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.

4 thoughts on “OCCUPY BIG LAW

  1. In large part, this disparity in income has been created by Big Law. Federal legislation and regulation is driven by lobbyists fueled by big money, with specific twist and spin built in to allow big money and big law its games. Civil law is accessible only to the wealthy – big banks, big institutions, government agencies. Only 2% of civil cases in federal courts ever make it to trial. It is likely that state courts have a similar record. The growth of summary judgments has exploded as more and more cases become “settled” due to the bankruptcies of businesses and individuals unable to fight the power and influence of Big Law and Big Money.
    False allegations, threats, coercion, and verbal fraud are the stock in trade of Big Law lawyers today. The lack of ethics and corruption in big law is appalling. It’s all “win-at-all-costs” for the law firms, no matter what the facts or the law. Under-the-table deals steal from small businesses daily – “It’s just business,” they say, “and you don’t have enough money to beat us. We’re going to bankrupt you.”

  2. There seems to be some inconsistency in this talk of class and oligarchs concerning large law firms. After all, back when there was more income equality (i.e., the good old days), law firms were much less meritocratic. Concerning class warfare, I recall a partner in a large white shoe firm in NY years ago observing that it was the partners who had worked the hardest, coming up from nothing, and putting themselves through school, that were changing the firm from a collection of professional experts to a business bound principally by money. His point was that they had never cared much for anything but working long hours to make more money, and you could neither outwork them nor expect them to stop. Only society (then) restrained them.

    Remember Peter Megargee Brown’s famous Cadwallader letter? (I need to see if that is online.) Well, law firms got rid of the elites and became more meritocratic. It is not difficult to see that that has something to do with the current income inequality.

    • The notion that big law firms are somehow more meritocratic now than they were in the “good old days” is wrong. In fact, the opposite is true. The reasons comprise one theme of my novel, The Partnership.

      The prevailing big law model equates merit with reference to short-term metrics, including billings, billables, and leverage ratios. Today’s partners eat what they kill, what they successfully claim to have killed, or what more senior partners are willing to throw their way. But no one should confuse that with increased meritocracy.

      In the good old days, senior partners certainly ran their firms with an eye toward generating profits. But many large firms were less myopic than today’s narrow focus. They were more inclined to weigh values — monetary and non-monetary — that extended beyond current PPP.

      Does anyone really think that merit — the relative quality of lawyers — explains the exploding top-to-bottom within equity partnerships since the Great Recession began? I sure don’t.

  3. If you are talking about income inequality, then you are talking about measuring merit by money – and in the short term, too, not some other metric.

    Talking about what the right metrics are for long-term profit potential and whether they are the same metrics as for short-term profit potential is a different question, for law firms as it is for income equality. Certainly, a good case can be made that the more successful firms have longer economic views. And that current examinations of income inequality might also not be considering the right metrics for long-term societal gain.

    One example is at the very end of the American Lawyer you mention your article in. There is a page on whether, to grossly oversimplify, the purpose of a company is to make money or to make good widgets. When I think the best answer is to make make good widgets that people value so that they can sell them at a profit and make money.

    Sometimes I am not sure that the current large law firm business model is still oriented towards making good widgets.

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