UNFORTUNATE COMMENT AWARD

Posted on July 25, 2011 by thebellyofthebeast

“The Case Against Law School” in last week’s NY Times opened with an article by former Northwestern Law School Dean David Van Zandt, whom I’ve never met. Regarded as a maverick in the legal academy, he’s now president of The New School. I don’t know how the Times selected its essayists, but Van Zandt earned my “Unfortunate Comment Award” with this:

“Law schools and their faculties have a vested interest in requiring students to spend more time on campus and more money at their schools.”

If he intended his revelation to be that of a whistle-blower, he blew the whistle on himself. Tackling vested interests that run contrary to what’s best for students should be a defining characteristic of leadership in higher education. But during his fifteen years as dean, he contributed uniquely to a problem he now decries — squeezing more money out of students.

Here’s how. Van Zandt was an outspoken advocate of running law schools as businesses and relying on misguided metrics to do it. One was the U.S. News rankings, which he publicly embraced and almost every other dean condemned. When it comes to money, the rankings methodology — so flawed in so many ways — rewards schools’ high expenditures (requiring high tuition) without regard to value.

Perhaps it’s coincidental, but consider the tuition trend during Van Zandt’s tenure: When he took over in 1995, three years’ tuition for a Northwestern law degree totaled $60,000. By 2008, it had more than doubled to third highest in the country. When he left in 2010, the degree cost $150,000 — just for tuition. Student law school debt has risen accordingly.

When used to run law schools, misguided metrics pose other perils to student welfare. For example, transfer students’ LSATs don’t count in the U.S. News calculus, but they’re lucrative additions to any law school’s bottom line. Under Van Zandt, Northwestern recruited transfers aggressively. But the resulting growth in graduating class size hasn’t served students who entered as 1Ls, especially in today’s job market.

Then there’s the accelerated JD — a flagship initiative of Van Zandt’s final long-range strategic plan that he still promotes from afar. The plan incorporated his view of law school as a business that placed special value on large firms. After all, they were key customers because of their metrics: Big law pays new graduates the highest starting salaries, thereby justifying ever-increasing tuition. This dubious short-term approach, along with his efforts to sell it, drew attention away from the school’s other vitally important strengths.

As for the students, acceleration buries first-years in additional courses to develop “core competencies” while reducing time for thoughtful reflection about their places in a diverse and challenging profession. Before implementing that plan, he should have read Scott Turow’s One L and reviewed big law’s associate attrition and career dissatisfaction rates.

Finally, students in the two-year accelerated program pay the same total tuition as the traditional three-year people because, according to the school’s website, “Northwestern Law prices tuition by the degree pursued rather than the length of enrollment.” That’s a choice, not an economic imperative.

Defending that choice in the Times, Van Zandt wrote, “The cost to the school [of the accelerated students] remains the same because the credit hours remain the same.” That’s a non-sequitur. Certainly, the accelerated group adds cost for its own first-year section — five required courses, plus negotiation and business school-type classes. But twenty-seven students in the class of 2011 generated $4 million incremental tuition dollars during their two years. As Van Zandt elsewhere explained, after their first year “they are integrated with the rest of the students.” If so, the school’s marginal cost of accelerated students’ second-year credit hours should be minimal. Including them with everyone else should bring its average cost per student down, too.

It turns out that running law schools as businesses that focus on misguided metrics is dangerous. During Van Zandt’s final years at Northwestern, its U.S. News ranking dropped from ninth to twelfth and its NLJ 250 placement rate for graduates joining big firms dropped from first to eighth.

Call it karma.

AGING GRACEFULLY — OR NOT

Posted on June 5, 2011 by thebellyofthebeast

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.

A NEW LAW SCHOOL MISSION

Posted on May 15, 2011 by thebellyofthebeast

What ails the profession and is there a cure?

If you haven’t already seen it, you might want to take a look at Part I of my article, “Great Expectations Meet Painful Realities,” in the Spring 2011 issue of Circuit Rider. My latest contribution to the debate on the profession’s growing crisis begins on page 24 of the Seventh Circuit Bar Association’s semi-annual publication.

Part II begins at page 26 of the December 2011 issue.

THE U OF C’s BIG LEAP FORWARD

Posted on March 24, 2011 by thebellyofthebeast

My thanks to the standing room-only crowd that turned out to hear about my new legal thriller, The Partnership, at the Virginia Festival of the Book in Charlottesville. That delightful town is, of course, the home of a great university that includes a law school worthy of Thomas Jefferson’s pride.

While I was there, it occurred to me that when law schools get it wrong, they deserve the scorn that comes with a public spotlight. When they get it right, they should bask in its warm glow. The University of Chicago Law School recently got it right. Really right.

It’s ironic. The home of the Chicago School — where free market self-interest reigns and the economic analysis of the law has been an article of faith for a long time — has adopted a loan repayment program that sends students this powerful message:

There’s more to life after law school than pursuing big law’s elusive financial brass rings. If you take the large firm path, do so because it’s what you want, not because you have no other financial options.

This must shock deans who have pandered to the large law firm constituencies that hire some graduates for the best-paying starting associate jobs. Former Northwestern Dean David Van Zandt made himself the most visible and ardent proponent of that approach. The U of C’s new program doesn’t ignore big law as a potential employer of its graduates. In fact, it led all other schools in the NLJ 250‘s most recent list of big firms’ “go-to schools.” But it now tells the country’s top students that even if they don’t want big law, the U of C still still wants them — so much that it will pay their way.

It’s unique. For example, Harvard has a respectable Low-Income Protection Program. In 2008, it went a step farther and announced a plan forgiving third-year tuition in return for five years of post-graduate public service, but overwhelming student demand made it a casualty of the financial crisis. In its place, Harvard now provides limited funds to encourage public interest work on a case-by-case basis. Other schools, including Northwestern, have loan forgiveness programs, too, but none appears to be as good as the University of Chicago’s new one.

A single line from its website description says it all:

“This means that a graduate who engages in qualifying work for 10 years, earns less than the salary cap, and maintains enrollment in the federal Income-Based Repayment Program, will receive a FREE University of Chicago Law School education!”

“Qualifying work” is public interest broadly defined as “the full-time practice of law, or in a position normally requiring a law degree, in a non-profit organization or government office, other than legal academia.” It includes judicial clerkships.

The “salary cap” is $80,000 and doesn’t include spousal income. That combination seems to beat Harvard, Yale, and Stanford. (Caveat: The differences across school programs can be significant and prospective students should consider their own circumstances, run the numbers, and determine which one produces the best individual result.)

The program is a reasoned response to practical realities. First, big law cannot accommodate all top law school graduates, even if deans try to put them there and all want to go.

Second, the burden of law school debt shapes career decisions that lead too many lawyers to dissatisfying careers and unhappy lives, especially in large firms.

Third, the upcoming generation of prospective attorneys wants options other than large firms. To be sure, many lawyers find that such places are a good fit for their personalities and ambitions. But in recent years, such individuals have become a shrinking minority of the people heading in that direction. The profession should encourage attorneys who will become unhappy in such institutions to avoid them in the first place. Imagine a big law world populated exclusively with lawyers who wanted to be there.

Finally, the program is a reminder that the law is a great calling. Law schools aren’t big law assembly lines, grinding out graduates for firms where nobility too often yields to a business school mentality that prizes misguided metrics — billings, billable hours, leverage ratios, and average partner profits — above all else. The best law schools are uniquely positioned to level a playing field that now tilts students toward large firms.

Whatever else they accomplish, the U of C’s actions bring important attention to student alternatives that sometimes get lost in the myopic focus on big law. Now that’s leadership.

HOWREY’S LESSONS — PART II

Posted on March 13, 2011 by thebellyofthebeast

I wasn’t going to write another article about Howrey. But then I read chairman Robert Ruyak’s explanations for his firm’s collapse, together with columnist Peggy Noonan’s review of former Defense Secretary Donald Rumsfeld’s new book. The two men have more in common than the first two letters of their last names. Both are at the center of dramatically unfortunate episodes that occurred on their respective watches. Both look for villains and miss the bigger picture.

Former Reagan speechwriter and conservative columnist Noonan opens her review with this: “I found myself flinging his book against the wall in hopes I would break its stupid little spine…You’d expect [Rumsfeld] to be reflective, to be self-questioning, and questioning of others, and to grapple with the ruin…He heard all the conversations. He was in on the decisions. You’d expect him to explain the overall, overarching strategic thinking that guided them. Since those decisions are in the process of turning out badly,…you’d expect him to critique and correct certain mindsets so that [others] will learn.” He doesn’t.

Those words also describe Ruyak’s unsatisfying explanations for Howrey’s failure:

1. European offices:

“The real problem we ran into in Europe was conflicts of interest…It’s a different analysis in Europe. But we had to apply the U.S. standards across Europe. That made it difficult to grow because we had to forgo a lot of cases…”

Analysis of potential conflicts issues should have anchored any business plan that began with London (2001) and continued with high-powered lateral acquisitions in Brussels (2002), Amsterdam (2003), Paris (2005), Munich (2007), and Madrid (2008). By July 2008, Howrey was Managing Intellectual Property‘s “Top U.S. Firm in Europe” with more than 100 lawyers there and plans for more.

More importantly, firms survive conflicts-related departures. But here, 26 European lawyers (12 partners, 14 associates) in October 2010 supposedly set off a chain reaction that crushed an otherwise healthy, 550-attorney firm that, only a decade earlier, had no European presence.

2. Document discovery vendors.

“We created a whole portion of the firm to handle [document discovery] efficiently – using staff attorneys and sometimes temporary people, computer systems and facilities.” Along came some companies that were “offering to do this work less expensively at a lower price.”

But in May 2009, Ruyak had attributed part of Howrey’s Am Law 100-leading revenue surge to avoiding “areas that suffered significant downturns,” singling out for praise the firm’s five-year-old document review and electronic discovery center that added $47 million to the top line. So successful was the Falls Church operation that he was considering a second one on the West Coast. (The American Lawyer, May 2009, p.118)

Yet somehow, 75 staff attorneys and 100 temps accounting for 8% of Howrey’s $570 million gross in 2008 became a key contributor to the firm’s demise two years later.

3. Contingent and alternative fees

“Unlike corporations that operate on an accrual basis, it’s hard to adjust from a cash base on your business to an accrual base where you are deferring significant amounts of revenue into future time periods. Once you make that adjustment, I think it works. But the adjustment period is difficult.”

In other words, partners couldn’t tolerate the deferred gratification associated with contingency fee matters. But they loved the upside. In 2008, Howrey’s average partner profits jumped almost 30% — to $1.3 million. When PPP dropped to $850,000 in 2009, Ruyak said 2008 had been an aberration resulting from $35 million in contingency receipts. (The American Lawyer, May 2010, p. 101)

Perhaps inadvertently, he revealed the real culprit: a revolution of rising expectations among the already rich. Ruyak put it this way: “Partners at major law firms have very little tolerance for change.”

If he’s referring to firms that have lost cohesion and a shared purpose beyond a myopic focus on current profits exceeding the last year’s, he’s right. But that culture exists for a reason. Aggressive lateral growth produces partners who don’t know each other. Firm allegiances become tenuous; the institutions themselves become fragile.

Ruyak’s self-serving explanations avoid accepting personal responsibility, but that’s not their greatest fault. The bigger problem is that other law firm leaders will find false comfort in his litany; it encourages the view that Howrey’s challenges were unique. As I said before, they weren’t.

HOWREY’S LESSONS

Posted on February 18, 2011 by thebellyofthebeast

If Howrey LLP disappears, most big law leaders will make distinctions; they’ll focus on how their organizations are different from Howrey’s. More interesting are the similarities, especially the universal forces that might render others vulnerable to the highly respected firm’s current plight.

First is the speed with events can overtake seemingly secure institutions — and I’m not referring to the fall of Mubarak in Egypt. On May 19, 2008, the Legal Times hailed Howrey LLP’s chairman Robert Ruyak as one of the profession’s “Visionaries.” He deserved it. During the prior 30 years, his distinguished career enhanced Howrey’s reputation and the business of law in DC. But on February 1, 2011, he and Winston & Strawn’s managing partner Thomas Fitzgerald together urged Howrey partners to act quickly on Winston’s offers to hire about three-quarters of them. The big law world can rapidly take a dramatic and unexpected turn.

Second is the way unprecedented demand for big law services combined with the prevailing business model to create enormous financial paydays that became even larger as firms grew. When Ruyak became chairman in January 2000, Howrey ranked near the middle of the Am Law 100 in average profits per equity partner (PEP — $575,000). It had 325 attorneys (89 equity partners).

Ruyak’s strategy targeted growth in three core practice areas: antitrust, IP, and litigation. As the Legal Times observed, “To achieve that vision, Ruyak knew that the firm had to be bigger, so Howrey went on a merger spree.” It added Houston-based patent firm Arnold, White & Durkee, acquired the antitrust practice of Collier, Shannon, Rill & Scott, and established European offices in London, Amsterdam, Brussels, Paris, Munich, and Madrid.

By 2006, Howrey had 555 attorneys; its 127 equity partners averaged $1.2 million each. After profits dropped in 2007, they soared by almost 30% in 2008 — the biggest percentage revenue-per-lawyer gain in the Am Law 100. Howrey’s 2008 profits were $1.3 million per equity partner — an all-time high.

Third is the fragility that such financial prosperity created for the fabric of many law firm partnerships. When profits plunged 35% in 2009, Ruyak’s partial explanation was that 2008 had been aberrational. Large contingency receipts accounted for much of that year’s non-recurring spike. The firm was still “figuring out how to do [alternative fee arrangements] well.” (The American Lawyer, May 2010, p. 101)

Unfortunately, the revolution of rising expectations was underway; the short-term bottom-line mentality is an impatient and unforgiving two-edged sword. In 2000, Howrey had a clear identity and average equity partner profits of almost $600,000 — seemingly sufficient to keep partners satisfied and any firm stable. Certainly, that amount far exceeded any current big law equity partner’s wildest financial dreams when entering the profession. A decade later, disappointing projections that the firm might reach only 80-90% of its $940,000 PEP target (or $750,000 to $850,000) fed rumors and a perilous media downdraft.

Heller Ehrman proved that lateral hiring and law firm mergers risk sacrificing firm culture in ways that inflict unexpected damage. I don’t know if that has happened at Howrey, but when cash becomes king, partnership bonds remain only as tight as the glue that next year’s predicted equity partner profits provide, assuming those predictions are believed.

That leads to a final lesson: leadership requires credibility. Only two weeks before the remarkable joint message from Ruyak and Fitzgerald, Howrey spokespersons insisted that all was well: “The amount of costs taken out of the firm at all levels — which includes leases, partners, associates, and the like leaving the firm — have made the firm much more efficient,” vice-chairman Sean Boland said. “It’s done wonders for our cost structure, such that we’re going to see some major advantages in 2011. We’re very encouraged by the cost cutting that we’ve done.”

Likewise, one of its outside consultants said that the firm was “getting back to its strengths… What’s happening at Howrey is largely by design.” Maybe so. But from this distance, the parade of top partner departures and Ruyak’s involvement in Winston’s outstanding offers make the design appear curious, indeed.

In May 2008, the Legal Times, concluded with a senior partner’s observation that Howrey had become “a very exciting place to work.” I suspect that’s still true. As with most things legal, the definition is everything.

LOCATION, LOCATION, LOCATION?

Posted on February 14, 2011 by thebellyofthebeast

In “Greed Atop the Pyramids,” I observed that the internal spread between the top and the bottom within large firm equity partnerships has grown dramatically in recent years. No one feels sorry for those at the low end, but the compensation for many top partners has reached staggering heights. My title suggested an explanation.

K&L Gates Chairman Peter Kalis — whom I’ve never met — has offered another reason: It’s not greed; it’s geography. His photograph appeared with The Wall Street Journal article on Jamie Wareham, “The $5 Million Dollar Man.” According to the Journal, at K&L Gates “top partners earn up to nine times as much as other partners. Pay spreads widen as firms become more geographically diverse, operating in cities with varying costs of living, said Peter Kalis, chairman of K&L Gates. The firm’s pay spread rose from about 5-to-1 to as much as 9-to-1 in the past decade as it expanded. ‘Houses cost less in Pittsburgh than they do in London,’ Mr. Kalis said.”

Let’s consider that proposition. It’s certainly true that London is more expensive than New York, and New York is more expensive than Pittsburgh. It’s also true that some firms consider cost-of-living differences when setting compensation; some apply formulaic across-the-board geographical adjustments. But the issue involves the top of a widening range, not the relative cost of comparable talent across offices.

Here’s how to test the hypothesis that geography accounts for this relatively new phenomenon: Are all of a firm’s top equity partners located in the city of the firm’s most expensive office? I doubt it. Or try it from the other side: Are any of the biggest paydays going to partners working in less expensive cities? Almost certainly.

I don’t know how much Kalis makes, but he might even be a useful example. His K&L Gates website biography page shows a commendable involvement in a number of Pittsburgh-area civic organizations. In addition to his Pittsburgh office, the page also lists a New York phone number, but his only bar admission is Pennsylvania. He’s certainly not headquartered in the most expensive cities where K&L Gates has offices — Tokyo, Moscow, Hong Kong, Singapore, Beijing, London, or Paris. My hunch is that, as Chairman and Global Managing Partner, he’s not at the low end of his firm’s equity partner compensation range, either. So why the superficially appealing but ultimately unpersuasive “houses are cheaper in Pittsburgh” line to explain away a pervasive big law trend?

Perhaps it’s because reality is sometimes harsh and unflattering. Citing a former pay consultant for law firms, the Journal article noted, “A majority of big law firms have begun reducing the compensation level of 10% to 30% of their partners each year, partly to free up more money to award top producers.”

I don’t know if that has happened at K&L Gates, but other law firm management consultants have suggested that the need to attract and retain rainmakers in a volatile market has widened the top-to-bottom equity partner range in many firms:

“Before the recession, [the top-to-bottom equity partner compensation ratio] was typically five-to-one in many firms. Very often today, we’re seeing that spread at 10-to-1, even 12-to-1.”

Finally, the Journal article itself provides additional evidence that something other than geography is at work: “A small number of elite firms, such as Simpson Thacher & Bartlett LLP and Cravath, Swaine & Moore LLP, still hew to narrower compensation bands, ranging from 3-to-1 to 4-to-1, typically paying the most to those with the longest service….”

Cravath has a London office. Simpson Thacher has offices in Beijing, Hong Kong, London, Los Angeles, New York, Palo Alto, Sao Paolo, Tokyo, and Washington, DC. Yet they have avoided the surging top-to-bottom equity partnership pay gaps that Kalis attributes to geography.

To understand what has really happened recently inside big firms — and why — read The Partnership.

There is, indeed, greed atop the pyramids — even in Pittsburgh.

CULTURE SHOCK

Posted on January 21, 2011 by thebellyofthebeast

On December 30, K&L Gates Chairman Peter Kalis sent an email that recently reached the legal blogosphere. Bluntly, he reminded fellow partners to get their outstanding client bills paid before the firm’s fiscal year-end. Above the Law reproduced it [complete with typos purportedly from the original]:

“Let me be clear about a couple of things. First, partners and administrators at this law firm are expected to run through the tape at midnight on December 31. Many of you came from different cultures. I don’t care about your prior acculturation. We didn’t conscript you into service at this law firm. You came volunatrily [sic]. What we are you are as well.

“And that brings me to my second point. We are a US-based global law firm. US law firms operate on a cash basis of accounting. Our fees must be collected by midnight within the fiscal year in which they are due. You don’t get to opt out of this feasture [sic] because it doesn’t appeal to you. Again, I couldn’t care less whether it appeals to you. It is who we are and therefore it is who you are. Get us paid by tomrrow [sic].” (http://abovethelaw.com/2011/01/the-two-faces-of-kl-gates/)

The message demonstrates three things — from the predictably banal to the inadvertently profound.

First, although the tone is a bit harsh, the substantive content doesn’t surprise any big law partner. Most lawyers aren’t particularly good businessmen. Reminding them that aging invoices require follow-up isn’t evil or wrong; it’s necessary. No attorney enjoys nagging clients about an overdue receivable. Presumably, the December 30 message was just the final step in a sustained year-end drive asking partners to complete a task that they’d otherwise avoid (as I did).

Second, email is perilous. Speedy communication can be great, but it’s fraught with danger. In less than a minute, you can address, type, and send a message to an entire group (and eventually reach many more blog readers). If you don’t take the time to proofread for typos, much less reflect on how others might later analyze your statements, no one will stop you from hitting the send button. Once released, the words assume a life of their own and context disappears. Every trial lawyer who has sought to explain away a client’s unflattering email message understands the problem. Surprisingly, some of those same lawyers fail to apply the lesson to their own writings. Next time, Kalis will probably prepare a script and deliver his thoughts via voicemail.

The third point has nothing to do with substance — that is, chiding partners to get client bills paid. Rather, the message acknowledges an unintended consequence of the prevailing big law business model: It has produced unprecedented lateral partner mobility that, in turn, erodes distinctive firm cultures. Two sentences make the point:

“Many of you came from different cultures. I don’t care about your prior acculturation.”

Six months ago, I praised Kalis for encouraging prospective associates to put interviewing partners on the spot when he urged: “[Recruits] should ask searching questions. How practice has changed over the years and how you deal with the changing demands. And how hard it is to reconcile your life at work with the rest of your life…I don’t believe lawyers should bow to icons. I want them to look me in the eye and ask tough questions.” (http://thecareerist.typepad.com/thecareerist/2010/06/kl-gates-likes-them-sassy.html; https://thebellyofthebeast.wordpress.com/2010/07/09/summer-associates-take-note-inadvertent-revelations/)

Although they probably won’t pose them, recruits now have more tough questions for him and other big law attorneys: As partners lateral into equity partnerships, what does the culture of the receiving firms become? Does it coalesce around the common denominator of maximizing current-year profits? Or is there room for other, non-monetary values that have traditionally defined the profession? If it’s the latter, how does the firm encourage them?

The answers matter because Kalis’s email emphasizes (twice): “What we are you are as well.”

I don’t know about K&L Gates, but what passes for culture in too many big firms is his message’s final exhortation: “Get us paid by tomrrow [sic].”

NUMBERS TELL A STORY

Posted on January 17, 2011 by thebellyofthebeast

When challenged to tell a story in as few words as possible, Ernest Hemingway replied with six: “For sale: Baby shoes — never worn.”

I’m not Hemingway, but in his spirit of brevity, I offer five phrases — totaling eight words — distilling a recent Wall Street Journal article, “Law Firms Hold Line In Setting Bonuses,” by Vanessa O’Connell and Nathan Koppel. It appeared on the Monday after Christmas, so you might have missed it.

***

HOURS UP: “Average hours billed by associates at the nation’s top 50 law firms by revenue rose by 7% in 2010.”

***

BONUSES FLAT: “At New York-based Milbank, Tweed, Hadley & McCoy LLP, where bonuses were only slightly above last year’s payouts, hours billed by associates were up about 6%.” [According to Above the Law, the firm’s 2010 bonuses ranged from $7,500 for first-year associates to $35,000 for those in the class of 2003. That’s a big drop from 2006, when first-year associates received “special year-end bonuses” of $30,000. Student-loan repayment requirements have not experienced a similar decline.]

***

MANAGERS RATIONALIZE: “‘The actual number of [billed] hours is still low compared to what it has historically been,’ [says Milbank’s Chairman Mel M. Immergut].”

***

PARTNERS WIN: “Revenue at Milbank Tweed will be up by about 3% on flat expenses, Mr. Immergut says, adding that profit per partner will be up by 8% to 10%, depending on year-end collections.” According to The American Lawyer, Milbank Tweed’s average profits per partner in 2009 were $2.230 million. How much is enough? The answer appears to be “More.”

“IT’S A WONDERFUL [BIG LAW] LIFE?”

Posted on December 17, 2010 by thebellyofthebeast

‘Twas the week before Christmas when all through the firm,

The coming New Year caused every body to squirm.

Associates awaited the annual time,

When they’d learn of a bonus, oh so sublime.

***

The seasoned had worked a lot harder this year,

As dreams of a partner’s life blurred hope and fear.

Equity partners were again in a squeeze:

They ate what they killed. Who was ever at ease?

***

As happens whenever there is a recession,

Clients sought value; their lawyers fought depression.

While pondering how most large law firms had changed,

I overheard rustling, peculiar and strange.

***

The holidays! I remembered at last.

Hard to believe, one more year had now passed.

Whispers foreshadowed the annual display,

“The Chairman is here…he’s in town for the day.”

***

Chance and fortuity determine one’s fate,

Except for our Chairman who thought himself great.

A new breed of leader who’d come to the fore,

How much is enough? He will answer you: “More.”

***

I sprang from my desk for a glimpse of the man

Who’d been somewhere warm; he was sporting a tan.

With a custom made suit, crisp shirt, and red tie,

I knew in a moment that this was The Guy.

***

He walked not alone but with minions galore,

They seemed like a dozen, but there were just four.

The group strode by briskly – as followers massed,

I stepped forward slowly. Who cares if I’m last?

***

“The large conference room,” I heard someone say,

“That’s where the Chairman will speak this grand day.”

I dutifully followed the gathering throng

To where The Great Man was to sing us his song.

***

As dry mouth with oral argument arises,

I feared he’d be off’ring unpleasant surprises.

He was dressed to the nines – impressively so.

I prayed that he’d speak his piece quickly and go.

***

With the crowd settling in to hear his remarks,

I knew what was coming – pure brimstone and sparks.

“It’s that time again,” he began with a cheer,

“As we near the end of our firm’s fiscal year.”

***

“Get bills out at once and then follow them through.

Be relentless with clients; be tough; be true.

If our profits decline, it’s trouble for all,

Money binds us as one – without it, we’ll fall.”

***

He turned to associates, awaiting the news,

Another bad year? They looked closely for clues.

They all knew the truth: The firm’s profits still soared.

But what partners share their great wealth with the horde?

***

“We’re a business,” the Chairman silenced the joint.

“All else is, well, really quite outside the point.

It takes a whole team to keep the wheels turning,

Billed hours are key – although some call it churning.”

***

“Billables – that is the firm’s soul and its heart,

That means you associates must all do your part.”

As this aging hypocrite climbed the ladder,

Mentors told him that his hours did not matter.

***

I hoped he was done, but alas he was not:

“Associate morale is stuck deep in a pot.

So you’ll each get a bonus matching our peers,

And we’ve formed a committee – they’ll dry your tears.”

***

“I can’t promise mentors, good training, or more,

But you’ll out-earn friends for whom life’s less a chore.

You still have school loans that will not go away.

So happy or not, you will all want to stay.”

***

“Remember the job that you have in this crash,

Your unemployed friends would take on in a flash.

Keep making me rich – as much as you’re able,

What else can you do? Wash dishes? Wait tables?”

***

“Lest you think that I’m heartless, greedy, or crass,

I’m running a business, not being an ass.

A handful of metrics rule everything now,

Billables, leverage, the pyramid – Wow!”

***

His message delivered, he soon left the floor.

He picked up his iPad and walked out the door.

But I heard him exclaim as he vanished from view,

“Keep those hours rising – your worst enemy is you!”

—— Steven J. Harper, December 2010

*****************************************************

Thanks to all of you, the editors of the ABA Law Blawg chose The Belly of the Beast as one of the 100 best blogs of 2010. To be selected from more than 3,000 in the ABA directory is humbling, especially for this novice blogger.

Happy Holidays – and please return in the New Year! I will.

EXPLAINING BAD BEHAVIOR

Posted on December 2, 2010 by thebellyofthebeast

I’ve never met Steven Pesner, who lit up the legal blogosphere with his now infamous e-mail to Akin Gump’s New York office litigation billers and their secretaries. (http://abovethelaw.com/2010/11/akin-gump-partner-pens-email-fantasy-about-firing-delinquent-time-keepers/) Some say he’s typical of big law partners; others argue hopefully that he is an exception. Someone else can tackle that survey. I’m interested in what the episode reveals about the prevailing large firm business model that put him in a position to disseminate the words that now define him.

First, his fundamental point applies to almost all large firms: Get your time in because the billable hour remains big law’s cornerstone. People working for Pesner undoubtedly log lots of them; they lead to revenue — an essential prerequisite to his internal power. That’s not unique.

Second, the model has many problems, only one of which he targets: Tardy time submission. Some attorneys wait a week — or even a month — before trying to “reconstruct” their billable activities. That allows them to believe that doing their best to remember earlier tasks isn’t lying. Insofar as Pesner sought to deter creative writing at week’s or month’s end, he was protecting clients and his firm. Of course, that doesn’t justify his rhetoric. Nothing can. But his topic reveals one of many flaws infecting the billable hour regime.

Third, economic self-interest looms large. His message went exclusively to all New York litigation personnel — a point commentators have ignored. Pesner’s departmental billings may well frame a larger internal debate: His NY litigation group’s near-term economic standing. He might have been preparing to defend his memo’s recipients against annual intra- and interoffice warfare with corporate, restructuring, and transactional group leaders. Most large firm equity partners eat what they kill, along with what they successfully claim to have killed. In many firms, allocating profits often starts geographically by office practice group before proceeding to rainmakers who then decide the fate of individuals within each group.

Fourth, Pesner’s valid points morphed into a tirade that reveals pervasive equity partner hubris, especially among big law managers: He believes his own press releases.

“9. For those of you who think you are exempt from doing time sheets on a daily basis, I’d suggest that you reevaluate your importance and get ready to prove that (a) you are busier than I am on legal work, (b) you are busier than I am on client development work, (c) you are busier than I am on firm work and (d) [Redacted] and I do not have better things to do with our time than beg you to be responsible.”

The word “I” appears five times. That’s how some senior partners orient their world — around themselves. Few, if any, others compare favorably to their own idealized self-images. Their constant refrain is “today’s young people just don’t want to work as hard as I did.” But as associates, none had the challenge of a BlackBerry keeping them on-call 24/7. In fact, they didn’t even have annual minimum billable hours requirements. Their hypocrisy is stunning.

Finally, he acknowledges the life-or-death power that all senior partners wield over subordinates’ careers:

“10. Candidly, I’d put every future material violator’s name in a hat, randomly pick out a name, and publicly fire the person on the spot—to demonstrate that time sheet compliance is serious business. And incidentally, it is my understanding that the job market is not so good right now in case you did not know.”

The immediate issue was time submissions, but the underlying attitude infects working relationships throughout big law. Pesner was unique in his candor, but not in his views. Few dare to challenge such a partner in a position to make or break careers. Pesner’s threatening finale leaves no doubt in that respect:

“11. Also, please remember that I have a long and excellent memory.

If you have any questions, think long and hard before asking them—this simply is not very complicated.”

Sometimes a few words from one man are worth a thousand pictures of what too many others in his profession have become.

WHO REMEMBERS FINLEY KUMBLE?

Posted on October 14, 2010 by thebellyofthebeast

“I just don’t see the need to cram two firms with around a thousand lawyers [each] together. It made no sense,” one Akin partner reportedly told the National Law Journal shortly after the collapse of Akin-Orrick merger talks.

The number of law firm mergers in 2010 is down from recent years, but look at the headliners: Sonnenschein – Denton; Hogan & Hartson – Lovells; Reed Smith – Thompson & Knight; Orrick and anyone. An earlier consolidation wave produced K&L Gates, DLA Piper, Bingham McCutcheon and others.

How much of this activity proceeds from the simplistic premise that bigger is always better?

When I was a young partner in my large firm, Finley Kumble became a disaster that struck fear in the hearts of big firm expansionists. During the early 1980s, Finley rocked the legal world as it signed up high-profile figures and raided other firms’ superstars, some of whom earned the then-staggering sum of $1 million annually. From only 8 lawyers in 1968, Finley became the nation’s second largest firm by 1985.

It promoted itself as a national powerhouse run on principles of meritocracy. The more business a lawyer generated, the more money he or she took home. Money was the glue that held the partnership together. Does that sound familiar?

But Finley grew too fast, assuming debt for office expansions and promising outsized paychecks to big name lateral hires. As revenue dollars dwindled, the firm disintegrated. With more than 650 attorneys at the time of its dissolution in 1987, it was still one of the nation’s largest firms.

The ghost of Finley Kumble haunted Biglaw leaders for years. Some saw its end as confirming that even large, diverse firms possessed their own identities. Mixing cultures through aggressive recruitment of name players with portable practices was a mistake. Others concluded that senior attorneys and their egos couldn’t survive as a single cohesive unit if their sole point of intersecting common purpose was greed. Still others saw the failure as an inevitable consequence of unrestrained growth. Finley proved that there was a limit on the size that any healthy large law firm could attain. No one knew the outside boundary with certainty, but crossing it was fatal.

What did today’s Biglaw managers learn from the lessons of Finley Kumble’s demise? Probably very little. After all, lawyers excel at distinguishing away precedent that undermines their preferred positions.

In that respect, modern proponents of growth through merger and high-profile lateral acquisitions can point to many differences between Finley and today’s firms. For example, the use of MBA-type metrics that focus on short-term profits at the expense of non-monetary values is now pervasive throughout Biglaw. In that respect, the earlier potential for cultural clashes has diminished as current year equity partner profits have become the universal coin of the realm. Likewise, lateral movement at all levels — especially among rainmakers who were Finley Kumble’s signature recruits — has become commonplace. Indeed, the legal world has become more hospitable to Finley’s central mission and modus operandi.

It would be interesting to hear from former Finley attorneys on the question of how today’s large firms differ from what their old firm once was. Perhaps Finley was just ahead of its time. Or perhaps some major players in Biglaw law are about to see their times change. Or maybe the large firm segment of the profession is proceeding toward the same countdown that big accounting firms have already experienced: From Big 8 to Big 6 to Big 5 to Big 4 — and the race is on to be one of those few.

Here’s the key question: Who benefits in the long run from the rise of mega-firms? Management consultants embrace strategic fits producing scale economies that supposedly benefit clients and equity partners. Perhaps they are correct. But who considers whether hidden costs include undermining community, exacerbating attorney dissatisfaction, or imperiling broader professional values?

Personally, I enjoyed the time when I recognized most of my equity partners at the firm’s annual meetings. Who is willing to develop or consider a metric by which to measure that?

SOLVING THE BIGLAW MYSTERY OF GROWING CAREER DISSATISFACTION

Posted on September 30, 2010 by thebellyofthebeast

Clues that explain the growing ranks of dissatisfied Biglaw attorneys are everywhere — even on C-Span. I’d intended to watch the recently televised replay of a judicial conference panel discussion for a few minutes, but the ongoing train wreck captivated this onlooker for an hour. I wonder if I can get CLE credit?

Participants included a Biglaw managing partner, the general counsel of Fortune 100 company, and a professor at a top law school. The absence of a law firm management consultant was surprising; they’re ubiquitous.

There’s no reason to name the Biglaw partner or his firm because his views are mainstream — and reveal why attorney career dissatisfaction continues to increase more rapidly in large firms than elsewhere. Here’s a synopsis of his comments:

1. Law schools should turn out project managers. That’s what he and his clients really need because front line opportunities — such as trials for litigators — are disappearing.

2. In their first days at his firm, new associates learn about its finances: “They realize that our 35% profit margins are fragile. They understand the importance of billing their time. They know more about the firm’s finances than I did as a first-year partner.” He didn’t mention Am Law‘s most recent report that his firm’s average equity partner profits exceeded $1 million. Everyone avoided that elephant in the room.

3. When asked whether associates today felt greater work-related pressures, he was adamant: “No. People today are nostalgic for a time that never existed. As an associate, I worked hundreds of hours a week reviewing documents. Today’s associates don’t work any harder, just differently. They leave the office, have dinner with their families, help put the kids to bed, and then work from their home computers. So they actually have it better than I did.”

The client representative on the panel followed with a line that generated the day’s biggest laugh: “I’m wondering how you billed hundreds of hours a week when there are only 168 hours in a week. But then I realized that you were talking about the bill you sent the client!”

No one asked the Biglaw partner an obvious and unsettling question: His firm’s NALP directory reports an associate minimum requirement of 2,000 billable hours yearly. What was the requirement in the early 1970s, when he was an associate? (Answer: There wasn’t one. There also weren’t cellphones or BlackBerrys that tether today’s attorneys to their jobs — 24/7.)

The law professor responded that law schools can’t train project managers because they’re not business schools. Besides, the law requires something different from such vocational-type training. He could have added that fewer that 15% of all attorneys comprise the NLJ 250, thereby prompting the obvious follow-up: Why should law schools tailor curriculum to satisfy such a small segment of the profession anyway?

“With highly paid starting positions in big firms disappearing,” he concluded, “what am I supposed to tell incoming students they’ll be getting for the $150,000 required to obtain a law degree?” No one suggested the truth, however he saw it.

The general counsel disagreed with the Biglaw partner on a key point: “I don’t hire lawyers to be project managers. I want their best judgments and special skills.” The Biglaw partner replied that perhaps the GC didn’t really know what he wanted or needed.

The audience submitted written questions; the best came from a judge: “I didn’t go to law school to become rich. Why is everything so focused on the money? Is professionalism gone and, if so, how do we recover it?”

When such panels include attorneys willing to speak truth to power, we’ll hear honest answers to those inquiries. But who wants that?

SOME DOCTORS THINK THEY’RE GOD; SOME LAWYERS THINK THEY’RE DOCTORS

Posted on September 27, 2010 by thebellyofthebeast

The medical analogy seemed familiar:

“When somebody comes to the emergency room and is on the operating table hemorrhaging, you don’t ask if [he] can pay the surgeon. You save the patient.” (http://www.nytimes.com/2010/09/02/business/02commission.html)

Lehman Brothers’ prominent bankruptcy lawyer was echoing the position of his client, former chairman Richard Fuld, a trader who rose from mail clerk to CEO. In his congressional testimony a few weeks ago, Fuld’s dominant theme was that others caused his company’s collapse. As untoward events overwhelmed the entire financial system, Lehman didn’t receive the favored treatment that saved AIG, facilitated JP Morgan Chase’s acquisition of Bear Stearns, allowed Goldman Sachs and Morgan Stanley to become classified as bank holding companies, and eventually enacted a $700 billion TARP program to buttress things.

The argument that the federal government should have stepped in to help seemed like an odd position for any ardent Wall Street capitalist, but he had a point. Back in September 2008, I wondered whether Treasury Secretary Paulson’s enthusiasm to allow the market’s creative destruction waned just a bit as Goldman Sachs, the firm Paulson had led before joining the Bush Administration, seemed to careen along the same catastrophic path as Lehman’s.

Still, omitted from Fuld’s analysis was his own mindset. In a single sentence at the end of his prepared remarks, he acknowledged “some poorly timed business decisions and investments, but we addressed those mistakes…” (http://www.fcic.gov/hearings/pdfs/2010-0901-Fuld.pdf ). He gave little attention to his own attitudes that created the institutional culture described in the Lehman Bankruptcy Examiner’s Report (authored by former U.S. attorney Anton Valukas):

“In 2006, Lehman made the deliberate decision to embark upon an aggressive growth strategy, to take on significantly greater risk, and to substantially increase leverage on its capital. In 2007, as the sub‐prime residential mortgage business progressed from problem to crisis, Lehman was slow to recognize the developing storm and its spillover effect upon commercial real estate and other business lines. Rather than pull back, Lehman made the conscious decision to “double down,” hoping to profit from a counter‐cyclical strategy. As it did so, Lehman significantly and repeatedly exceeded its own internal risk limits and controls.”

Presumably, the Lehman lawyer’s “saving the patient” point was that taxpayer-funded loans to the company in September 2008 would have allowed time for more orderly asset sales and, perhaps, avoided bankruptcy altogether.

Maybe he and Fuld are right, but the Fed’s lawyer saw things differently:

“If the Federal Reserve had lent money to Lehman, this hearing and all other hearings would only have been about how we wasted taxpayers’ money.”

I was less interested in who’s right than in the medical analogy, which seemed familiar. Then I remembered that, in a different context, the same lawyer said this in May:

“If you had cancer and you were going into an operation, while you were lying on the table, would you look at the surgeon and say, ‘I’d like a 10 percent discount’? This is not a public, charitable event.” (http://www.nytimes.com/2010/05/02/business/02workout.html?pagewanted=1&_r=1&hpw)

Back then, this attorney was commenting on requests from Kenneth Feinberg (court-appointed monitor in the Lehman bankruptcy) and Brady Williamson (examiner in the GM bankruptcy) for discounts in his Biglaw legal fees that reportedly ranged from $500/hour for first-year associates to more than $1,000/hour for some senior partners.

His concluding line — “this is not a public, charitable event” — was interesting. Bristling at the scutiny that Biglaw’s hourly rates had generated, he must have known that his firm had already billed $16 million in GM bankruptcy fees. Wasn’t “public” taxpayer money involved in GM’s dissolution?

The problem — universal throughout Biglaw — is this senior lawyer’s attitude of entitlement. (According to Am Law‘s 2010 list, his firm’s average equity partner profits exceeded $2.3 million in 2009.) The irony is the frequency with which partners make that complaint about younger lawyers: “They act like they’re entitled…they aren’t willing to work hard, like I did…they think they’re special.” I’ll bet such critics never thought that these traits merely qualified the upstarts to inherit their Biglaw thrones.

At the end of the day, I don’t know whether federal loans would have saved Lehman, but I’m sure of this: I hope I’m never on a operating table while a Biglaw attorney possessing such hubris holds the scalpel or the tourniquet.

BIGLAW’S GLASS IS 44% FULL

Posted on September 23, 2010 by thebellyofthebeast

Give credit where it’s due: Not all big firms are bad, and even those many might consider the most problematic aren’t problems for everybody in them. After all, the ABA’s most recent survey reported that 44% of lawyers in big firms (defined as having more than 100 lawyers — which means it’s not limited to Biglaw) were satisfied with their careers. Sure, that’s a failing grade in every course I’ve ever taken or taught, but it’s a base upon which to build. So what accounts for such attorneys and what can be done to increase their ranks?

Some are satisfied because they thrive in the predominant Biglaw business model. The myopic focus on metrics — billings, billable hours, and associate/partner leverage to maximize short-term equity partner profits — doesn’t seem misguided to them. Rather, it feels natural, maybe even necessary. When I was in law school, most of these personality types were in business schools. Now they’re everywhere.

Another group works at firms that have resisted adopting this MBA mentality; the beneficial results permeate their cultures. I spoke recently with a friend who’s the chairman of a big firm that hasn’t wrapped itself in the false security of numbers. Instead of metrics, he still requires senior partners to render subjective judgments about attorney quality in determining compensation and promotion. Of course, objective data matter, but they’re not dispositive.

That’s how most firms once operated. They’re reluctant to admit it now, but just about everybody running a big firm today owed early success to someone else. Typically, it was a mentor who recognized untapped potential and was willing to spend time and effort developing it. Rather than self-contained books of business, young attorneys had supporters whose principal aim was to identify and nurture first-rate minds that would eventually produce first-rate lawyering. Whatever wealth followed was a by-product of talent that attracted clients, not the exclusive goal of a short-term profits equation.

My friend’s firm doesn’t lead the Am Law 100 in any rankings, but it has done reasonably well in associate satisfaction surveys and equity partners are averaging over $1 million yearly. If polled, he and many in his firm would be among Biglaw’s satisfied attorneys. They serve interesting clients on challenging matters.

That takes me to a third point. Even firms adhering slavishly to the misguided metrics model have something valuable to offer their lawyers besides money. When I started at my former firm over 30 years ago, partners recruiting me warned that some tasks would be boring, even menial, but others would be exhilarating. Biglaw clients typically have problems at the law’s cutting edge. It was true then; it’s true now — although the balance has tipped more toward boring and menial, especially for younger attorneys.

Still, this begins to resolve an apparent paradox: The ABA survey reporting high levels of dissatisfaction — with big firms faring the worst — also found that seven out of ten attorneys generally regarded their jobs as intellectually challenging.

So whether a lawyer is at a firm like the one my friend leads, in a different environment where the MBA mentality of misguided metrics rules, or somewhere in between, a viable path to career satisfaction remains possible throughout Biglaw. In the end, it’s is no different from other aspects of life: We are products of decisions that define who and what we are.

That’s leads to a final observation. Sooner than it realizes (or prefers), the current generation of large firm managers will find itself replaced with a younger group of leaders who will impose their own vision. How will the ascendants respond to the choices that will define them, their institutions, and the 15% of the bar comprising the NLJ 250 that exerts a disproportionate influence over the profession?

My friend put the issue squarely:

“I’ve been able to resist the dominant trend toward what you correctly call misguided metrics. The challenge is whether those of us sharing that view will be able to pass that ethic along to the next generation. I don’t know the answer to that question. But you agree, don’t you, that it’s a great profession?”

Yes, I do.

He’s still the best — and smartest — lawyer I know.

ARE THE U.S. NEWS RANKINGS BIGLAW’S BLACK SWAN?

Posted on September 17, 2010 by thebellyofthebeast

An earlier post considered Nassim Nicholas Taleb’s bestseller, The Black Swan. (https://thebellyofthebeast.wordpress.com/2010/09/06/biglaw-and-the-black-swan/ ). Taleb describes the folly of relying on supposedly proven models of the past to anticipate the smooth continuation of existing trends. Such myopic thinking ignores the wholly unexpected Black Swans that actually shape history. The essence of the Black Swan is its serendipity, coupled with its power. It can be good or bad, but it’s always transformative. September 11 was a Black Swan, as were Microsoft and Facebook.

If you accept Taleb’s theory, I think Am Law introduced Biglaw to a Black Swan in 1985 with its profits per equity partner rankings. They encouraged internal behavior that, over time, dramatically changed most large firms’ cultures. Today, accepting conventional wisdom means following managers (few of whom are leaders — a crucial distinction for Taleb) who focus on supposedly proven metrics: billings, billable hours, and associate/partner leverage ratios. Free markets dictate decisions; important things that don’t impact the current year’s bottom-line drop out of key calculations; equity partner profits trees grow to the sky.

But wait! The U.S. News evaluations seem to ignore this crucial Am Law metric. They utilize client and attorney surveys assessing lawyer quality, not firms’ bottom-line profits. In seeking to attain or retain the highest available practice group rating (Tier 1), will firms teach to this new test that the criteria appear to use?

Not so fast. Even as U.S. News released the rankings, big firms began setting the goalposts for the new competition. Because U.S. News departed from its typical numerical approach in favor of tiers for practice groups, Sidley Austin and K&L Gates each claimed the overall #1 position based on their total Tier 1 rankings.

If I’m right, the new rankings will simply accelerate an embedded trend toward lateral recruiting at the highest levels. (http://amlawdaily.typepad.com/amlawdaily/2010/09/lateral-uptick.html) Big firms will compete even more ferociously for top partners to fill particular U.S. News practice group holes — and they’ll jettison incumbents to make room. How will high-powered partners decide where to plant themselves? They’ll take their books of business and follow the money. The definitive Am Law metric — average equity partner profits — will remain inviolate. Too many Biglaw partnerships will continue their devolution into collections of attorneys whose principal bond is financial.

So there’s no Black Swan here — just another log on the bonfire that is already consuming much of the profession.

But these developments favor the emergence of a Black Swan that I identified in my earlier post. Australia now has publicly traded law firms. Attorneys in Great Britain have begun preparing to follow that lead when the Legal Services Act becomes effective next year. (http://www.law.com/jsp/law/international/LawArticleIntl.jsp?id=1202463691626)

Biglaw’s ongoing transformation to a species of Big Business could culminate in non-lawyer shareholders and boards. What will stop them? Equity partners who have been hired to buttress a firm’s claim to Tier 1 status in the U.S. News rankings? As relative newcomers, their allegiance to their new firms will be more tenuous. The idea of preserving whatever remains of a unique professional culture will seem antiquated, particularly with the big bucks for their shares of an initial public offering (IPO) dangling before them.

It sure looks to me like the same country that introduced the first black swan to the New World is now exporting something far more ominous for the legal profession.

BIGLAW AND THE BLACK SWAN

Posted on September 6, 2010 by thebellyofthebeast

After reading my novel, The Partnership, an insightful observer wrote that its themes “sound like a biglaw version of The Black Swan by Nassim Nicholas Taleb. Drawing out the comparisons between your book and Taleb could fill many blog posts.”

This is the first.

Taleb’s title derives from the discovery of what everyone knew didn’t exist. In the Old World, universally reported human experience pointed unambiguously to a single conclusion: All swans were white. Then came the discovery of Australia and its black swans.

The lesson: Widely accepted truths often turn out to be false. Relying on models of the past to anticipate the future can be a fool’s errand, especially if it ignores the wholly unexpected Black Swans that actually shape history. Who imagined that Bill Gates’ boyhood fascination with computers would lead to Microsoft, or that Mark Zuckerberg’s college dorm room at Harvard would be the birthplace of a revolutionary social networking phenomenon?

Black Swans can be good or bad — but they are always transformative. Most of us fail to consider them because we tend to theorize about the future in specific and limited ways from prior experience. For example, Taleb notes, the French built the Maginot Line to defend against German attack following the Great War, only to watch Hitler zip around it during a greater one, World War II.

“What did people learn from the 9/11 episode?” he continues. “Did they learn that some events, owing to their dynamics, stand largely outside the realm of the predictable? No. Did they learn the built-in defect of conventional wisdom? No. What did they figure out? They learned precise rules for avoiding proislamic terrorists and tall buildings.”

The Black Swan came out in 2007 and was a best-seller before the Great Recession — an event that others began calling a Black Swan, although Taleb said it didn’t qualify. Rather, that downturn replays previous Black Swan events — including the 1982 bank failures, 1987 market crash, and 1998 collapse of Long-Term Capital Management — from which intelligent people persistently failed to learn. So-called financial experts with MBAs had lost fortunes betting that such Black Swans were so improbable that they could be ignored. According to Taleb, these empty suits persevered and suckered others into accepting their discredited models, only to have them fail yet again.

So how could this relate to Biglaw? After all, it has enjoyed a 30-year run as straightforward metrics — billings, billable hours, and associate/partner leverage ratios — enabled large firms to produce staggering wealth for their owners. Even as many positions disappeared and revenues remained flat or declined at some firms, average equity partner profits for the Am Law 100 continued to rise.

The dominant Biglaw model is working, right?

Only until a Black Swan appears. It would be presumptuous to predict its form or timing. Indeed, the Black Swan’s essence is its serendipity, coupled with its power. It strikes when overconfidence creates complacency and vigilance takes a vacation.

So for Biglaw, accepting conventional wisdom means following managers (few of whom are leaders — a crucial distinction) who focus on supposedly proven metrics that have made them rich. They let free markets dictate decisions; they ignore things that don’t impact this year’s bottom-line; they watch their equity partner profits trees grow to the sky.

Where in all of this might Biglaw’s Black Swans lurk?

The candidates are too numerous for thoughtful consideration in a single article. Some examples: increasing attorney dissatisfaction at all levels; client resistance to hourly billing regimes; the displacement of a professional ethos with business-school metrics aimed at short-term profit-maximization; prospective lawyers’ growing awareness of Biglaw’s darker side.

But many of us already know about these difficulties, which makes them less likely Black Swan candidates. Then again, the Black Swan need not come as a surprise to everyone. For too long, most Biglaw managers have been oblivious to the profession’s growing challenges; too many behave as if they still are. As Taleb notes, a well-fed turkey that becomes fatter as Thanksgiving approaches is amazed to encounter the ultimate Black Swan event — its slaughter. But the butcher always knew what was coming.

I’ll add one more to the list:

Australia has pioneered a new regulatory regime that allows outsiders — non-lawyers — to invest in private law firms. Some are now publicly traded. http://www.abanet.org/legaled/committees/Standards%20Review%20documents/AnthonyDavis.pdf

Lawyers in Great Britain have begun preparing to follow that lead when the Legal Services Act becomes effective next year. http://www.law.com/jsp/law/international/LawArticleIntl.jsp?id=1202463691626

Could Biglaw’s ongoing transformation to a species of Big Business culminate in non-lawyer shareholders and boards? It’s a frightening prospect — but not so scary that equity partners are likely to forego the enormous short-term windfalls they’d reap from initial public offerings (IPOs) of their firms’ stock. Most view themselves as disproportionately responsible for their own success and will be content to let the next generations fend for themselves in a bleak professional landscape.

Could the same country that introduced the first black swan to the world be exporting something far more momentous?

ALONG CAME LAW FIRM MANAGEMENT CONSULTANTS

Posted on August 27, 2010 by thebellyofthebeast

In the final analysis, Biglaw leaders have only themselves to blame, but they didn’t stumble into the world of misguided metrics on their own. They paid outside experts to guide the way — and they’re still doing it.

Thirty years ago, few undergraduates went to law school because they thought that a legal career would make them rich. For example, most students at Harvard with that ambition were on the other side of the Charles getting MBAs; the river formed a kind of natural barrier. The law was something special — a noble profession — or so most of us believed.

Particularly in large firms, nobility has yielded to business school-type metrics that focus on short-term profits-per-partner. The resulting impact on the internal fabric of such firms is depicted in my legal thriller, The Partnership (http://www.amazon.com/Partnership-Novel-Steven-J-Harper/dp/0984369104/ref=sr_1_1?ie=UTF8&s=books&qid=1273000077&sr=1-1) But other collateral damage includes the decline of mentoring that produced great lawyers in my baby boomer generation. (See my article, “Where Have All The Mentors Gone?” – http://amlawdaily.typepad.com/amlawdaily/2010/07/harpermentors.html).

Among the reactions to my mentoring observations was this:

“I am particularly intrigued by your reference to the role modern legal consulting firms have played in the demise of law as a profession. This is worthy of a blog post in and of itself and I look forward to it.”

I discussed this subject in an earlier post, but it’s worth another look.

Hildebrandt Baker Robbins is the successor to Hildebrandt, Inc., one of the early pioneers in what became a cottage industry: law firm management consulting. The company’s 2010 Client Advisory includes this line:

“In our view, one of the serious misuses 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.” (http://www.hildebrandt.com/2010ClientAdvisory)

Really? Who encouraged the use of this ubiquitous metric on which Hildebrandt has now soured? As Dana Carvey’s church lady character might say, “Could it be….Hildebrandt?”

Of course, it wasn’t alone. When The American Lawyer published its first ranking of the Am Law 50 (now grown to 100) in 1985, what was once off limits in polite company — how much money a person made — became an open and notorious measuring stick of law firm performance: average profits per partner. Greed became respectable as inherently competitive firm leaders began teaching to the Am Law test so they could gain or retain position in its annual listing.

When the 1990-1991 recession rattled 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 16 years earlier had 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…” (“The NLJ 250: Annual Survey of the Nation’s Largest Law Firms — Overview — The Boom Abates,” The National Law Journal, September 30, 1991 (Vol. 14, No. 4))

So who could save us from ourselves? As they watched profits slide, worried law firm leaders turned to Hildebrandt and other experts who could assist in bringing business school principles and MBA-type metrics to their big firms. By 1996, Mr. Hildebrandt himself had diagnosed the situation and offered his remedy 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.” (“The NLJ 250 Annual Survey of the Nation’s Largest Law Firms: A Special Supplement — More Lawyers Than Ever In 250 Largest Firms,” The National Law Journal, September 30, 1996 (Vol. 19, No. 5))

With such cheerleaders at their sides, senior partners focused on the three legs supporting the PEP (profits per equity partner) stool: billings, billable hours, and associate/partner leverage ratios.

Hourly rates marched skyward — even during recessions — increasing an average of 6% to 8% annually from 1998 to 2007. Billable hours targets likewise rose. Yet talented attorneys who would have advanced to equity partner a decade earlier received their walking papers as firms increased leverage ratios, which doubled between 1985 and 2010 for the Am Law 50. (http://amlawdaily.typepad.com/amlawdaily/2010/05/classof1985.html) With a few sharp turns of the costs screw, the game was won.

The results were mixed. For equity partners in the Am Law 100, average profits soared to more than $1 million annually — and rose during the Great Recession. Yet today, attorneys in big firms have become the law’s most dissatisfied workers — even though lawyers as a group were already leading most occupations in that unpleasant race.

The law firm as collection of men and women bound together in common pursuit of a noble profession yielded to an MBA mentality that relied on business school metrics to produce more dollars — the new measure of individual status and firm success. Valued partners who wouldn’t have considered leaving in earlier times began to follow the money — eroding concepts of loyalty and shared mission that created a firm’s identity over generations.

Oh, what a mistake, Hildebrandt now urges — not unlike Harvard’s new business school dean who looks hopefully (but in vain) to the law as an alternative model that might restore integrity to that world. (See my earlier article, “The MBA Mentality Rethnks Itself?” — http://amlawdaily.typepad.com/amlawdaily/2010/05/harper1.html)

What does Hildebrandt now propose to replace profits per equity partner as the key measure of overall firm performance? Profits per employee. But it simultaneously suggests that client satisfaction ratings should replace billable hours while employee satisfaction ratings supplant leverage.

Is your head spinning over the interplay among these complicated and confusing new metrics? Hildebrandt has the answer:

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

How comforting.

MIRED IN METRICS? HAVE SOME MORE!

Posted on August 5, 2010 by thebellyofthebeast

Once a bad situation spins out of control, is there any way to corral it? When all else fails, try making things worse.

The ABA recently released its report detailing just a few of the ways that U.S. News law school rankings have been counterproductive for prospective lawyers and the profession — from driving up the costs of legal education to driving down the importance of diversity. (http://www.abanet.org/legaled/nosearch/Council2010/OpenSession2010/F.USNewsFinal%20Report.pdf)

As U.S.News now develops law firm rankings, the report concludes with an ominous warning:

“Once a single rankings system comes to dominate a particular field, it is very difficuly to displace, difficult to change and dangerous to underestimate the importance of its methodology to any school or firm that operates in the field. This, we believe, is the most important lesson from the law school experience for those law firms who may be ranked by U.S. News in the future.”

In other words, rankings sometimes function as any so-called definitive metric: They displace reasoned judgment. Independent thought becomes unnecessary because the methodology behind the metric dictates decision-makers’ actions.

Since 1985, many big firms have become living examples of the phenomenon. That year, The American Lawyer published its first-ever Am Law 50 list of the nation’s largest firms. Most firm leaders now teach to the Am Law test, annually seeking to maximize revenues and average profits per equity partner. The resulting culture of billings, billable hours, and associate/partner leverage ratios begins to explain why surveys report that large firm lawyers lead the profession in career dissatisfaction.(http://www.abajournal.com/magazine/article/pulse_of_the_legal_profession/print/) Without a metric for it, attorney well-being — and the factors contributing to it — drop out of the equation.

Courtesy of U.S. News, large firms now stand on the threshhold of more metrics. Will they make working environments of firms that have succcumbed to the profits-per-partner criterion worse?

It depends, but more of yet another bad thing — rankings — could produce something good — forcing individuals to sift through contradictory data, think for themselves, and make a real decision. But that can happen only if U.S. News produces a list of “best law firms” that bears little resemblance to the rank ordering of the Am Law 100 in average equity partner profits. Such contradictory data would confuse newly minted attorneys and force them to develop their own criteria for decision.

The American Lawyer itself provides a useful example of the possibilities. Eight years ago, it began publishing the Am Law “A-List,” which has gained limited traction as a moderating influence on the Am Law average profits-per-equity-partner metric that otherwise dominates decision-making at most big firms. The A-List’s additional considerations bear on the quality of a young lawyer’s life — associate satisfaction, diversity, and pro bono activities. The myopic focus on short-term dollars still dominates decisions in most big firms, but the A-List has joined the conversation.

What methodology will U.S. News employ in evaluating law firms? If it follows the approach of its law school ranking counterparts, many firms will game the system, just as some law schools have. (See my earlier article, “THE U.S. NEWS RANKINGS ARE OUT!” (https://thebellyofthebeast.wordpress.com/2010/04/16/the-us-news-rankings-are-out/)) But misguided and manipulatable metrics aren’t inevitable.

Talent is essential for any successful firm, large or small. Other qualities — collegiality, mentoring, community, high morale accompanying a shared sense of professional purpose — make a workplace special. Can the U.S. News find ways to measure those qualities?

That’s the challenge. But I fear that students won’t bother focusing on the U.S. News methodology or its flaws. More likely, whatever rankings emerge from the process will provide — as they have for so many deliberating the choice of a law school — an easy final answer.

Ceding such control over life’s direction to others is rarely a good idea. There is no substitute for personal involvement in deciding the things that matter most. That means asking recruiters tough questions, scrutinizing the lives of a firm’s senior associates and partners, and finding role models who are living a life that a new attorney envisions for her- or himself.

In the end, the current large firm business model and its self-imposed associate/partner leverage ratios will continue to render success — defined as promotion to equity partnership — an elusive dream for most who seek it. For those who become dissatisfied with their jobs, time passes slowly. So everyone joining a big firm — even a person intending to remain only for the years required to repay student loans — has ample incentive to get that first big decision after law school correct.

So why would intelligent young attorneys let U.S. News’ self-proclaimed experts make it with something as silly as a ranking? Probably for the same reasons that they relied on U.S. News to make their law school decisions for them three years earlier.

Someday, maybe there will be a U.S. News formula for choosing a spouse. Then won’t life be simple?

“SILENT GRIEF” – “DEADLY SERIOUS” FOLLOW-UP

Posted on July 30, 2010 by thebellyofthebeast

Two especially useful comments to “DEADLY SERIOUS” — retitled in “SILENT GRIEF” in the Am Law Daily version posted Friday — illustrate why I continue this blog.

One came from “Recovering Attorney,” who wrote:

“There are some resources devoted to attorneys who need assistance. For law students, the Dave Nee Foundation promotes suicide prevention and education http://www.daveneefoundation.com/. The Lawyers With Depression website also has many helpful articles and robust discussions http://lawyerswithdepression.com/. Check out the many links at both sites.”

A longer comment came from “Former Big Law Partner.” It can be viewed in its entirety by clicking on the right side of The Belly’s home page, but here’s an excerpt:

“For starters, we have to recognize that the personalities of most of us who make the cut and are hired as associates at BigLaw firms are, by nature, extremely competitive and accustomed to success…I think that we need to recognize that we tend to have personalities that make us particularly susceptible to the kinds of excesses that occur at BigLaw firms when there are not other mechanisms in place, either in our personal lives or at the firms themselves, that can help us to draw back and retain a proper perspective on our professional lives.

“Second, I agree that the overriding profit motive of nearly all law firms, not just BigLaw, is driving lawyers to desperation…Without question, I believe that it is the motive not just to make a comfortable living, but to be wealthy, that is robbing our profession of its soul.

“Third, the law schools know that there will not be job offers for all of the graduating law students, many of whom will be saddled with tremendous debt when they graduate, but nevertheless, the schools gladly take incoming students’ tuition money. Many of those students have so much debt that, if they are lucky enough to get a job (because of the glut of lawyers churned out by the law schools), they have little choice but to remain in that job as long as they can to pay down their loans, which causes many to be trapped in situations where they are unhappy…

Finally, I think that society has changed in ways that have removed many of the safety nets that might have, at an earlier time, prevented some of us from reaching such depths of despair over our jobs…[O]ur shared political or civic community has eroded to a substantial degree and, I think, exacerbates the sense of alienation and depression that we sometimes can feel.

I went through a very difficult time as I rose through the ranks of a BigLaw firm and struggled with many of these tensions…I was lucky to have moved to a different situation at the time that I did, when there were such opportunities. Unfortunately, many of those don’t exist given the current state of the economy and glut of lawyers.

And that is the real crux of the matter with attorney suicides, as I see it: It is when people see no alternatives and have given up any hope that they take such a drastic and tragic action. I hope that structural changes in law firms and law schools can be made that will give lawyers real alternatives. In the meantime, I think that all we can do is what you are doing in your college seminar and here: bringing these issues into the light and trying to raise the consciousness of current and prospective lawyers to these dangers.”

Thanks for these thoughtful contributions.

DEADLY SERIOUS

Posted on July 26, 2010 by thebellyofthebeast

For some reader out there, this may be the most important article I’ve written — and there’s no room for levity. Yet another biglaw attorney ended his own life.

On July 15, a Chicago subway train struck and killed a Reed Smith partner. Late last week, the Cook County medical examiner confirmed that the 57-year-old father of two intentionally placed himself in harm’s way. (http://www.law.com/jsp/article.jsp?id=1202463774221&rss=newswire)

It’s difficult to determine what leads anyone to take such an irrevocable step. The lines that tether each of us to this earth are thin and fragile. But the relative frequency with which lawyers in large firms have become the subject of such recent reports is disconcerting.

In April 2009, a 59-year-old Yale Law School graduate who headed Kilpatrick Stockton’s Supreme Court and appellate advocacy group took his own life. http://www.abajournal.com/magazine/a_death_in_the_office/

A month later, two more attorney suicides made the news — an associate and a partner in two different large firms. http://abajournal.com/news/disappointments_preceded_suicides_by_lawyers_at_three_major_law_firms In

January 2010, a 45-year-old partner in Baker & Hostetler’s Houston office apparently shot himself on a Galveston beach. http://amlawdaily.typepad.com/amlawdaily/2010/01/tragedy.html

Are these events more frequent? Or just more frequently reported? I fear it’s the former.

We’ve all encountered unhappy attorneys, but during my first 25 years in a big firm, I’d never heard of a lawyer anywhere who’d taken his or her own life. When I attended such a funeral for a young partner in 2005, eulogies confirmed that he’d battled internal demons since childhood.

That insight offered comfort. Survivors can move forward more easily when viewing themselves as dramatically different from the deceased. It requires a skill that lawyers hone: distinguishing otherwise relevant precedent.

Then came the unavoidable wave that began in early 2009.

Only those closest to the victim can even begin to describe the special circumstances surrounding his or her plight. The causes of such fatalities are as unique as the individuals involved. The choice to continue living becomes a frighteningly close call for some. Severe depression, other mental illness, and unrelenting physical pain can wreak incomprehensible havoc. None makes suicide a correct decision for the afflicted — just understandable. But if any such factors contributed to the recent spate of biglaw victims, the public reports didn’t disclose them.

Maybe government lawyers, attorneys in small- or mid-size firms, or those in other positions are committing suicide, too, but receiving less media attention. For example, when a 64-year-old Connecticut solo real estate practitioner hanged himself in November 2009, press coverage was minimal. (http://www.law.com/jsp/article.jsp?id=1202435932676) But such an argument loses its appeal when you consider that attorneys in the 250 largest firms comprise fewer than 15% of those practicing.

Does the interaction between the dominant large firm business model and the economic downturn provide a partial explanation? After all, most of the recently reported attorney suicides involved accomplished biglaw partners in their 40s and 50s.

No single set of shoulders bears the blame, and only the respective firms know whether or to what extent their actions might have contributed specifically to these final acts. I make no accusations in that regard.

But as a general matter, firms adhering religiously to an MBA-mentality of misguided metrics — billings, billable hours, and associate-partner leverage — as fundamental criteria for lawyer evaluation have become less collegial and more unforgiving. Even in good times, justifying your own economic existence anew during every review cycle can be unsettling or worse. For some, the feared loss of income or status can be powerfully unpleasant.

Assuming that they might have contributed even minimally to these tragedies, the pressures of the dominant biglaw model aren’t disappearing any time soon. So what’s my point? Simply this: The regime doesn’t have to victimize the most vulnerable.

Everyone — especially lawyers — should periodically assess whether the fit of a chosen job is right. Even if it’s not, the work may still be an acceptable way to make a living. No job is perfect; that’s why they call it work. But for some, the psychological toll can mount in dangerous ways. In such cases, only individual action can arrest a downward slide.

That might mean counseling, viewing your employment differently, finding a new legal job, or leaving the profession altogether. One thing is certain: For the chronically distressed, inaction can become a lethal decision.

In my Convocation Address to the Northwestern University Weinberg College of Arts & Sciences graduating class of 2010 last month, the line that interrupted my remarks with the longest and loudest applause from the 10,000 students and parents in attendance was also the most important:

“Seeking help when you need it is never a sign of weakness; it’s proof of strength.” (http://www.youtube.com/watch?v=DP3Uhiol6Vs)

I promise a lighter article next time.

WHERE HAVE ALL THE MENTORS GONE?

Posted on July 19, 2010 by thebellyofthebeast

Many biglaw leaders should take heed.

In last weekend’s edition of the Wall Street Journal, columnist Peggy Noonan lamented the loss of what she called “adult supervision.” (http://www.peggynoonan.com/article.php?article=531)

Commemorating the 50th annivesary of To Kill A Mockingbird, she recalls the “wise and grounded Atticus Finch, who understands the world and pursues justice anyway, and who can be relied upon.”

She then rattles off a list of world leaders whom she regards as young — President Obama is 48; British Prime Minister Cameron is 43; Canadian Prime Minister Stephen Harper (no relation) is 51. Noonan says they could benefit from the presence of wise advisers like the venerable Finch.

Of course, there’s an obvious problem with her analysis: Finch himself was about the age of the “young men” she now finds in need of wise older counsel. So she misses an essential point: Wisdom is neither the exclusive province of the old nor the assured destination of advancing age.

But Noonan states an important truth when she views the modern world and observes that “there’s kind of an emerging mentoring gap going on in America right now.” She sees it in “a generalized absence of the wise old politician/lawyer/leader/editor who helps the young along, who teaches them the ropes and ways and traditions of a craft.”

That is undoubtedly true for much of biglaw. Why?

There are exceptions within and among firms, but this development flows directly from the MBA-mentality that now dominates most large law firms. It forces leaders and everyone else to focus on short-term metrics — individual billings, billable hours, associate-partner leverage ratios.

The resulting behavior is predictable. Each individual’s drive to attain and preserve position in accordance with such metrics leaves little room (or time) for the personalized mentoring that turns good young lawyers into better older ones. There’s no metric for measuring the future contribution that mentoring makes to the current year’s average profits-per-equity-partner.

For firms adhering to the pervasive biglaw model, the absence of a mentoring metric makes all the difference. In Hildebrandt Baker Robbins’s 2010 Client Advisory to the legal profession, one of the pioneering consultants responsible for the proliferation of biglaw’s misguided metrics aimed at short-term profit-maximizing concludes, “There is a management adage that ‘what gets measured gets done.'” (http://www.hildebrandt.com/2010ClientAdvisory)

I would add this corollary: Throughout biglaw in particular and the world generally, that which lacks a metric gets ignored.

Unfortunately, some of those things are important.

SUMMER ASSOCIATES TAKE NOTE: INADVERTENT REVELATIONS

Posted on July 9, 2010 by thebellyofthebeast

Today’s pop-quiz:

Question #1: What do the following statements have in common?

“Indiscretion happens with alcohol, but people understand that. You usually have to knock a partner out cold for it to be a career-ending event.”

AND

“Two years ago, we had lunch with an interviewee who insisted on ordering top-shelf liquor. It was bad judgment.”

Answer: Both remarks came from hiring partners at different Am Law 100 firms as they recently offered tips to students and summer associates hoping to land full-time job offers.

Here’s the odd part: the interviewer posed only general questions — whether there were any “golden rules for summer associates” and whether any candidates “bombed” because of a faux pas. But the first and only responses related to alcohol etiquette.

That’s revealing and a bit strange. Alcohol abuse is a widespread challenge for the profession. So how do we square either partner’s remark with that growing epidemic? The first treats it as a joke; the second, well…

Let’s pause for a moment on the second. This partner’s condemnation of an interviewee who ordered “top-shelf liquor” at a recruiting lunch made me wonder: What did he order for himself — and, even more tellingly, what does he usually drink? According to the 2010 Am Law 100 listing, his firm’s average equity partner profits totaled $1.27 million last year. I’ll bet the student’s lunch companion didn’t consume much Ripple.

Question #2: What do the following two statements about summer associates have in common?

“I’m not sure that a very significant number of associates even want to be partners.”

AND

“By going to a smaller number [of summer associates] this year, we had the luxury of getting people who are really enthusiastic about being [at our firm].”

Answer: The comments came from the same person during the same interview. He’s a hiring partner at another Am Law 100 firm. After graduating from Harvard Law School in 1995, he took an increasingly common path to biglaw partnership: a judicial clerkship followed by several years as an assistant U. S. Attorney. He didn’t join the firm for which he now serves as gatekeeper until 2004. So after lateraling into his position of power six years ago, he’s already so familiar with the firm’s culture that he now decides who among new graduates gets a job there. That alone is interesting, isn’t it?

Even more fascinating, he’s evidently recruiting split-personality associates — those who “are really enthusiastic about being at the firm,” but don’t “want to be partners.”

Huh? When does the enthusiasm wear off? Do they have wealth-related allergies? (His firm’s 2010 Am Law listing reports average proftis per equity partner exceeding $2 million.)

I know what you’re thinking about such contradictory characterizations of those receiving offers: “A foolish consistency is the hobgoblin of little minds.” (Ralph Waldo Emerson, Self-Reliance)

Question #3: Were these partners coerced into their bizarre comments? If so, we all know how unreliable that information can be.

Answer: Regrettably, no. The remarks came in voluntary interviews that each gave in May and June to the The Careerist, an American Lawyer blog. I suspect that all three regarded the media attention as personal and professional promotional opportunities.

Bonus Question: Is all of biglaw this bizarre?

Answer: No. Here’s a counterpoint: “[Recruits] should ask searching questions. How practice has changed over the years and how you deal with the changing demands. And how hard it is to reconcile your life at work with the rest of your life…I don’t believe lawyers should bow to icons. I want them to look me in the eye and ask tough questions.”

Now that’s more like it.

So here’s a suggestion to all of you summer associates out there who thought getting a job offer was the tough part: Pay close attention to the senior attorneys who will become your mentors if you sign on. Listen to them more carefully than some listen to themselves.

BABY BOOMERS STRIKE AGAIN

Posted on June 9, 2010 by thebellyofthebeast

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?

A BETTER ALTERNATIVE OR A LEAP FROM THE FRYING PAN?

Posted on June 3, 2010 by thebellyofthebeast

Thirty years ago, New York was a scary place for me — mostly because I’d never been there. Midwestern curiousity led me to interview with Cravath, Swaine & Moore’s on-campus representative.

I’d heard that its road to success was the toughest. Rumors circulated that it hired twenty new attorneys for every one or two it might promote to equity partner eight or more years later. Not surprisingly, most of my fellow Harvard students regarded Cravath as the quintessential competitive sweatshop — a characteristic that many of my peers actually found attractive.

Not me. I went elsewhere because, in those good old days, there was an elsewhere to go. Cravath is probably not much different from what it was back then. It’s just that most of the biglaw world has followed its example. As other top-50 firms tightened equity partner admission requirements, Cravath just kept doing what it had always done.

Why did firms emulate Cravath? Law student lore made it the best by some undisclosed criteria. In retrospect, I think money had a role. Even back in 1980, it was one of a very few firms where advancement to equity partner meant wealth that was immense, at least for a lawyer.

According to the first ever listing of the Am Law 50 in 1985, Cravath ranked 2nd in profits per partner with $635,000. For those behind it, the descent was steep: the #10 firm was under $400,000; #30 was $255,000; #50 was $170,000.

Cravath blazed a trail to riches that now accompany those who reach biglaw’s summit: average equity partner profits for the entire Am Law 100 exceeded $1.26 million last year.

But Cravath remains different. Most of biglaw moved to two-tier partnerships and eat-what-you-kill systems where a few key metrics — billings, billable hours, and leverage ratios — now determine individual equity partner compensation. Cravath’s single-tier model has reportedly remained lock-step: admission to its partnership means fixed financial rewards over an entire career without regard to individual books of business.

I don’t know if Cravath’s lawyers as a group are any happier than attorneys in other big firms. But the firm is now courting its Generation X’ers. According to the Wall Street Journal, partners in their late-30s and early-40s have “taken a more pro-active approach, building new relationships and handling much of the work that historically would have been taken on by partners in their 50s.” (WSJ, May 28, 2010, C3)

Referring to Cravath’s deferential culture in which young partners traditionally forwarded big deals to older colleagues, the article notes that senior partners have nurtured the new environment that gives younger lawyers earlier name recognition.

Why has it worked so far?

“The older attorneys didn’t mind, partly because the pay they received didn’t get cut as a result,” the Journal observes.

In other words, lock-step allows elders to step out of the spotlight without hits to their pocketbooks.

In the current biglaw world, Cravath’s experiment is risky. Will young partners remain loyal or use their newly gained client power to pursue financial self-interest elsewhere? Will Cravath be forced to modify or abandon lock-step so that it can retain young partners controlling clients and billings?

I don’t know. Equally significant, I suspect those most directly affected by what the article characterizes as a “sea change at one of the best-known and most conservative of white-shoe law firms” don’t know, either.

And what does it mean for new associates trying to understand how this affects the firm’s culture and their own career prospects?

Ah, the things I didn’t think to consider when I was a second-year law student looking for a job about which I knew almost nothing.

Fortunately, students are wiser now, right?

IT’S NOT JUST ME

Posted on May 25, 2010 by thebellyofthebeast

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!”

EARLY RETURNS

Posted on May 19, 2010 by thebellyofthebeast

No, the title of this post doesn’t refer to Tuesday’s primary election results in a handful of states, although they confirm what I’ve thought for a while. Voters are anti-incumbent, not just anti-Democratic or anti-Obama. That’s one reason Rand Paul trounced Mitch McConnell’s guy in Kentucky. But this is not a space for ideological diatribe or political spin.

Rather, today’s caption refers to personal referenda of sorts.

First, the Belly’s audience is growing.

The American Lawyer is now running some of my posts. On May 10, Am Law Daily published “The MBA Mentality Rethinks Itself?” (http://amlawdaily.typepad.com/amlawdaily/2010/05/harper1.html) I’m grateful to editors willing to air a controversial voice.

Second — and speaking of controversy — my new legal thriller, The Partnership, (http://www.amazon.com/Partnership-Novel-Steven-J-Harper/dp/0984369104/ref=sr_1_1?ie=UTF8&s=books&qid=1273000077&sr=1-1), is selling well and generating strong reactions.

Big firm attorneys have offered these responses:

“Great read…It’s a very fair and accurate representation of large law firms. This is how we operate.”

“I enjoyed reading your novel — and was reminded how things changed over the years…and hardly for the better.”

“Great stuff…highly enjoyable.”

In contrast, non-lawyers have said:

“Now I have a more informed concept of ‘billable hours.’ Wow!”

“Your book has disturbed me. Greatly. Do lawyers really behave this way?”

Quite a juxtaposition, isn’t it? Lay persons become shocked and outraged at attorney attitudes that most lawyers themselves take for granted.

“How can we change people, so they look at things differently — without a myopic view that maximizes short-term profits at the expense of other things that matter?” the last commentator asked.

Here’s what I told him:

1. You can’t. The trends that trouble you are too imbedded; the resulting financial rewards flowing to the few are too great. Perhaps more significantly, the things that disturb you most — including undue reliance on misguided short-term metrics — aren’t unique to the legal profession. Big firm lawyers use billings, billable hours, leverage ratios, and profits per equity partner. Ask journalists, doctors, college professors, and others to describe the metrics by which they’re held accountable. Then ask them if they regard themselves as members of a profession or participants in a business enterprise.

2. Sometimes you can hold up a mirror to a person who then doesn’t like the image that appears. A book can try to do that, but it’s hard to dislodge internal rationalizations that justify a lifetime of unfortunate behavior.

3. Real hope resides with the next generation. Our kids and grandchildren will have to decide that they want things to be different. That’s what we baby boomers did, only to discover that different didn’t always mean better.

Unfortunately, without mentors and models of success that can compete with the MBA-mentality of misguided metrics now dominating too many big law firms and other once-noble professions, our progeny face a daunting task.

Now you understand the twin thoughts appearing immediately following The Partnership‘s inside title page:

“Sunlight is the best disinfectant” and “Forewarned is forearmed.”

“SEND THE ELEVATOR BACK DOWN…”

Posted on May 17, 2010 by thebellyofthebeast

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…

Posted on May 12, 2010 by thebellyofthebeast

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.”

THE MBA MENTALITY RETHINKS ITSELF?

Posted on May 5, 2010 by thebellyofthebeast

Yesterday, the Harvard Business School named its new dean.

According to the Wall Street Journal (May 5, 2010, p. B9), Professor Nitin Nohria says “his focus will be on business ethics, a cause he has long championed, particularly during the financial crisis. He has also been a vocal critic of management education and the leaders it produces.”

What does that have to do with the legal topics that usually occupy this space?

As the Great Recession deepened, Nohria and a colleague wrote that management should become a profession, complete with a code of ethics similar to that for lawyers. (“It’s Time To Make Management a True Profession,” Harvard Business Review, October 2008) Nohria wants to move business leaders away from a myopic focus on maximizing shareholder value toward a broader social vision of their roles as institutional custodians and citizens. Looking to the legal profession as a model, he hopes to restore legitmacy lost over the last decade.

Maybe he has Atticus Finch in mind. Sadly, Finch is a fictional character. It’s too late for the most lucrative and influential segment of the profession to help him.

The tide has already taken most of biglaw out to sea in the direction he seeks to reverse. Following their corporate clients’ examples, firm leaders have embraced an MBA-mentality. Increasingly over the past 20 years, large law firm managers themselves have MBAs and have relied on business-school metrics — billable hours, leverage ratios, and profits-per-partner — to dictate decisions that shape the culture of such places.

How that happened and the unfortunate behavior that adherence to such deceptively objective metrics can produce are subjects for another day (and the novel I just published — The Partnership.

For now, the point is this: If Dean Nohria is looking for a new model of something that is a profession, rather than a collection of bottom-line businesses where MBA-type metrics set the tone, he’ll have to look elsewhere.

Does anyone have any candidates?

	Mike on AN ARROGANT SUPREME COURT IS N…
	thebellyofthebeast on My Latest Interview
	Tom Kieselbach on My Latest Interview
	thebellyofthebeast on Whatever Happened to the New Y…
	Jerry Esrick on Whatever Happened to the New Y…
	Laura Miller on HELP WANTED: Five Rational Rep…
	annette turow on The Lawyers Who Enabled Trump…
	thebellyofthebeast on Trump and His Allies Are…
	Annette Turow on Trump and His Allies Are…
	thebellyofthebeast on WHERE HAVE I BEEN?
	Patricia F Bak on WHERE HAVE I BEEN?
	thebellyofthebeast on WHERE HAVE I BEEN?
	Bob Helman on WHERE HAVE I BEEN?
	thebellyofthebeast on WHERE HAVE I BEEN?
	MARCU, Aaron (ARM) on WHERE HAVE I BEEN?

The Belly of the Beast

Steven J. Harper, Esq.

Category Archives: Leadership

UNFORTUNATE COMMENT AWARD

AGING GRACEFULLY — OR NOT

A NEW LAW SCHOOL MISSION

THE U OF C’s BIG LEAP FORWARD

HOWREY’S LESSONS — PART II

HOWREY’S LESSONS

LOCATION, LOCATION, LOCATION?

CULTURE SHOCK

NUMBERS TELL A STORY

“IT’S A WONDERFUL [BIG LAW] LIFE?”

EXPLAINING BAD BEHAVIOR

WHO REMEMBERS FINLEY KUMBLE?

SOLVING THE BIGLAW MYSTERY OF GROWING CAREER DISSATISFACTION

SOME DOCTORS THINK THEY’RE GOD; SOME LAWYERS THINK THEY’RE DOCTORS

BIGLAW’S GLASS IS 44% FULL

ARE THE U.S. NEWS RANKINGS BIGLAW’S BLACK SWAN?

BIGLAW AND THE BLACK SWAN

ALONG CAME LAW FIRM MANAGEMENT CONSULTANTS

MIRED IN METRICS? HAVE SOME MORE!

“SILENT GRIEF” – “DEADLY SERIOUS” FOLLOW-UP

DEADLY SERIOUS

WHERE HAVE ALL THE MENTORS GONE?

SUMMER ASSOCIATES TAKE NOTE: INADVERTENT REVELATIONS

BABY BOOMERS STRIKE AGAIN

A BETTER ALTERNATIVE OR A LEAP FROM THE FRYING PAN?

IT’S NOT JUST ME

EARLY RETURNS

“SEND THE ELEVATOR BACK DOWN…”

25 YEARS…

THE MBA MENTALITY RETHINKS ITSELF?

Share this:

Share this:

Share this:

Share this:

Share this:

Share this:

Share this:

Share this:

Share this:

Share this:

Share this:

Share this:

Share this:

Share this:

Share this:

Share this:

Share this:

Share this:

Share this:

Share this:

Share this:

Share this:

Share this:

Share this:

Share this:

Share this:

Share this:

Share this:

Share this:

Share this: