KING & SPALDING’S REVERSAL OF FORTUNE

It was an impossible task. Take a multimillion-dollar a year big law partner with unambiguously conservative Republican credentials and make him look like a combination of Atticus Finch and Clarence Darrow as he pursues the far right’s ideological agenda. Somehow, while working at cross-purposes, Paul Clement and King & Spalding pulled it off. What should have been a non-event became a major story because the firm said yes to Clement’s representation of House Republicans in Defense of Marriage Act (DOMA) litigation – and then it said no.

But the issues are more complicated than the headlines and current talking points.

With words befitting the talented advocate that he is, Clement relinquished his lucrative equity partnership saying, “Defending unpopular clients is what lawyers do.”

Dutifully, Hays fell on his sword in expressing the firm’s official non-explanation for its about-face: “inadequate vetting.”

Attorneys across the political spectrum condemned Clement’s former firm while praising him for adherence to the maxim that everyone deserves representation. Even President Clinton’s solicitor general, Seth Waxman, commended his allegiance to the “highest professional and ethical traditions in continuing to represent a client to whom he had committed in this very charged matter.”

Let’s suspend the hyperbole for a moment of analysis and reflection.

— “They’re Not Entitled to Me”

The target audiences for Clement’s lofty rhetoric were the media and the public, not King & Spalding’s Chairman Robert D. Hays, Jr. — the resignation letter’s addressee. Clearly, Clement scored a public relations bullseye.

He began with the suggestion that his personal “thoughts about the merits of DOMA are as irrelevant as my views about the dozens of federal statutes that I defended as Solicitor General.” Not quite. The solicitor general must always take the same side – the government’s; attorneys in private practice can say no. As Harvard Law Professor Alan Dershowitz told my classmates and me 35 years ago: “In our system, everyone is entitled to representation. But that doesn’t mean that everyone is entitled to me.”

When attorneys wrap themselves in their roles as advocates for unpopular people and positions, it’s worth pausing to consider whether such nobility is easier because it coincides with their ideological leanings. Clement urged that “being on the right or wrong side of history is a question for the clients.” But whether to represent a client is always a question for the attorney. Would Clement have taken the other side in DOMA cases? Based on his record, that seems unlikely.

His new home is Bancroft PLLC, now an eight-lawyer firm that looks like a Republican government-in-waiting. Clement’s conservative dots connect easily to his newest employer: beginning with clerk to Justice Scalia to associate in Kenneth W. Starr’s appellate group at Kirkland & Ellis to solicitor general for President George W. Bush. Pursuing a far right rallying cry doesn’t look like much of an ideological stretch. There’s nothing wrong with that; it’s just true.

— What Went Awry?

Wholly apart from any proximity between his client’s position on DOMA and Clement’s personal politics, King & Spalding missteps created the story. If the firm had simply failed to approve Clement’s initial request to take the cases – as big firms often do – no one would have noticed or cared. That didn’t happen, but what did happen at King & Spalding could have arisen elsewhere throughout big law. Here’s how.

First, money matters. DOMA was never a pro bono affair for King & Spalding. In the prevailing big law model, a revenue dollar is a revenue dollar and new business is new business. Cases and deals generating media attention are especially attractive, in part because they help in The American Lawyer’s annual “Best Departments” competition.

The House of Representatives, a high-profile client, agreed to pay a blended rate of $520/hour with taxpayer dollars. Clement charges more than that for his time, but blended means that every lawyer on the case — all the way down to first-year associate — bills out at that $520 hourly rate. Although appellate matters are top-heavy, partners typically control staffing to make money on blended rate deals. (A $500,000 cap was subject to negotiated increases.) The case also offered another win-win possibility: attracting other conservative clients.

Second, someone at King & Spalding underestimated the backlash. I don’t know what Hays meant by “inadequate vetting,” but partners typically brag to firm colleagues about noteworthy new business as they’re trying to land it. Somewhere amidst the backslapping, they can forget other considerations that matter. Here, the intense adverse reaction came swiftly, certainly and, apparently, surprisingly. The surprise would have been a byproduct of myopic revenue generation; magical thinking at the outset can assume away all potentially bad consequences.

Third, once a new client matter is approved, firms typically let the partner in charge finalize the details. I don’t know whether King & Spalding did that here, but I wonder if anyone at the firm other than Clement read the retention agreement prior to its execution. If so, the implications of silencing an entire national law firm (including staff) must have arisen. A gag provision barred everyone in the firm from engaging “in lobbying or advocacy for or against any legislation (i) that is pending before the [House] Committee…[through January 3, 2013], or (ii) that would alter or amend in any way the Defense of Marriage Act and is pending before either the U.S. House of Representatives or the U.S. Senate or any committee of either body….”

Whose idea was that? Private employers can impose lots of restrictions on employees, but some observers have suggested that this sweeping ban violates state law where King & Spalding has offices, including California and New York. In any event, personnel throughout the firm might have been astonished to discover that, as of April 14, their jobs now required that they forego free speech on personal matters near and dear to many of them. The provision certainly didn’t astonish Clement, who signed the agreement on his firm’s behalf.

— The Road Not Taken

Clement concluded with Judge Griffin Bell’s statement that an attorney who undertakes a representation should finish it. But that proposition is far from immutable. Attorneys decide whether to leave clients all the time, but without the underlying morality play that developed here. Examples: A lawyer laterals into a new firm after saying good-bye to clients that would pose a conflict if he brought them along; or the new firm sends an existing client packing to accommodate the lateral’s more lucrative business; or a firm simply jettisons an existing client in favor of a more financially promising one. Here, the ink was barely dry on the April 14 agreement before Clement resigned from his firm eleven days later. If he’d chosen to stay, the client would have faced little hardship in transitioning to replacement counsel.

The firm now weathers a storm of critics who argue that it has forsaken the profession’s finest traditions by abandoning a client with an unpopular position. Some will distort the issues for political gain, as Virginia’s attorney general already has.

Meanwhile, Clement retains a moral high ground that some people have been too quick to give him. Did he consider the gag provision’s breadth, scope, or potential enforcement problems? Would he have counseled a client — any client — to agree to it? Imagine the outcry if tobacco companies tried to prevent all employees of their outside law firms from using weekends and evenings to advocate anti-smoking legislation.

As an outstanding appellate advocate who has been mentioned as a possible U.S. Supreme Court candidate in a Republican administration, Clement knows that final decisions should be based on a complete record that includes all of the evidence. The current judgments identifying the heroes and villains in this saga are premature.

BABY BOOMERS STRIKE AGAIN

Getting old is tough. But not nearly as tough as being young these days.

Recently, the National Law Journal reported that an Am Law  top 20 firm adopted a new policy allowing partners two addtional years before they must “begin giving business to younger colleagues.” Instead of 65, they’ll now have to start that process at 67. (http://www.law.com/jsp/article.jsp?id=1202458271311)

Meanwhile, a prominent 63-year-old white-collar defense attorney left his big firm of 16 years to avoid its mandatory retirement age (65). He declined his old firm’s offer of a two-year exemption that would have given him until 67. (http://legaltimes.typepad.com/blt/2010/05/mark-tuohey-leaves-vinson-elkins-for-brown-rudnick-cites-retirement-policy.html)

And the June ABA Journal includes the following admonition from the organization’s president:

“In August 2007, the ABA adopted a policy rejecting mandatory age-based retirement policies. The recommendation urging this advance is worth considering and adoption by all legal employers.”

Yes, she’s a 60-something baby boomer in a big firm, too.

What’s going on? Forget lip-service paid to the old age-discrimination argument against forced departure of equity partners. That sword of Damocles has floated over the profession forever, yet somehow current big firm leaders replaced their predecessors.

So why the big outcry now? The current chorus reflects an unintended consequence of a flawed biglaw business model: resistance to intergenerational transition. But extending check-out time is a bad move for the firm that does it, the younger attorneys working there, and aging baby boomers unwilling to contemplate life after the law.

Aging rainmakers have books of business that make them indispensable to many large  firms. Why? Throughout biglaw, simplistic metrics (billings, billable hours, and leverage) have determined individual partners’ annual compensation with an eye toward maximizing short-term average profits-per-partner that appear in Am Law‘s annual rankings.

It’s become bad long-term news for the firm. In such a culture, partners have every incentive to retain client responsibilities and none to mentor proteges or promote intergenerational transition. As they age, the old-timers hoard their marbles and threaten to take them elsewhere. Does that sound like a prescription for long-term institutional stability?

What about younger lawyers hoping to inherit clients? Many will find themselves in the position of the wealthy parents’ child awaiting a large bequest. By the time it comes, the kid will be in his 50s. Meanwhile, blockage wreaks havoc all the way down the food chain.

How about the aging attorneys themselves? Encouraging them to deny their own mortality isn’t helpful. Sorry, but once you’re over 65, you may be young at heart, but to the rest of the world, your colorists and/or your combovers aren’t persuasive.

Here’s the painful truth: we baby boomers are not that special. Think you’re indispensable? Put your hand in a pail of water, pull it out, and look at the size of the hole you leave. That’s how indispensable you are. Do you remember any of your own mentors fondly? Well, someday that’s what you’ll be to others — if you truly succeed in the ways that matter most.

Those who have followed this blog from the beginning know that its first series of posts, “PUZZLE PIECES — Parts 1 through 12” (now archived in “CONNECTING THE DOTS”), dramatizes the problem of aging partners who hang on too long.  (https://thebellyofthebeast.wordpress.com/category/connecting-the-dots/) Special ciriticism goes to those who have also inculcated their firms with a business school mentality of misguided metrics. Such baby boomers are now positioning themselves to extract one  final pound of flesh on the way to dotage.

Are these aging leaders who retain literal death grips on their billings positive role models for successors? If the firms themselves don’t survive them, it won’t matter, will it?

IT’S NOT JUST ME

They acknowledge it’s a tough sell.

The co-chairman of a large, well-respected law firm has teamed with the former senior vice president and general counsel of General Electric to write an article that appeared in the May issue of The American Lawyer. The title says it all: “Noblesse Oblige: Firms must teach the younger generation what it means to be a true professional.”  (http://www.law.harvard.edu/programs/plp/pdf/Noblesse_Oblige.pdf)

Here’s the first paragraph.

“Law firms have been moving from loosely managed associations of professionals to disciplined business organizations for more than a generation. This shift has caused an erosion of professional values (lawyers’ traditional commitment to enhancing society) and has increased the focus on economic return (firms’ relentless quest for escalating profits per partner).”

So how did that happen? Why doesn’t the younger generation already know what it means to be a true professional? Who have been their role models?

Better not to ask. Like me, the authors are members of the baby boomer generation that, as a group, bears responsiblity for a culture that some of us hope younger attorneys can change. In other words, do as we now say, not as too many of us did and still do.

Their suggestions start with the toughest job of all: persuading firm partners to move away from “inward-looking economics (more hours, more leverage, more profits, regardless of value)….”

For example, consider the concept of “productivity” — a bill of goods that self-styled legal consultants have sold to willing biglaw buyers for the past two decades. Increasing productivity has become a nice way of saying: “Get your billable hours  up.” In the Great Recession, it has translated into layoffs so that survivors worked harder.

The authors’ approach would revolutionize most firms’ fundamental cultures. The resulting benefits would flow to partners, associates, the unrepresented, and the community.

But it all begins with a willingness to jettison the business school mentality of misguided metrics that has made profits per partner biglaw’s pervasive measuring stick — in substantial part because it has made most biglaw equity partners wealthy beyond their wildest law school dreams.

How will equity partners respond to the news that they’ll have to earn less now for the promise of longer-term non-economic gains to the profession and, I dare say, to their own improved psychological well-being?

Sophocles wrote in Antigone, “No one loves the messenger who brings bad news.”

Shakespeare’s formulations — subsequently condensed to “don’t kill the messenger” — were likewise on point: “Though it be honest, it is never good to bring bad news” (Antony and Cleopatra) and “Yet the first bringer of unwelcome news Hath but a losing office.”  (Henry IV, Part 2.)

And when it comes to a willingness to hear unpleasant news about average equity partner profits, those of us familiar with the profession know too well the pervasive presence of biglaw’s equivalents to Alice in Wonderland’s Queen of Hearts:

“Off with their heads!”

2,000 HOURS

Why is Yale an outlier? Last year, only 35% of its graduates started their careers in large firms. An equal number accepted judicial clerkships; many will eventually join biglaw for a while. Still, Yale has a longstanding pattern of trailing peer institutions that, until this year, routinely placed more than half of their graduating classes directly into big firms.

One explanation is Yale’s public service tradition. Recently, I stumbled onto another: the school encourages candor about associate life in biglaw.

For many reasons — including the quest for perceived status, the urgency of educational loan repayment schedules, and the promise of future riches — most graduates seek initial employment in big firms with stated minimum annual billable hour requirements. Unfortunately, students view such numbers as abstractions.

They don’t pause to consider what it means to say that 2,000 hours has replaced 1,800 as a critical evaluation metric. (A 1958 ABA pamphlet suggested 1,300 as an appropriate yearly goal. Seriously. That would qualify as part-time, non-partner track employment today.)

Yale publishes a brochure that breathes life into the numbers. “The Truth About The Billable Hour” outlines hypothetical workdays and should be required reading for any prospective lawyer.(http://www.law.yale.edu/documents/pdf/CDO_Public/cdo-billable_hour.pdf) 

When commuting, lunch, and bathroom breaks get included, the concept of billing 2,000 client hours assumes new meaning. It also provides perspective on legal consultant Hildebrandt Baker Robbins’s observation in its 2010 Client Advisory to our profession:

“The high point of law firm productivity was in the late 1990s, when average annual billable hours for associates in many firms were hitting 2,300 to 2,500.”

Astronomical billable hours are what Hildebrandt and others in its cottage industry told us was “productivity.” So guess what happened after they advised firms to increase it?

According to Hildebrandt in 2010: “The negative growth in productivity, even during the ‘boom’ years preceding the current downturn when demand was growing at a healthy rate, was driven to some extent by associate pushback on the unsustainable billable hour requirements at many firms.”

“Associate pushback” is a euphemism for skyrocketing attrition rates. Before the Great Recession, average associate attrition from the nation’s largest firms in 2007 had risen to 70% of that year’s new hires. (NALP published the data in its 2008 “Update on Associate Attrition.”) No one cares about that crisis level of turnover now because the demand for new graduates has collapsed and those who have jobs aren’t going anywhere soon — at least, voluntarily.

But if recent surveys are accurate, relatively few of the newly employed winners will find career satisfaction in their current firms. So what will happen after they finish repaying their school loans?

Like earlier crises confronting the profession, we’ll probably ignore that one when we get to it, too.

“SEND THE ELEVATOR BACK DOWN…”

Kevin Spacey regards late actor Jack Lemmon as a key influence in his life. He often quotes Lemmon’s famous remark:

“If you’re lucky enough to have done well, then it’s your responsibility to send the elevator back down.”

I thought about those comments as I read this year’s Am Law 100 listings and then took another look at last year’s. Rather than sending the elevator back down, most biglaw leaders seem to be pulling the ladder up.

A year ago, the editors of American Lawyer observed that since 1999, the number of non-equity partners in Am Law 100 firms increased threefold. But  the equity ranks rose by only one-third. For context, that was a decade when demand for all legal services surged and large firms in particular experienced explosive growth in revenues, headcount, and profitability.

In other words, there was more room everywhere — except at the top, apparently.

The May 2010 issue of American Lawyer noted that as gross revenues for the Am Law 100 fell, average equity partner profits for the group actually increased to over $1.26 million. How did that happen?

Answer: A multi-pronged attack.

First, firms increased productivity — which is another way of saying that some associates lost their jobs so the survivors could bill more hours. Remember Black Thursday in mid-February 2009 — a second St. Valentine’s Day massacre?

Second, they reduced staff, slashed summer programs, deferred or withdrew previous offers to new hires, and cut other expenses.

Finally and less publicly, some firms quietly moved equity partners to income status while putting the brakes on new entrants to the equity ranks. As a result, the number of non-equity partners rose again in 2009. That bulge in the biglaw python now comprises almost 40% of all Am Law 100 law firm partners.

Where will they go?

Maybe someday the biglaw benefactors bankrolling the National Association for Law Placement (NALP) will allow that organization systematically to gather tracking data that will tell us, just as it does for associates. You might think that all of the free market proselytizers in large firms would embrace more transparency on a topic of such central importance to law students trying to make career decisions.

Think again. NALP tried, but the organization ceased collection efforts in December 2009 because firms balked at providing it. In April, a prominent group of judges, professors, and attorneys wrote a letter criticizing NALP’s capitulation. In response, its executive director offered assurances that the board would consider the issue on April 26.

Now what?

25 YEARS…

There are no other lawyers in my family. One of my sons has a rock band, Harper Blynn, that just released its new album, The Loneliest Generation. (http://www.myspace.com/harperblynn)

It’s an anthem for young adults, but it also engages my Beatles-era baby boomer mind. The album’s first track — 25 Years — resonates on many levels. Fortuitously, it also marks the end of a time span that began with the first ever Am Law listing of the nation’s largest firms.

In its 1985 inaugural appearance, there were only 51 Am Law firms. (A tie required expanding the first group from its intended 50.) For a while, the annual lists were of passing interest, mostly to the profession’s voyeurs. But eventually, the rankings assumed a status that revolutionized the profession — in a very big way.

Once upon a time, how much money a person made wasn’t the subject of polite conversation. At least in the large law firm world,  Am Law changed all of that. It didn’t happen overnight, but it happened.

For many firms, a key metric became definitive: average equity partner profits. Wrapped in illusory objectivity, decisions became easier:

“The numbers don’t lie.”

As firm leaders themselves became armed with MBAs, more business school-type metrics and jargon began to displace meaningful discussion about quality lawyering:

“What are your billable hours?”

“What’s the leverage ratio of non-equity lawyers working on the matter?”

“What client billings comprise the ‘business case’ for promoting an attorney to equity partner?”

And now the rhetoric is simpler as the transformation from profession to bottom-line business has become complete:

“A dollar of revenue is a dollar of revenue, period.”

“I’m just trying to run a business.”

Along the way, attorneys at many firms found the road to equity partnership longer and less certain. But things played out well for the winners, although retaining that status became more challenging, too. In 1990, average equity partner profits for the Am Law 100 were $565,000. Last year, in the midst of economic recession, they were still over $1.26 million.

How did all of this affect the culture of many firms? There’s no convenient metric for measuring that impact, but try this one:

In surveys identifying those who are the unhappiest and least satisfied workers in any occupation, lawyers — especially those in  big firms — consistently lead the pack. It’s a race no one wants to win.

Which takes me to the chorus of Harper Blynn’s 25 Years:

“You don’t have to go the lonely way —

— That wrecks your heart with sorrow and leaves your mind in disarray —

Don’t pretend that you don’t know –

         — Twenty-five years….and nothin’ to show.”

SECOND AND THIRD THOUGHTS?

Business school deans searching for professional models that will restore ethical legitimacy to MBA programs and principles aren’t the only ones second-guessing their earlier impacts.

At last week’s annual meeting of the Seventh Circuit Bar Association, Hildebrandt Baker Robbins participated in a panel discussion as a representative of the cottage industry it spawned: law firm management consulting. A 2010 Client Advisory on the legal profession’s immediate past and predicted future included this line:

“In our view, one of the serious misues of metrics in the past few years has been the overreliance on profits per equity partner as the defining index of a firm’s value and quality.”

Great. Now you tell us. Or I should say, now you change your mind. Or do you?

As the 1990-1991 recession decimated a much smaller version of what is now called biglaw, the National Law Journal’s annual survey of the largest 250 firms in 1991 quoted Bradford Hildebrandt, who in 1975 founded the company bearing his name:

“In most firms, current management has never operated within a recession and didn’t know how to deal with it…”

So who could save us from ourselves? Hildebrandt Inc. became one of the leading players in bringing business school principles and MBA-type metrics into law firm management.

By 1996, Mr. Hildebrandt himself had analyzed our situation and offered this assessment in that year’s NLJ 250 issue:

“The real problem of the 1980s was the lax admissions standards of associates of all firms to partnership. The way to fix that now is to make it harder to become a partner. The associate track is longer and more difficult, and you have a very big movement to two-tiered structured partnership.”

Did most big firms heed his advice? And how. It was an easy sale based on the promise of higher equity partner profits. That was the definitive metric, wasn’t it?

Now Hildebrandt offers a new metric to replace profits per equity partner as the key measure of overall firm performance: profit per employee.

What’s the new goal?

“Greater efficiency in the delivery of legal services,” the Advisory asserts.

Does the new guiding metric embody a more extreme version of an approach that has dominated most big firms for the past 20 years? Perhaps. But some proposals for individual partner evaluation hint at the need for a mid-course correction. Instead of billable hours, Hildebrandt suggests client satisfaction ratings. Rather than leverage, employee satisfaction ratings would matter.

Confused? Hildebrandt knows just the consulting firm to help implement these complex and seemingly contradictory metrics:

“As always, we stand ready to assist our clients in negotiating through these new and uncertain waters.”

Thanks so much for all of your help.