33 percent 25 years ago. In a recent interview, Jeffrey Winters of Northwestern University notes: “[In America], wealth is two times as concentrated as imperial Rome, which was a slave and farmer society. That’s how huge the gap is.”

Both Winters and Stiglitz suggest that today’s oligarchs use wealth to preserve power. One effective tactic is to encourage the pursuit of dreams that, for most 99-percenters, are largely illusory. My favorite New Yorker cartoon is a bar scene with a scruffy man in a T-shirt telling a well-dressed fellow patron: “As a potential lottery winner, I totally support tax cuts for the wealthy.”

For today’s young attorneys, one largely illusory dream has become the brass ring of a big firm equity partnership atop the leveraged pyramid.

Big law winners

So far, wealthy lawyers have avoided public outrage. But between 1979 and 2005, the top one percent of attorneys doubled their share of America’s income — from 0.61 to 1.22 percent. For the Am Law 50, average equity partner profits soared from $300,000 in 1985 ($630,000 in today’s dollars) to $1.5 million in 2010.

Even so, the really big gap — in society and within large law firms — is inside the ranks of the privileged, and it has been growing. By one estimate, the top one-tenth of one percent of Americans captured half of all gains going to the top one percent. Similarly, management consultant Kristin Stark of Hildebrandt Baker Robbins observes that before the recession, the top-to-bottom ratio within equity partnerships “was typically five-to-one in many firms. Very often today, we’re seeing that spread at 10-to-1, even 12-to-1.”

So what?

Meritocracies are vital and valuable, but for nations as well as for institutions, extreme income inequality reveals something about the culture that produces it. A recent study found that only three nations in the Organization for Economic Cooperation and Development — Chile, Mexico and Turkey — have greater income inequality than America. Perhaps it’s coincidental, but all OECD countries with less inequality — including Norway, Denmark, Sweden, Switzerland, Canada, Germany, Austria, and Britain — likewise surpass the U.S. in almost every quality of life measure.

In big law, exploding inequality is one symptom of a profound ailment: The myopic focus on short-term compensation metrics that reward bad behavior — hoarding clients, demanding more billables, raising leverage ratios. As the prevailing model creates stunning wealth for a few, it encourages attitudes that poison working environments and diminish the profession.

Unlike imperial Rome, today’s large firms won’t fall prey to Huns and Vandals. Rather, modern casualties include mentoring, training, collegiality, community, loyalty, and building institutional connections between clients and young lawyers. Those characteristics once defined the very concept of professional partnership. Today’s business of law makes precious little room for them. Clients who think that these relatively new trends aren’t compromising the quality and cost of their legal services are kidding themselves.

A meaningful Occupy Big Law movement would require that: 1) clients (and courts approving attorneys’ fees petitions) finally say, “Enough!” and 2) would-be protesters stop viewing themselves as future equity partner lottery winners. Meanwhile, senior partners need not worry about disaffected lawyers and staff taking to the streets.

After all, there’s no way to bill that time.

A MODERN TRAGEDY IN FIVE ACTS

The American Lawyer‘s November cover story tells the sad tale of Jonathan Bristol. His client, Ken Starr, was a high-profile financial adviser to celebrities. (Starr is no relation to his namesake, the former Whitewater special prosecutor and current president of Baylor University.) In 2009, one of Starr’s clients, Uma Thurman, began asking tough questions for which he had no answers. Last year, he pleaded guilty to investment adviser fraud, wire fraud, and money laundering.

Starr’s scheme doesn’t interest me; his lawyer does. Bristol’s saga reflects the 30-year evolution of an attorney and his profession. Indeed, because many of Bristol’s experiences look so familiar, some lawyers will find his story unsettling. At least, they should.

ACT ONE

His path into the law was typical — Amherst College (magna cum laude), followed by the University of Virginia Law School. Undergraduates throughout the country still identify with ambitions that Bristol probably held when he was their age — do well at a top college; get into a first-rate law school; enjoy a rewarding career. What could go wrong?

ACT TWO

After graduating in 1981, he went to a boutique Manhattan firm, Dreyer & Traub, where he practiced real estate finance law. Many would say that, today, such a job looks even more appealing as a big law alternative than it was then: smaller, more collegial, better sense of community.

ALM reporter Ross Todd writes, “as a junior partner in Dreyer & Traub’s waning days, Bristol needed to find clients and bill hours.” That was true in the mid-1990s and it’s worse today. Most big firm senior partners say they want aggressive attorney-entrepreneurs, but they ignore the perilous downside. Bristol found clients all right, but eventually he, they, and his firm became defendants themselves. I don’t know why Dreyer & Traub collapsed, but along with a lot of other small firms, it’s gone. So are some bigger ones.

ACT THREE

After leaving Dreyer & Taub in the spring of 1995, Bristol went through a succession of firms before landing at Brown, Raysman, Millstein, Felder & Steiner. In December 2006, Brown Raysman joined Thelen, Reid & Priest in the largest merger of that year. Some blame that transaction for Thelen’s dissolution less than two years later. Since then, lots of mergers have failed; more will follow.

ACT FOUR

In November 2008, Winston & Strawn picked up Bristol and 18 other former Thelen lawyers. Although his annual compensation for 2009 and 2010 was set at $1.35 million, in mid-2009 he agreed to reduce his guaranteed amount to $500,000. His metrics — billables, billable hours, and leverage ratio — must have been in deep trouble. That’s how most big firms measure value.

Bristol’s world continued to collapse as his biggest client, Starr, got behind on his legal bills. The amount — $750,000 — may not seem large for a firm with gross revenues of more than $700 million in 2010. But for a partner already wilting under the heat of the short-term metrics spotlight, it provided tippping-point pressure. Bristol allowed Starr to transfer stolen funds through his personal attorney escrow accounts.

ACT FIVE

In a request to delay sentencing, Bristol’s lawyer wrote that his client’s childhood left considerable emotional scarring: “For much of his adult life, Mr. Bristol has been in therapy to treat depression and anxiety.” If he suffered from those afflictions in college, he couldn’t have chosen a less suitable career.

From all of this, endless lessons emerge: know yourself; know your partners; scrutinize lateral hires; don’t assume anything about an attorney just because he or she comes from a great school or well-respected firm; being entrepreneurial is a two-edged sword; think beyond short-term metrics; character counts; and so forth.

But maybe the most important message is a universal one that few will heed. Perhaps inadvertently, one of Bristol’s former partners at Dreyer & Traub, Edward Harris, Jr., summarized it in The American Lawyer article:

“If you’ve got your eyes on the prize, sometimes you might ignore caution signs or something along the way.”

While enjoying the holiday season with family and friends, consider this addendum: Think about whether the prize you eye is the right one.

THE OTHER BIG 10 SCANDAL

Penn State dominates the headlines, but another Big 10 scandal symbolizes what ails legal education and much of the profession. The two situations aren’t morally equivalent, but it’s too bad there isn’t an attention-getting JoePa at the University of Illinois.

On August 26, the university’s ethics office received a tip about a problem with the U of I College of Law’s LSAT and GPA stats. The resulting ABA investigation continues, but the U of I’s November 7 report identifies a rogue villain.

I think it’s more complicated.

The rogue

Shortly after Paul Pless graduated in 2003, his alma mater hired him (at a salary of $38,500/year) as assistant director for admissions and financial aid. (For years, putting unemployed new grads on the temporary payroll for paltry wages has bolstered schools’ U.S. News rankings. Starting next year, they’ll have to disclose it.) Pless stayed on and, by December 2004, was earning $72,000/year as an assistant dean.

Metrics mania

One of the final report’s first section headings is key:

“Institutional Emphasis on USNWR [U.S. News & World Report] Ranking.”

Not until its 2005 annual report did the school — not Pless — explicitly adopt two new goals: increasing the incoming class’s median LSAT from 163 to 165 and its GPA from 3.42 to 3.5. When the median LSAT came in at 166, then-Dean Heidi Hurd sang Pless’s praises:

“Had we been able to report this increase last year, holding all else equal, we would have moved from 26th to 20th in the U.S. News rankings.”

Except the school hadn’t held “all else equal” to get its historic LSAT boost. The median GPA had plummeted to 3.32 and its overall ranking dropped to 27th. In May 2006, a new strategic plan noted that the admissions emphasis on LSATs had left it “with a GPA profile worse than any other top-50 school.” The new goal: raising the incoming class median LSAT/GPA to 168/3.7 by 2011.

In July, Hurd sought a big pay raise for Pless because, she said, he was “in the hiring sights of every dean in America who wants to improve student rankings.” His salary jumped to $98,000. Up to this point, investigators concluded, there had been relatively minor flaws in the data submitted to the ABA and U.S. News.

The heat is on

Two interim deans served from September 2007 through January 2009. But investigators found that a handful of 2008 discrepancies between actual and reported data for the incoming class of 2011 marked the beginning of a “sustained pattern…that increased in practice and scope through the class of 2014.”

In February 2009, Bruce Smith became dean and had to resolve an open question: should the incoming class of 2012’s median LSAT/GPA target be 165/3.8 or 166/3.7? There had been ongoing internal debate over which combination would maximize the school’s overall U.S. News ranking. Smith described his response to the board of visitors:

“I told Paul [Pless] to push the envelope, think outside the box, take some risk, do things differently…Strive for a 166 [LSAT]/3.8 [GPA]….”

The report exonerates Smith from wrongdoing. But footnote 3 observes that his management style “is goal-oriented and intense, and occasionally intimidating, and that it is not inconceivable that certain employees subordinate to him would be uncomfortable bringing bad news to him.”

For the next two years, Pless didn’t.

“I haven’t let a Dean down yet, and I don’t plan on starting with you Boss,” he’d assured Smith in April 2009.

Median LSATs and GPAs showed continuing improvement; Pless’s salary jumped to $130,000 on the strength of Smith’s glowing review. Indeed, Pless’s exploding compensation at a public university in tough financial straits reveals the power of rankings and deans.

On August 22, 2011, Pless touted the class of 2014’s median LSAT (168) and GPA (3.81). By then, the actual numbers were 163 and 3.7.

Who is to blame? The U of I report says Pless and no one else because he made the data entries. I say read it carefully, draw your own conclusions, and ponder the larger picture. The power of U.S. News rankings and other equally misguided metrics comes from people who rely upon them as definitive measures of the things that matter.

“The fault, dear Brutus, is not in our stars…”

THE ARROGANCE OF OVERCONFIDENCE

Most of us hate admitting our mistakes, especially errors in judgment. Lawyers make lots of judgments, which is why they should pay special attention to two recent and seemingly unrelated NY Times articles.

In the October 23 NYT Magazine, psychologist and economics Nobel laureate Daniel Kahneman describes an early encounter with his own character flaw that led him to research its universality. Assigned to observe a team-buidling exercise, he was so sure of his predictions about the participants’ future prospects that he disregarded incontrovertible data proving him wrong — again, and again, and again.

In subsequent experiments, he discovered that he wasn’t alone. A similar arrogance of overconfidence explains why, for example, individual investors insist on picking their own stocks year after year, notwithstanding the overwhelming evidence that their portfolios are worse for it.

In the same Sunday edition of the Times, philosopher Robert P. Crease discusses the two different measurement systems. One relates to traditional notions: how much something weighs or how far a person runs. Representatives from 55 nations met recently to finalize state-of-the-art definitions for basic units of such measurements — the meter, the second, the kilogram, and so forth.

The second system is less susceptible to quantification. Crease notes: “Aristotle…called the truly moral person a ‘measure,’ because our encounters with such a person show us our shortcomings.” Ignoring this second type in favor of numerical assessments gets us into trouble, individually and as a society. Examples include equating intelligence to a single number, such as I.Q. or brain size, or evaluating students (and their teachers) solely by reference to standardized test scores.

Lessons for lawyers — and everyone else

Now consider the intersection of these two phenomena — the arrogance of overconfidence and the reliance on numbers alone to measure value. For example, in recent years, a single metric — partner profits — has come to dominate every internal law firm conversation about attorney worth. Billings, billable hours, and leverage ratios have become the criteria by which most big law leaders judge themselves, fellow partners, their associates, and competitors. They teach to the same test — the one that produces annual Am Law rankings.

The arrogance of overconfidence exacerbates these tendencies. It’s one thing to press onward, as Kahneman concludes most of us do, in the face data proving that we’re moving in the wrong direction. Imagine how bad things can get when a measurement technique appears to validate what are really errors.

I’m not an anarchist. (I offer my advanced degree in economics as modest support.) But the relatively recent notion that there is only one set of law firm measures for defining success — revenues, short-term profits, leverage — has become a plague on our profession. Of course, we’re not alone. According to the Times, during the academic year 2005-2006, one-quarter of the advanced degrees awarded in the United States were MBAs. Business school-type metrics are ubiquitous and, regrettably, often viewed as outcome determinative.

But lawyers know better than to get lost in them, or once upon a time they did. The metrics that most big firm leaders now worship were irrelevant to them as students two or three decades ago. Like today’s undergraduates, they were pursuing a noble calling. Few went to law school seeking a job where their principal missions would be maximizing client billings and this year’s partner profits.

Will the profession’s leaders in the next generation make room for the other kind of measure — the one Aristotle had in mind — that informs the quality of a person’s life, not merely it’s quantitative output? Might they consider the possibility that focusing on short-term metrics imposes long-run costs that aren’t easily measured numerically but are far more profound?

Reviewing the damage that their predecessors’ failures in that regard have inflicted — as measured imprecisely by unsettling levels of career dissatisfaction, substance abuse, depression, and worse — should motivate them to try.

Meanwhile, they’ll have to contend with wealthy senior partners telling them to keep their hours up — a directive that those partners themselves never heard. Good luck to all of us.

AGING GRACEFULLY — OR NOT

A recent NY Times article revealed the baby boomer’s dilemma: await marginalization or hog opportunities. It has profound implications for big law attorneys of all ages.

“[I]n my experience, it is much harder for older partners to maintain their position if their billable hours decline,” an employment lawyer told the Times.

So a law firm consultant suggested this strategy: “Very few people are so skilled that they can’t be replaced by a younger, more current practitioner. You’ve got to be so connected to important clients that the firm is going to fear your departure.”

That’s unfortunate advice, but not surprising. Most elders don’t mentor talented proteges to assume increasing responsibilities, persuade clients that others can do equally first-rate work, or institutionalize relationships so that the firm weathers senior partner departures and prospers over the long run. Instead, they create silos — self-contained practice groups of clients and attorneys who will give them leverage in the internal battles to retain money, power, and status. (See, e.g., The Partnership) Rather than waste time gaining fellow partners’ respect, the prevailing big law model prefers fear — or, more precisely, fear of a senior partner’s lost billings.

Over time, intergenerational antagonisms result. Older partners become blockage because the leveraged pyramid that pervades big law requires adherence to short-term metrics. Artificial constraints block the promotion of well-qualified candidates who’ve given years of personal sacrifice. If there’s not economic room at equity partner decision time, their efforts will have been for naught; they’re left behind.

Meanwhile, young attorneys learn by example. “Firm” clients cease to exist; they’re absorbed into jealously guarded fiefdoms that become transportable business units. Traditional partnership principles of mutual respect and support yield to unrestrained self-interest.

Eventually, everyone loses. Young attorneys resent elders; wealthy equity partners erect futile defenses against their own inevitable decline to an unhappy place; firms lose the stability that comes with loyal clients.

For some aging big law partners, greed never retires. But for many others, hanging on isn’t about the money. As mortality rears its head, their real quest is for continuing relevance — the belief that they still have something to offer and are making a difference.

Another Times article suggested a possible way out of big law’s conundrum: encouraging partners to redirect their skills. The New York Legal Aid Society program, Second Acts, taps into the growing army of retired lawyers:

“The point is not to have distinct phases of working life and after-working life, but to meld the two by having pro bono work be part of a lawyer’s career. Therefore, when lawyers retire, they can somewhat seamlessly slip into meaningful volunteer work, said Miriam Buhl, pro bono counsel at…Weil, Gotshal & Manges.”

The article described 68-year-old Steven B. Rosenfield, a former Paul, Weiss, Rifkind, Wharton & Garrison partner who traded his commercial securities practice for work in juvenile rights.

Behavior follows embedded economic structures and the incentives they create. In big law, the myopic emphasis on a handful of short-term profit-maximizing metics — billings, billable hours, and leverage ratios — has produced blinding wealth for a few. But sometimes those metrics become less satisfying as organizing principles of life.

Firm demands have left all lawyers with little time to reflect on what their lives after big law might be. Someday, most successful big law partners will pay the price and need help finding a path that reshapes self-identity while preserving dignity. The challenge is to permit disengagement with honor.

Firms could do a great service — and improve their own long-term stability in the process — if they relieved the stigma of economic decline in ways that encouraged aging colleagues to do the right thing. But it requires thinking beyond today’s metrics that determine a partner’s current year compensation. It requires valuing what can’t be easily measured and embedding it in a firm’s culture so that reaching retirement age isn’t a shock, it’s a blessing. It requires empathy, compassion, and — most of all — leadership.

In short, it requires things that are, tragically, in very short supply throughout big law.

FAMILY FRIENDLY?

Lawyers know that definitions dictate outcomes. That’s why the Yale Law Women’s latest list of the “Top Ten Family Friendly Firms” includes some surprising names. At least, some surprised me.

It turns out that the YLW’s definition of family friendly is more restrictive than the plain meaning of the words. According to the survey methodology, it’s mostly a function of firms’ attention to particular issues relating primarily to women. There’s nothing wrong with that, but it shouldn’t be confused with what really undermines the family-friendliness of any big firm — its devotion to billable hours and billings as metrics that determine success. That problem isn’t gender-specific.

To compile the annual list, YLW surveyed the Vault Top 100 Law Firms. What would happen if they included all of the NLJ 250 or an even larger group that included small firms? I don’t know, but I’ll bet the list would look a lot different.

Now consider the survey categories and YLW commentary:

– Percentage of female attorneys: “Although YLW found that, on average, 45% of associates at responding law firms are women, women make up only 17% of equity partners and 18% of firm executive management committees. Additionally, on average, women made up just 27% of newly promoted partners in 2010.”

– Access to and use of parental leave: Virtually all firms have them. Big deal.

– Emergency and on-site child care: I understand the advantages, but how much family friendly credit should a firm get for providing a place where young lawyers can leave their babies and pre-schoolers while they work all day?

– Part-time and flex-time work policies: “98% offer a flex-time option, in which attorneys bill full-time hours while regularly working outside the office.” So what? I know senior partners without families who’ve done that for years.

– Usage of part-time and flex-time policies: “On average, 7% of attorneys at these firms were working part-time in 2010.” Will they become equity partners? “Of the 7% of attorneys working part-time, only 11% were partners, a number that may also include partners approaching retirement. Only 5% of the partners promoted in 2010 had worked part-time in the past, on average, and only 4% were working part-time when they were promoted.”

– Billable hours and compensation practices: “[I]t remains to be seen whether it is truly possible to work part-time at all. Our statistics indicate that while part-time attorneys appear to be fairly compensated, many may work more hours than originally planned. Most firms (93%) provide additional compensation if part-time attorneys work more than the planned number of hours or make part-time attorneys eligible for bonuses (96%). However, part-time attorneys received bonuses at higher rates than full-time attorneys (25% compared to 23% on average), suggesting that many part-time schedules may ultimately morph into full-time hours over the course of a year.”

– Alternative career programs: What’s that? Outplacement support?

All of this gets weighted according to another survey of Yale Law School alumni who ranked the relative importance of the surveyed policies and practices.

Continuing efforts to achieve greater big law transparency are laudable. But one problem with lists and rankings is that they take on a life of their own, wholly apart from methodological limitations and the caveats accompanying the results. (See, e.g., U.S. News rankings). Here, the YLW cautioned that it “remains concerned about the low rates of retention for women, the dearth of women in leadership positions, the gender gap in those who take advantage of family friendly policies, and the possibility that part-time work can derail an otherwise successful career.”

The honored firms will gloss over that warning, issue press releases, and delude themselves into believing that they are something they’re not. Someone truly interested in whether a place is family friendly should find out where it ranks on the “Misery Index.” Partners won’t tell you, but that metric would reveal a firm’s true commitment to the long-term health and welfare of its attorneys and their families.

If you really love someone, you should set them free — even if it’s only every other weekend.