DEBT, DECEPTION, AND THE ABA

Posted on October 5, 2011 by thebellyofthebeast

The ABA kicked the can down the road again. When law schools classify their most recent graduates as “employed” in 2012, they still won’t have to disclose whether the jobs are part-time or require passing the bar. Anything and everything counts — which leads to this question:

Q: When are some law schools like for-profit colleges?

A: Every day.

Both groups are under increasing scrutiny for similar tactics. The Wall Street Journal doesn’t like the new efforts to hold for-profit colleges accountable. Recently, it used those initiatives to bludgeon a favored target:

“Where there’s money, there are trial lawyers…”

After the many WSJ articles about the rise of corporate big law’s multi-millionaires, such special disdain for greedy, non-corporate trial lawyers seems somewhat disingenuous. But I digress.

The editorial criticizes the government’s intervention in a whistleblower’s False Claims Act case against a for-profit college system and concludes with this non-sequitur:

“If the government thinks such schools are unfairly benefitting from federal subsidies, then it should cut off grants to all college students.”

Whoa, Nelly!

The Journal sidesteps the most important questions that the False Claims Act cases raise and that apply equally to many law schools: How do institutions of higher education recruit students and what happens after they sign up? When colleges are accused of “a boiler-room style sales culture,” it’s no answer to say “a recruiter’s job is to recruit.” Surely, the Journal‘s editorial board understands the importance of truthful information to the proper functioning of free markets.

For example, here’s information that for-profit colleges are loathe to emphasize: their student drop-out rate is over 50 percent. According to one report, only 38 percent graduate within six years (compared to 53 and 64 percent for public and private non-profit institutions, respectively). Another report of the ten largest for-profit schools puts their graduation rate at 22 percent.

Law schools don’t have those stunning drop-out rates, but two other criticisms apply to many of them:

— Encouraging students to take on debt that can’t be repaid. Bloomberg News reports that for-profit colleges enroll 12 percent of all undergraduates, receive 25 percent of all student loan dollars, and account for almost half of all defaults. Only a day after its editorial, the Journal reported that the for-profit default rate had soared to 15 percent, compared to non-profit rates of 7.2 and 4.6 for public and private schools, respectively.

Ironically, the same edition running the editorial attacking efforts to increase for-profit college accountability also contained a small item on the front page: “Vital Signs” — a graph with this accompanying description:

“Americans are borrowing more for student loans. In July, consumers owed the government about $386 billion, largely for student loans, up from $139 billion two years earlier. However, during the same period of time, consumers pulled back on other types of borrowing, such as credit cards and loans for automobiles.” [emphasis supplied]

Evidently, a standard hot-button topic for the Journal‘s editors — “wealth redistribution” — isn’t so bad when the redistribution is from students to their schools.

Law schools? Almost half of their graduates incur more than $100,000 in educational loans. But the real tragedy that the ABA continues to facilitate involves ongoing deception about the prospects for getting jobs needed to repay them.

— Misleading employment stats. For-profit schools’ recent battle over federal “gainful employment ” regulations mirrors the controversy over the way many law schools report employment data. Prospective students read about graduates who are “employed,” even though they’re performing tasks that don’t require the degrees that schools are trying to sell them. Likewise, law schools can call their graduates employed, even if they’re greeters at Wal-Mart.

Overwhelming educational debt is one of many terrible things happening to the next generation under the guise of “letting the markets decide” — however imperfect or distorted those markets may be. Whether for-profit or, like most law schools, run as if they were, educational institutions that pursue the myopic short-term mission of filling classrooms with tuition-paying bodies do their students a disservice. As the cycle of deception-debt-no jobs produces a bubble that is already beginning to burst, the resulting damage to the country will become increasingly obvious, too. Some of the “Occupy Wall Street” protesters are already making that abundantly clear.

THE COST OF DISSATISFACTION

Posted on September 28, 2011 by thebellyofthebeast

This month began with the publication of The American Lawyer‘s annual Mid-Level Associate Satisfaction Survey results. The dismal descent to historic depths continues. Let’s end it with this question: Why should law firm leaders care?

Answer: Because dissatisfied lawyers are costing them money.

That’s the conclusion of Harvard Business School Professor Teresa Amabile and fellow researcher, Steven Kramer, in The Progress Principle. They reported their findings in the Labor Day edition of the New York Times. At a time when most workers feel fortunate to have jobs, Amabile and Kramer have a tough sell in convincing employers, including law firm leaders, to worry about the psychological state of their employees.

We all know the mantra: No one is required to accept any job. The market allocates resources. A labor market clears at the point where buyers and sellers agree on a price for services sought and rendered. Workers take into account the factors that matter to them and get paid appropriately for the jobs they’re willing to do. Case closed.

Not quite. Such an analysis makes dubious assumptions about the market. On the employee side, bad or incomplete information can distort outcomes. A prospective law student might hope to emulate popular media images that merge with law school promotional materials promising a secure, well-paying future. Once in school, individual financial imperatives — such as the need to repay staggering educational debt — can constrain post-degree options. Meanwhile, the anticipated job often turns out to be neither secure nor well-paying.

Likewise, employers take false comfort in the misconception that a new hire is simply exercising free will in a free market. A firm assumes that if young attorneys’ experiences diverge from rosier expectations, any resulting psychological distress isn’t its problem. Never mind that the firm’s underlying business model produces behavioral incentives and a culture that exacerbate the disconnect.

“We’re just trying to run a business,” most law firm leaders would say. “There’s no metric for assessing the impact of career dissatisfaction on performance. If I can’t measure it, how can I consider it when making decisions?”

As long as everyone keeps billing hours, the profits beast continues to be fed. As unhappy associates alone bear the burden of their discontent, leaders rationalize their indifference to growing dissatisfaction with a simplistic analysis: if it gets too bad, people can leave and find another job. In the current buyer’s market for associates, boatloads of replacements are waiting in the wings anyway.

The work of Amabile and Kramer offers an intriguing rebuttal to myopic managers who can’t see past next year’s profits. In a longitudinal study encompassing ten years and 238 professionals in seven different companies, they asked people to make daily diary entries about their emotional states. Negative inner work lives resulted in “a profound impact on workers’ creativity, productivity, commitment and collegiality.”

The findings challenge the conventional wisdom that pervades many big firm cultures, namely, that pressure enhances performance. According to Amabile and Kramer, the data suggest that the opposite is true: “[W]orkers perform better when they are happily engaged in what they do….[O]f all the events that engage people at work, the single most important — by far — is simply making progress in meaningful work.”

The authors note Gallup’s estimate that America’s “disengagement crisis” costs $300 billion annually in lost productivity. They also observe that the vast majority of 669 surveyed managers shared an important incompetence: the managers “failed to recognize that progress in meaningful work is the primary [employee] motivator, well ahead of traditional incentives like raises and bonuses.” The catalysts that enable such progress are worker autonomy, sufficient resources, and learning from problems.

Big firm leaders determine the extent to which their workers experience these three catalysts. The leveraged pyramid and its billable hour regime enslaves associates while inhibiting partners from becoming mentors. In other words, the prevailing big law model cuts the wrong way for everyone. The resulting work environment produces dissatisfaction that’s costing the equity partners money.

How much money? William Bruce Cameron’s observation (sometimes attributed to Einstein) was right: “Not everything that can be counted counts, and not everything that counts can be counted.”

COMMENDABLE COMMENT AWARD

Posted on September 21, 2011 by thebellyofthebeast

Rare candor at the top deserves recognition.

The September issue of The American Lawyer honors the magazine’s 2011 Lifetime Achievers — an impressive group. The list is alphabetical, which made Richard Beattie first. Now 72, he has enjoyed a long and distinguished career since joining Simpson, Thacher & Bartlett in 1968. Complementing a wildly successful big firm transactional practice, he also served the public in many capacities, including general counsel to the former U.S. Department of Health, Education and Welfare under Secretary Joseph Califano, Jr. in the 1970s.

In 1991, Beattie was elected to Simpson Thacher’s executive committee. He became chairman in 2004. By any measure, he has certainly earned his latest accolade. Yet another — my “Commendable Comment Award” — results from his response to The American Lawyer‘s question about his biggest regret:

“I regret the number of vacations with my family I missed as a result of working on transactions.”

Succeeding in big law requires talent, hard work, sacrifice, and — dare I say it — luck. Only the most reflective of big law leaders credit fortuity to their rise and even fewer discuss the downside — the personal cost that they and their families bear.

Mr. Beattie’s candor comes with a bit of irony. The same issue of the magazine reports this year’s Midlevel Associate Satisfaction survey. Overall, Simpson Thacher is tied for 56th out of 126 firms in the survey. It’s 36th out of 85 Am Law 100 and Global 100 firms. And remember, overall associate satisfaction for the survey group dropped again this year to an all-time low; being in the middle of the pack is, at best, a mediocre finish.

Going behind the numbers, Simpson scores below average in “family friendliness” — 3.47 out of five (the national average is 3.62). The firm is also below average in its associates’ stated likelihood of staying two years (3.44 compared to 3.58 nationally).

One more notable statistic from this year’s 2011 Am Law 100 listing: Simpson Thacher’s 2010 partner profits increased by more than nine percent over 2009. Its average profits per equity partner were $2.64 million — eighth place.

Being a lawyer has always been demanding. That won’t change. There are times when a situation requires sacrifices that only a particular lawyer (and his or her family) can make in responding to a client’s genuine emergency. But when it comes to big firms, clients in such situations rarely require the services of any particular mid-level associate.

In fact, during thirty years of practice, I never heard a client say, “I need associate X to cancel his or her family vacation to meet with me.” The seasoned senior partner may seem indispensable. Even the best midlevel associate? Never.

Which takes me back to Beattie and his firm. He gets high marks for admitting that work impaired his family life, but as a member of Simpson Thacher’s executive committee for two decades and chairman for the past seven years, he’s also had a unique power to shape his firm’s culture. His accomplishments are worthy of The American Lawyer‘s Lifetime Achievement Award, but he and others who set the profession’s tone have a special obligation to foster working environments in which young lawyers avoid what Beattie now describes as his biggest regret. Indeed, if they can’t, who can?

No leader of any big firm can single-handedly reverse the last two decades of unfortunately myopic and often short-sighted trends. But all should consider adopting “The Misery Index” — an informational tool that free market disciples should embrace. Such a metric might influence institutional behavior for the better, even if only marginally. Those willing to try it could, perhaps, improve the profession in ways they never thought possible back when they were missing all of those family vacations. There’s still time to keep others from missing theirs.

Anyone receiving honors recognizing a lifetime of achievement could leave no better legacy than empowering young proteges to avoid regrets similar to their own. Of course, the problem isn’t unique to Beattie or Simpson Thacher. It’s wrapped into the larger question of defining long-term success — a question that every big law leader should ponder for his or her firm. Regrettably, few will. There’s no way to bill a client for the time.

DO THEY COUNT AS BILLABLES?

Posted on September 14, 2011 by thebellyofthebeast

In “New Lawyers, New Classes,” the Wall Street Journal reports on firms sending their attorneys through business-education type programs. Describing one full-time four week example, it states the obvious: “[L]aw firms aren’t billing the 160 training hours to clients.”

But the article is silent on a more interesting question: If a lawyer has to devote 160 hours — or any other amount — to firm-required business education, will that time count toward minimum billable hour expectations?

A 1958 ABA pamphlet suggested that a reasonable full-time schedule produced 1,300 client hours a year. That’s right, 1,300. Today, senior partners who had no minimum billables requirements as associates run firms where some new attorney orientation sessions dictate monthly targets, as well as annual ones. Big law associates average more than 2,000 billables a year. Adding another 160 hours — a month’s worth of time — for firm-required education is no small matter.

During year-end reviews, associates typically receive spreadsheets detailing their hours by category: client billables, recruiting, training, pro bono, personal, and so forth. (Hat-tip to The American Lawyer‘s A-List, which prompts many firms to count pro bono hours as billable time.)

How about training? Back in January 2008 when law firms were more concerned about attracting and retaining good associates than they are now, the New York Times found firms attacking enormous associate attrition rates with initiatives aimed at keeping the keepers. But even that didn’t always extend to giving billable credit for training.

For example, the Times wrote, “Strasburger & Price, a national firm based in Dallas, announced last October [2007] that it was decreasing the hours new associates were expected to log, to 1,600 from 1,920 annually. (Lest you think those lawyers will be able to go home early, however, note that newcomers will now be asked to spend 550 hours a year in training sessions and shadowing senior lawyers.)”

According to the NALP directory, Strasberger’s policy is unchanged, but at least it’s transparent. Many big law counterparts have remained opaque.

Consider the public positions of the three firms in the WSJ article — Debevoise & Plimpton; Milbank, Tweed, Hadley & McCoy; and Skadden, Arps, Slate, Meagher & Flom. In their current NALP listings, none discloses its average associate billables for 2009 or 2010. But that doesn’t mean those in charge aren’t watching hours closely.

According to the Journal, “Debevoise said its associate billable hours rose by more than 10% in 2010 and are up by even more so far this year.” To what? The article doesn’t say — and neither does the firm.

Earlier this year, Milbank’s chairman, Mel Immergut, noted that billables were up, but “still low compared to what [they have] historically been.” Again, no hint of what those levels were or are.

Skadden’s culture is no secret. It became the subject of unwanted attention after one of its associates, Lisa Johnstone, died in June at age 32 — reportedly after weeks of extremely long hours.

All three firms state on their NALP forms that they have no minimum billable hours requirement. Debevoise’s website says that billable and pro bono hours “are monitored by partners to assure an associate’s full involvement in our practice and to attempt to spread workloads fairly.”

So perhaps there’s no need to worry about how those 160 business-education training hours get counted after all. Debevoise cares only about assuring full involvement and fairness for its associates, not whether they meet a minimum number of billables. Like many firms, Milbank actually uses its training programs as a sales tool: “Get paid to go to Harvard,” its website proudly proclaims. Skadden will always be Skadden.

But give credit where it’s deserved: Debevoise ranked an impressive 16th in overall mid-level associate satisfaction this year. Milbank and Skadden fared less well — placing 68th and 69th, respectively, out of 126. (The unfortunate backstory is that overall satisfaction for the survey group dropped to another record low.)

Interestingly, all three responded to this query on the NALP form:

“Billable hours credit for training time.”

Debevoise and Milbank answered “Y.” Skadden said “N.”

“Credit” toward what? Unless billables matter to evaluating or compensating associates, wouldn’t firms without a minimum requirement answer “N/A”?

Maybe their stated answers are typos.

FROM THE SPORTS PAGE

Posted on September 8, 2011 by thebellyofthebeast

Subtle clues revealing the cause of a fundamental problem confronting the legal profession are everywhere, even in the sports section.

Recently, the New York Times wrote about 26-year-old Josh Satin, who made his major league debut for the New York Mets on Sunday, September 4. This time of year, such stories about minor league ballplayers getting a chance to play for out-of-contention major league teams are common. Regrettably, one of my hometown franchises — the Cubs — affords such opportunities almost every year.

This line of the Satin article caught my eye:

“After graduating as a political science major from Cal, Satin was selected by the Mets in the sixth round of the 2008 draft. And like any number of 20-somethings with a liberal arts degree and nebulous career prospects, he kept law school applications at the ready.”

Satin was drafted the same year I began offering an advanced undergraduate course that targeted students like him. For many juniors and seniors who can’t decide what to do next, law school becomes a default solution that buys them more time. Sometimes it works out okay; for too many others, it’s a place where dreams go to die.

Bad information bears much of the blame for the problem of poor career choices that, in turn, contribute to widespread attorney dissatisfaction. Law schools skirting the outer limits of candor to fill their classrooms have made the problem worse. So has the transformation of big firms from a profession to a collection of short-term profit-maximizing businesses that use misguided metrics to drive decisions.

As a consequence, some not-so-funny things happened to many of those who went to law school for the wrong reasons. For starters, the promise of a secure future at a well-paying job turned out to be illusory. The persistent problem of lawyer oversupply rose to crisis levels during what would have been Satin’s first year of law school, if he’d gone. Since then, the market for new talent has gotten worse.

But even many who found decent legal jobs have been unpleasantly surprised. Popular images of dynamic lawyers engaged in courtroom battles widen the gap between student expectations and the reality they’ll encounter; that eventually makes for some very unhappy attorneys. By the time the truth hits, many find themselves burdened with educational debt equal to a home mortgage, albeit without the house.

That doesn’t mean no one should go to law school. The law is a great and noble pursuit in many ways. In fact, even the most pessimistic assessments suggest that about half of all attorneys enjoy satisfying careers. I sure did.

Nor does it mean that everyone who dreams of playing major league baseball — or any other high-profile job that the media infuses with irresistible glamour — should give it a shot. Everyone enjoys watching extraordinarily talented celebrities ply their trades, but for most of us, being a spectator is our highest and best use at such events. In his address to the Northwestern graduating class of 2011, Stephen Colbert referred to commencement speakers who tell college graduates to follow their dreams and asked, “What if it’s a stupid dream?”

But acknowledging the stupidity of a dream shouldn’t make law school the fallback answer to one of life’s most important questions, “Now what?”

I don’t know if Josh Satin will remain a major league ballplayer. If he doesn’t, I don’t know what he’ll do after that. But meanwhile, give him credit for having the courage to pursue passions for which he obviously has talent. It’s a safe bet that he’s happier than his college classmates “with a liberal arts degree and nebulous career prospects [who] kept law school applications at the ready,” sent them in, and pursued legal careers for which they had incomplete knowledge, limited enthusiasm, or both. Compounding the difficulties with which they began law school, they’re now having trouble finding the secure, well-paying and exciting work that they thought would be waiting for them when they graduated.

It turns out that for most of the nation’s 50,000 annual graduates, those particular jobs were never there at all.

IT’S THE MODEL

Posted on August 15, 2011 by thebellyofthebeast

[Thanks, readers. My big law novel — The Partnership — has been on the Amazon e-book “Legal Thrillers Best-Seller List” for more than a month. Last weekend, it was #7. Also available for iPad, Nook, and in paperback.]

Returning from vacation means tackling a pile of accumulated newspapers in a single sitting. That sounds like a chore, but it allows the mind to connect news items that otherwise might seem completely unrelated.

Consider these three from the Wall Street Journal on August 1, 2, and 3.

In “With Oracle and Dodgers Waiting, Boies Not Ready to Retire,” the Journal interviewed David Boies — 70-year-old former Cravath partner who started his own firm. He represented Al Gore in the 2000 election fight, plaintiffs challenging California’s law banning gay marriage, the NFL in its litigation with players, and a long string of high-profile litigants. Boies explains why more than half of his firm’s cases have a potential success fee:

“Hourly rate billing is bad for the client and I believe bad for the firm. It sets up a conflict between what’s good for the lawyer and what’s good for the client.”

Enter the client with the will to resist the hourly billing regime. On August 2, the WSJ‘s “Pricing Tactic Spooks Lawyers” describes clients countering high big law fees with on line reverse auctions that pit firms against each other in bidding for business. The result: cost reduction.

But economizing can be dangerous. An article in the next day’s WSJ should make every big firm attorney squirm. “Objection! Lawsuit Slams Temp Lawyers” reports that J-M Manufacturing is suing its former law firm, McDermott, Will & Emery LLP, claiming that the firm didn’t supervise adequately the work of contract attorneys from a third-party vendor. McDermott denies wrongdoing:

“J-M…keeps changing its story. Now [it]…claims that McDermott failed to supervise the contract lawyers that J-M retained….”

According to the article, J-M alleges that it paid McDermott attorneys rates as high as $925 an hour, compared to $61 an hour to the firm supplying the temps. In other words and regardless of who retained them, using contract lawyers helped shave J-M’s outside legal bills.

Here’s the common thread. In the first article, Boies just says what everyone knows: the billable hour regime is a nightmare. The second reflects ongoing client efforts to reduce resulting legal costs. The third identifies a potential peril for law firms that attempt to oblige: a malpractice suit — the ultimate conflict with a client.

I don’t know if McDermott did anything wrong, but clients should realize that putting the squeeze on outside lawyers is tricky. For example, cutting fees is one thing; expecting large firm equity partners to do the obvious — reduce their own stunning income levels to help the cause — is something else, and it isn’t happening.

Amid corporate belt-tightening that targeted outside legal costs, average equity partner profits for the Am Law 100 actually rose during the last two years. They’re now back to pre-Great Recession levels of $1.4 million a year and it’s a safe bet that next year’s profits will be even higher. If I were a client, I’d ask, “How did that happen?”

“It’s the successful model at work,” most firm leaders would say without reflection or hesitation. “Growing equity partner earnings are essential to retain and attract top talent. Firms have become more efficient, so it’s a win-win for clients and partners.”

Clients should consider the untoward implications of austerity measures that don’t dent equity partners’ pocketbooks. Increased efficiency? Operating with fewer secretaries and putting locks on supply room cabinets don’t account for the extraordinary profits wave that big law continues to ride.

Here’s another explanation. The prevailing model requires increases in billable hours — big law’s distorted definition of productivity — to offset fee reductions that clients demand. Concerned about attorney fatigue that compromises morale and work product? Too bad; the model ignores it.

Clients can and should seek lower big law fees, but they should be careful what they wish for, scrutinize what they get, and wonder why equity partners’ eye-popping profits keep growing along the way. The prevailing model rewards big law equity partners handsomely, but that doesn’t necessarily mean it’s working for their clients or anyone else.

TRUTHINESS IN NUMBERS

Posted on June 27, 2011 by thebellyofthebeast

Two recent developments here and across the pond share a common theme: ongoing confusion about young attorneys’ prospects. But the big picture seems clear to me.

Last month, I doubted predictions that the UK might be on the verge of a lawyer shortage. I expressed even greater skepticism that it presaged a similar shortfall in the United States. In particular, College of Law issued a report suggesting that an attorney shortage could exist as early as late 2011 and “may jump considerably in 2011-2012.”

This came as a surprise because the UK’s Law Society has warned repeatedly about the oversupply of lawyers in that country. Why such dramatically different views of the future?

Some commenters to an article about the College of Law report suggested that perhaps the study hadn’t taken into account the existing backlog of earlier graduates who, along with young solicitors laid off in 2008 and 2009, were still looking for work.

Another explanation may be that the College of Law and its private competitors, including Kaplan Education’s British arm, wants to recruit students to their legal training programs. Sound familiar?

The following is from the College of Law website:

“84% of our LPC graduates were in legal work just months after graduation.*”

But mind the asterisk: “*Based on known records of students successfully completing their studies in 2010.”

I wonder who among their students isn’t “known.” As for “legal work,” a recent former UK bar chairman observed that the oversupply of attorneys in that country has driven many recent LPC graduates into the ranks of the paralegals. Digging deeper into the College of Law’s 84 percent number yields the following: 62 percent lawyers; 22 percent paralegals “or other law related.” At least the College appears to be more straightforward than American law schools compiling employment stats for their U.S. News rankings.

That takes me to the recent ABA committee recommendation concerning employment data here. U.S. News rankings guru Robert Morse has joined the ABA in assuring us that help is on the way for those who never dreamed that law schools reporting employment after graduation might include working as a greeter at Wal-Mart. Morse insists that if the schools give him better data, he’ll use it.

It’s too little, too late. Employment rate deception is the tip of an ugly iceberg comprising the methodological flaws in the rankings. For example, employment at nine-months accounts for 14 percent of a school’s score; take a look at the absurd peer and lawyer/judges assessment criteria, which count for 40 percent. Res ipsa loquitur, as we lawyers say.

Frankly, I’m skeptical about the prospects for progress even on the employment data front. Until an independent third-party audits the numbers that law schools submit in the first place, their self-reporting remains suspect. No one in a position of real professional power is pushing that solution.

Meanwhile, back in the UK, Allen & Overy — a very large firm — announced its “second round of cuts on number of entry level lawyers hired” — from the current 105 London training contracts down to 90 for those applying this November. The article concluded:

“The news comes after the latest statistical report from the Law Society highlighted the oversupply of legal education places compared with the number of training contracts in the UK legal market. The number of training contract places available fell by 16% last year to 4,874 and by 23% from a 2007-08 peak of 6,303.”

So much for the College of Law’s predictive powers. Prospective lawyers in the UK are probably as confused as their American counterparts when it comes to getting reliable information about their professional prospects. Most students everywhere assume that educational institutions have their best interests at heart.

If only wishing could make it so.

DESPERATELY SEEKING DOWNTIME

Posted on June 20, 2011 by thebellyofthebeast

Couple Friday afternoon summer getaway days with a long weekend like the fourth of July and what do you get? Maybe not as much as you think.

A recent NY Times article pictures a family of four seated across their living room couch. Each has a laptop or handheld electronic device. They looked at the camera for the photo op, but the accompanying text demonstrates that they and many others are kidding themselves: physical proximity isn’t the same as spending time together.

Lawyers aren’t alone in pondering what quality time with others really means, but they confront special challenges in trying to find it. Once upon a time, work remained generally in the office; secretaries tracked down partners only for real emergencies; home was a refuge. Vacations meant that the entire family went someplace where everyone reconnected — and I don’t mean with WiFi.

Those good old days weren’t idyllic, but the lines separating work from everything else were clearer. The erosion began with voicemail. The ability to leave a message made it easier to do so while creating subtle pressure for recipients to check in periodically, even during vacations. E-mail made things worse. To the sender, it’s less intrusive than a phone call and, therefore, isn’t considered an interruption. BlackBerrys, text-messaging, and smart phones sped connection times and completed the melding of personal and professional existences.

Self-delusion about the consequences has become a special problem for attorneys who measure their lives in billable hours. They’ve convinced themselves that these technological innovations have come with no downside. Especially in big law, it’s all positive because everyone is just utilizing time more productively, i.e., it’s getting billed and the equity partners in particular are getting richer.

Associates supposedly benefit, too. Unlike earlier, “tougher” times, they can go home and continue billable activities in their virtual offices.

Clients? They get 24/7 access to their lawyers.

Everyone wins because the human mind can simultaneously do many things well, right? Not really.

The human brain processes information sequentially, that is, one thing at a time. When interrupted, the mind disengages from the original task, turns to the second one, and then disengages again before returning to what it was doing first. Not surprisingly, a recent scientific study found that young people (average age 24) switched tasks more quickly and easily than old ones (average age 69).

But another study reveals that people of all ages underestimate the extent to which they are, in fact, distracted in ways that burden the brain and diminish productivity. Using television and computer screens concurrently, the subjects multitasked between TV and internet content. On average, they switched between the two media four times per minute — or 120 times during the 27-minute experiment.

That’s stunning, but less shocking than the gap between reality and the subjects’ perceptions. Compared to the actual number of 120, they thought they’d switched between TV and computer screens only 15 times. The report concluded:

“That participants underreported their switching behavior so drastically echoes recent work in the applied multitasking field that illustrates how individuals tend to overestimate their multitasking ability and how heavy multitaskers are prone to distraction…[P]eople have little self-insight into multitasking behavior.”

If you’re checking for messages between innings at a ballgame or between shots on a golf course, you may not even know you’re doing it.

I’m not a technophobe. You’re reading this article because I sat at a computer, typed away, and then hit a button that propelled my musings into cyberspace. This very blog proves that technology has opened communication channels that facilitate intelligent interactions across continents and oceans. That won’t change and it shouldn’t.

But the next time you see couples or families at a restaurant, resort pool, or some other venue that’s supposed to bring them together, consider whether whatever each is doing independently proves that technology run amok may also be closing some important channels, too.

My recent family vacation reminded me that live conversations with all participants in the same place are still the best entertainment. Yes, even better than Skype and FaceTime. And no, I didn’t tweet while I was gone.

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.

FAMILY FRIENDLY?

Posted on May 31, 2011 by thebellyofthebeast

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

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

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

Now consider the survey categories and YLW commentary:

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

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

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

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

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

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

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

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

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

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

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

LAW SCHOOL DECEPTION — PART III

Posted on May 18, 2011 by thebellyofthebeast

Money talks, especially to prospective law students concerned about educational debt. Tuition reduction programs promise some relief. Surely, scholarships conditioned on minimum GPAs are better.

Recently, the NY Times profiled a Golden Gate University School of Law student needing a 3.0 to keep her scholarship. By the end of her first year, she’d “curved out” at 2.967. Her Teamsters dad drove a tractor before he was laid off, but she and her parents came up with $60,000 in tuition to complete her degree.

Maybe that’s reasonable. A “B” average doesn’t seem difficult. Is this just whining from what some article comments called “the gimme generation”?

Only if the victims knew the truth. She has no paying job, legal or otherwise. That’s her true victimization, along with many others.

— Statistically possible v. doesn’t happen v. fully disclosed

Golden Gate imposes mandatory first-year curves limiting the number of As and Bs. In second and third year courses, the curves loosen or disappear. The profiled student graduated with a 3.14 GPA — a nice recovery, but too late for the lost scholarship.

According to the article, more than half of the current GGU first-year class has merit scholarships and Dean Drucilla Stender Ramey said it’s statistically possible for 70 percent of one Ls to maintain a 3.0 GPA — also the threshold for the Dean’s List. Even if she meant “theoretically” rather than “statistically” possible, I’m skeptical. The school’s handbook reports the mandatory range for those receiving a “B- and above” in first-year required courses: 45 percent (minimum) to 70 percent (maximum). And a B- is 2.67.

“[I]n recent years,” the article continued, “only the top third of students at Golden Gate wound up with a 3.0 or better, according to the dean…. She also maintains that Golden Gate 1Ls’s are well-informed about the odds they face in keeping scholarships.”

This sounds like the lawyer who tells the jury: 1) my client was out of town at the time of the murder; 2) if he was in town, he didn’t do it; and 3) whatever he did was in self-defense.

— Playing with fire

Why offer merit scholarships? U.S. News‘s rankings, says University of St. Thomas School of Law Professor Jerry Organ:

“Law schools are buying…higher GPAs and LSATs.”

Albany Law School Dean Thomas F. Guernsey notes that such catering to the rankings has “strange and unintended consequences,” such as reducing need-based financial aid by redirecting it to those who otherwise “will go somewhere else.”

U.S. News doesn’t collect merit scholarship retention data because, according to rankings guru Robert Morse, “[W]e haven’t thought about it…[T]hese students are going to law school and they need to learn to read the fine print.”

That’s among the least of many profound flaws in the U.S. News methodology. Law school deans know them all, yet pandering to the rankings persists while students and the profession pay the price.

Somewhere in the cumulative behavior of certain schools lies an interesting class action. Particularly vulnerable are recruiters operating at the outer limits of candor to attract students who accumulate staggering loans and no jobs.

Imagine forcing some deans to answer these questions — under oath:

— Where did you go to law school? (That’s foundational — to show they’re smart; for example, GGU’s Dean Ramey graduated from Yale.)

— How many graduates did you put on your school’s temporary payroll solely to boost your U.S. News “nine months after graduation” employment rate? (I don’t know about GGU, but others have.)

— How many have full-time paying jobs requiring a JD? (GGU’s nine-month employment rate is 87.2% of 143 “reporting” 2009 graduates, but the “number with salary” is only 41 (or 29%). Two-thirds of “reporting graduates” had jobs requiring bar passage; only half held permanent positions. And who’s not “reporting”?)

— How many merit recipients lose scholarships? What did you tell those hot prospects when you enticed them with first-year money? Ultimately, how much did they pay for their degrees?

Ironically, even bold typeface disclosure might not change some prospective students’ minds because facts yield to confirmation bias. Convinced that they’ll overcome daunting odds to become winners, they can’t all be right.

Still, the potential class of law student plaintiffs grows by the thousands every year. If they ever file their lawsuit, the defendant(s) better get good lawyers.

IMPROVING PROSPECTS — BUT FOR WHOM?

Posted on May 10, 2011 by thebellyofthebeast

Life is just a matter of perspective. For example, here’s some apparently good news:

— The legal sector added 1,500 jobs in April.

— Ashby Jones at the Wall Street Journal Law Blog cited a recent article in The Guardian for the proposition that the U.K. might actually have a shortage of lawyers next year. Could the U.S. be far behind?

— NALP’s Executive Director James Leipold noted that, along with an overall attorney employment rate of 88.3% for the class of 2009, “the most recent recruitment cycle showed signs of a small bounce in the recruiting activity of law firms, a sign that better economic times likely lie ahead.”

Now consider each headline a bit differently:

— “Legal sector” isn’t limited to attorneys; more than 44,000 new law school graduates hit the market every year.

— The Guardian article relies solely on a report from the College of Law that has an interest in encouraging applications to its program for prospective solicitors. More than one comment to the initial report expressed angry skepticism about the College’s short-term motives. Where have I heard that before?

Meanwhile, the Bureau of Labor Statistics projects that, for the entire ten-year period from 2008 to 2018, net U.S. attorney employment will increase by only 100,000. Even if all aging attorneys retired as they turned 65, there aren’t enough of them to make room for all the newbies. In 1970, for example, law schools awarded only about one-third of the number of JDs conferred in 2010.

— To his credit, NALP’s Leipold went behind the 88% employment rate for the class of 2009. The resulting caveats are significant.

First, the percentage employed are graduates “for whom employment status was known.” Who’s excluded? Who knows?

Second, nearly 25 percent of all reported jobs were temporary; more than 10 percent were part-time.

Third, only 70 percent “held jobs for which a J.D. was required.” Unfortunately, law schools don’t offer tuition refunds (or relief from student loans) for education that was unnecessary for their graduates’ actual employment opportunities. That doesn’t surprise me. (See “Law School Deception.”)

Finally, more than 20 percent of employed graduates from the class of 2009 “were still looking for work.” Beneath the veneer of superficially good news — having a job — career dissatisfaction continues to eat away at too many of the profession’s best and brightest in yet another generation.

That doesn’t mean people shouldn’t go to law school. It means that they should think carefully about it first, starting with this question: why do I want to be a lawyer and will the reality of the job match my expectations?

Turning the employment subject toward big law leads to one more lesson on perspective.

A day after the Ashby Jones and James Leipold articles, the WSJ‘s Nathan Koppel summarized big law’s continuing job-shedding: the NLJ 250 lost another 3,000 in 2010, bringing their total decrease since 2008 to 9,500. They may be hiring some new associates, but they’re getting rid of many more.

NALP expects to release its 2010 employment data in May. But every big law leader knows that May’s true importance lies in a much more significant event: annual publication of the Am Law 100. For some partners, pre-release anxiety is palpable, if not paralyzing.

This year, average equity partner profits for the Am Law 100 went up by over 8% — to almost $1.4 million. For context, that surpasses 2007, which was the peak of an uninterrupted five-year PPP run-up. Pretty stunning for an economy that remains difficult for so many. Gross revenues increased as overall headcount dropped by almost 3%. More revenues from fewer attorneys meant more billables — mislabeled as higher “productivity” in big law terms — for the chosen. (See “The Misery Index.”) As jobs remained scarce and associate hours climbed, equity partner earnings continued their ascent.

How much is enough? For some people, the answer will always be more; short-term metrics that maximize current PPP guide their way. Life is easy when deceptively objective numbers make solutions simple, reflection unnecessary, and the long-term someone else’s problem. It’s just a matter of perspective.

KING & SPALDING’S REVERSAL OF FORTUNE

Posted on May 2, 2011 by thebellyofthebeast

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

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

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

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

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

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

— “They’re Not Entitled to Me”

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

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

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

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

— What Went Awry?

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

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

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

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

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

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

— The Road Not Taken

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

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

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

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

DEBT LOADING

Posted on April 25, 2011 by thebellyofthebeast

The University of Virginia Law School has offered its unemployed 3Ls stipends to defray the cost of bar application fees ($500) and bar exam prep courses ($1500). This follows a protest during admitted students weekend when some UVA students wore (and sold) T-shirts saying, “$40,000 a year and no jobs.” Of course, such public turmoil is the tip of a mammoth iceberg that isn’t limited to UVA.

The absence of jobs — even for graduates of top schools — is especially dire because repayment of educational loans typically begins when higher education ends. The collateral damage of such debt can persist for generations. As one analyst recently told the NY Times, “A lot of people will still be paying off their student loans when it’s time for their kids to go to college.” According to the same Times article, last year’s college graduates left school with $24,000 in debt.

For those moving on to law school, $24,000 soon looks like the good old days. The 2009 Law School Survey of Student Engagement reported this stunner:

“The percentage of full-time U.S. students expecting to graduate owing more than $120,000 is up notably in 2009…29% of students expect to graduate with this level of debt.” Almost half of all law students expect to cross the $100,000 debt threshold before getting their degrees.

Here’s the disconnect: according to the Bureau of Labor Statistics, the median salary for all lawyers nine months after graduation is $68,500. Try servicing $120,000+ debt on that budget. Average compensation for all attorneys in the United States is $129,000 a year.

Why the gap between investment and reward? A better question is, why not? The BLS numbers don’t appear in law school recruiting brochures that are more likely to tout big law’s $160,000 starting salaries. Nor do they disclose the downside that comes with those high-paying jobs.

Likewise, most schools don’t report meaningful employment data, either. When they collectively tell U.S. News that the most recent average employment rate nine months after graduation is 93%, something is amiss — like the fact that employed can mean being a greeter at Wal-Mart or flipping burgers at McDonald’s. In an insightful new article, Professor Paul Campos calculates the true rate — graduates with full-time legal jobs nine months out — to be well under 50%.

Revealing the truth would almost certainly drive down applications, compromise U.S. News rankings, and threaten law schools’ bottom lines. That might force many deans to reconsider what they’re doing to their own students. Too many administrators hide behind rhetoric — “free choice,” “markets work,” and “students should take personal responsibility” — as excuses to disregard their own roles as the profession’s most important fiduciaries. When ignorance and misinformation reign, choices are distorted and markets don’t work. I often wonder if law school deans who have kids the same age as those they’re duping behave differently from the rest. Or do they fault students’ “failure to take responsibility,” too?

My article, “Great Expectations Meet Painful Realities,” appearing in the current issue of the Seventh Circuit Bar Association’s semi-annual publication, Circuit Rider has more on this (starting at page 24).

Fraud can be overt — by commission — or it can occur by omission when there’s a duty to speak. Revealing good facts can create an obligation to disclose the bad ones. Greater candor won’t stop the flow of talented applicants to law schools. Nor should it. The legal profession is still a noble calling. But it has also become a way for some educational institutions improperly to persuade the next generation to mortgage its own future — literally.

Some call it the next big bubble. If it bursts, I’m not sure what that will mean. Because of statutory revisions in 2005, bankruptcy doesn’t discharge student loan debt unless the difficult “undue hardship” test is met. The era of big bailouts has passed, so that’s an unlikely solution as well.

Perhaps we’ll see a new growth industry in the revival of an ancient concept: debtors prisons. Law school deans who lost sight of their true obligations to their students and their profession should run them — without pay.

THE GOLDMAN MODEL FOR BIG LAW?

Posted on March 31, 2011 by thebellyofthebeast

Goldman Sachs has been in the news a lot lately. Taken together, several articles suggest parallels to big law. Anyone wondering where many large law firm leaders want to take their institutions — and how they might get there — should look closely at Goldman. As law firms have embraced metrics that maximize short-term partner profits, they’ve moved steadily in Goldman’s direction. If America follows Australia and the UK in permitting non-attorneys to invest in law firms, a tipping point could arrive.

Others ponder this possibility. Professor Mitt Regan, Co-Director of the Georgetown Center for the Study of the Legal Profession, has been thinking, writing, and speaking thoughtfully about non-lawyer investment in law firms for a long time. Understandably, most academic observers focus on the outside — how smaller firms’ access to capital could affect competition, the interaction with attorneys’ ethical obligations, and the like.

Those are important issues, but I’m more interested on the inside. Presumably, the process would involve current equity partners selling ownership interests to investors. Many of those in big law who already take a short-term economic view of their institutions would leap at the opportunity for a one-time payday that discounted future cash flows to today’s dollar. In fact, a big lump sum will tempt every equity partner who worries about next year’s annual review.

Then what? Perhaps Goldman has devised an adaptable mechanism. When it went public in 1999, Goldman Sachs retained a partnership system within a larger corporate structure. As the Times notes, “Goldman’s partners are its highest paid executives and it biggest stars….”

Consider the similarities to big law:

— Management

Traders displaced traditional investment bankers and chairman Lloyd Blankfein surrounded himself with “like-minded executives — ‘Lloyd loyalists,'” according to the Times. Transactional attorneys have similarly risen to lead many big law firms; dissent is not always a cherished value.

— Resulting culture changes

Seeking to represent all sides of a deal, Goldman became adept at managing conflicts rather than avoiding them, a former insider told the Times. Large law firms have developed standard retention letters that maximize their representational flexibility to take on more lucrative matters that might arise.

— Metrics

Goldman’s leverage ratio is stunning: 475 partners out of more than 35,000 employees. As a group, large firms have pulled up ladders, widened the top-to-bottom range within equity partnerships, and doubled attorney-to-equity partner leverage ratios between 1985 and 2010.

— Partner Wealth

Goldman’s partners are famously rich. Many big firm equity partners now enjoy seven-figure incomes previously reserved for media celebrities, professional athletes, and investment bankers.

All of this raises an important question: How well is the model working — and for whom? Maintaining the stability of such a regime presents challenges. Goldman partners maximize their continuing influence as minority shareholders by acting in unison on shareholder votes. But the cast of characters constantly changes. According to the Times, “Every two years, roughly 70 executives leave the club, by choice or because they are no longer pulling their weight. The average tenure is about seven years…Within five years of the IPO, almost 60 percent of the original partners were gone…”

In the end, the environment is problematic for many, as one former Goldman partner told the Times:

“It’s a very Darwinian, survival-of-the-fittest firm.”

It could also be big law’s future. Then again, some firms may already be there.

Here’s a concluding thought: perhaps Goldman Sachs will become a big law outside investor that buys its way into the legal profession. That shouldn’t bother anyone. After all, Lloyd Blankfein graduated from Harvard Law School.

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: A NATIONAL CONVERSATION

Posted on March 21, 2011 by thebellyofthebeast

My latest “Commendable Comments” award goes to a non-lawyer, the Washington Post’s Pulitzer prize-winning columnist Steven Pearlstein.

Since I started my blog a year ago, two of my most popular articles have been “Howrey’s Lessons” and “Howrey’s Lessons — Part II.” Versions recently ran on Am Law Daily, where they also attracted widespread attention.

I don’t know if Pearlstein was among the thousands who saw my analysis of Howrey’s end and its relationship to ubiquitous big law trends, but his March 20 column reinforces my themes. If I hadn’t been attending the Virginia Festival of the Book in Charlottesville to discuss The Partnership, I might have missed it. I’m glad I didn’t.

Both of my Howrey articles focused on a central point: What matters most are not the things that make the once venerable institution different from other large firms. Rather, the true significance of its death lies in what makes the firm similar to many, many others. Intelligent lawyers who specialize in distinguishing adverse precedent prefer to think otherwise; they do so at their peril.

Noting as I had that, as recently as 2008, the DC-oriented Legal Times hailed Howrey’s final chairman, Robert Ruyak, as one of 30 “visionaries,” Pearlstein describes how quickly the world turned. In the end, I found Ruyak’s litany of claimed contributors to the firm’s demise — clients demanding contingency fee arrangements; conflict problems that made European growth problematic; and the rise of competitive electronic discovery vendors — unpersuasive; I explained why in “Howrey’s Lessons — Part II.” Pearlstein is more charitable in accepting such excuses at face value. That’s understandable because he’s never worked in a large firm.

But on the big picture, his assessment echoes my earlier observations:

1. Howrey’s global expansion through lateral hiring created a firm of free agents who lacked the deep loyalties that once characterized the firm. That phenomenon wasn’t unique to Howrey.

2. Pearlstein notes that profits per partner has become “not only the key determinant of how much partners take home, but it is the metric by which the very competitive and ambitious people in the legal business keep score.” My regular readers know that the business school mentality of misguided metrics — billings, billable hours, and leverage ratios aimed at increasing partners’ short-term profits — has transformed a once noble profession in unfortunate ways.

3. Pearlstein observes that when Howrey’s average partner profits took a downward turn, the partnership — which wasn’t really a partnership in the way most people understand that concept — found that its “bonds of loyalty [were] not strong enough to hold Howrey together.” In “Howrey’s Lessons,” I put it this way: “[W]hen cash becomes king, partnership bonds remain only as tight as the glue that next year’s predicted equity partner profits provide….”

Likewise, Pearlstein’s overall conclusion is identical to mine: The most troubling aspect of Howrey’s death is that “the industry seems to have learned nothing from such episodes.” He closes with an acknowledgement of the widespread problem of partner and associate dissatisfaction that the prevailing big law culture has exacerbated.

On only one point would I offer this limited qualification to Pearlstein’s survey of the legal blogosphere concerning Howrey. He suggests that the media (press and blogs) offer “the same uncritical acceptance of…a world in which firms are held together by nothing more than a collective determination to increase profit per partner.” Respectfully, I offer my ongoing commentary over the past year as a consistent voice in challenging the prevailing big law model.

When an intelligent, sophisticated observer such as Steven Pearlstein takes a seemingly isolated issue involving lawyers — that is, Howrey’s disintegration — and uses his national platform to shine a welcome light on a deeper professional problem, it becomes that much more difficult for big law leaders to ignore. They’ll continue to turn a blind eye to the incubating crisis, but perhaps they’ll rest just a little bit less easily in doing so.

Pearlstein’s prize is a copy of The Partnership, which I will send him this week. I’m confident that, as an interested outsider, he’ll find it fascinating.

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.

HOURLY RATES: PLEASE DON’T READ

Posted on February 24, 2011 by thebellyofthebeast

For a long time, big law’s high-flying hourly rates remained under popular radar screens. Not anymore. On the heels of Jamie Wareham’s $5 million move to DLA Piper, The Wall Street Journal recently added “Big Law’s $1,000-Plus an Hour Club.”

Will big law leaders react with shame and embarrassment to such disclosures? Doubtful. Most partners will defend their rates as market-driven. As Weil, Gotshal & Manges’s bankruptcy partner Harvey Miller told the Journal bluntly: “The underlying principle is if you can get it, get it.”

He’s not alone. According to the article, “the average law-firm partner now asks $635 an hour and bills $575.” Ashby Jones’s companion online report quoted a law firm management consultant’s prediction that $2,000/hour for top partners could be only five years away.

“Get it if you can” is unworthy of a noble profession and a dangerous business plan. Some clients pay enormous rates to those who, as one in-house lawyer put it, are worth it. But rising resistance to $500+/hour associates creates problems for big law’s leveraged pyramid. At $1,000/hour, 2,000 partner hours generate $2 million in gross revenues, which is a lot less than these marquee players pocket annually. When younger attorneys’ hourly rates multiplied by their billables (less salary and bonus) no longer make up the difference, clients squeezing the bottom will dramatically reduce profits at the top. Along the way, the effort to preserve equity partner earnings will exacerbate the most unpleasant aspects of big law culture.

Another fault line runs through today’s high rates: Taxpayers are bearing some of those fees directly, not just through price elasticity curves that push some legal cost increases into the consumer price of a client’s goods or services. For example, last May, Harvey Miller’s firm had received $16 million in legal fees for work on the GM bankruptcy that taxpayers funded. With hubris that ignored the public’s financial contribution, Miller defended his resistance to discounts from Weil Gotshal’s reported rates of $500+/hour for associates to more than $1,000/hour for some senior partners: “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.” He was only half-right.

Similarly, Congress is now investigating legal fees that the federal government has paid to firms representing Fannie Mae and its former executives. When shareholders sued the company in 2004, each defendant retained separate counsel. That’s typical because a single attorney’s simultaneous representation of multiple defendants can create conflicts that inhibit zealously advocacy on behalf of any particular client. In such circumstances, indemnification agreements usually obligate the company to pay its former executives’ separate lawyers, as well as its own.

Normally, none of this would be controversial, but Fannie Mae isn’t normal. When it collapsed in 2008, the government assumed control. Taxpayers are now footing the legal bills — really big ones — for defending the company and its former executives in the pending lawsuits. The Times reported:

“The amount advanced by the government to pay legal bills for Fannie Mae and its former executives was a well-kept secret for more than two years. But the bills add up quickly. In the main lawsuit [overseen by Ohio attorney general Mike DeWine on behalf of two state pension funds that owned Fannie Mae shares], 35 to 40 lawyers representing Fannie defendants attend monthly conferences by the judge.”

It’s a tragic irony. In Ohio, state and local workers have taken to the streets in protesting budget reductions that would reduce their wages and end collective bargaining. Meanwhile, the attorney general leads a lawsuit against Fannie Mae and its former executives while federal taxpayers — some of whom are Ohioans — finance the defense that creates big paydays for a relatively few lawyers.

I don’t know these attorneys or their hourly rates. But generating national bipartisan outrage isn’t a good development for them or big law generally.

Sunlight can be a disinfectant, unless you’re a vampire.

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.

GREED ATOP THE PYRAMIDS

Posted on February 2, 2011 by thebellyofthebeast

Three recent reports are more interesting when read together: the National Law Journal‘s annual headcount survey at the largest 250 law firms, the Citi Law Firm Group’s third quarter report on law firm performance, and the Association of Corporate Counsel/The American Lawyer (ACC/TAL) Alternative Billing 2010 Survey.

The headline from the NLJ 250 item: a 1,400 drop in 2010 total attorney headcount. This qualified as a welcome improvement over the far deeper plunge in 2009. Associates took the biggest hit, accounting for about 1,000 of the eliminated positions.

That doesn’t sound too bad, until you realize that it’s a net reduction number. As 5,000 new law school graduates got large firm jobs, many more — over 6,000 — lost (or left) theirs. This simple arithmetic suggests an unsettling reality: The relatively few who land big law jobs may discover that keeping them is an even more daunting challenge.

In some respects, that’s nothing new. Long before the Great Recession began, attrition was a central feature of most large firm business models. In 2007, lucrative starting positions were plentiful, but big law’s five-year associate attrition rate was 80%. Some of it was voluntary; some involuntary. The survival rate for those continuing the journey to equity partner was exceedingly small.

That takes us to the Citi report. The only really good news now goes to top equity partners: For them, big law’s short-term profit-maximizing model remains alive and well. The formula remains simple: Firms are imposing increasingly strict limits on equity partnership entry and, according to Citi, charging clients higher hourly rates overall as some partners remain busy with tasks that less costly billers performed previously. (Equity partners have to keep their hours up, too.) Amid the bloodshed elsewhere, average equity partner profits for the Am Law 100 actually rose slightly in 2009 — to $1.26 million. Not bad for the first full year of the worst economic downturn in a century.

But even that remarkable average masks growing wealth gaps within equity partnerships. One law firm management consultant observed, “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.” That is stunning.

While maintaining leverage and increasing hourly rates, the third leg of the profits stool likewise remains intact: billable hours. As business picks up, firms are hiring fewer associates than in earlier recovery periods. Under the guise of transparency, some newbies are hearing that they have to meet monthly billable hours targets in addition to the annual requirements reported to NALP.

The ACC/TAL survey reveals why: Earlier rhetoric surrounding the new world of alternative fees was largely empty. Hourly billing remains king of the fee-generating hill. As another Am Law survey confirmed, simple discounts from regular hourly rates accounted for 80% of so-called alternative fee arrangements last year.

The pressure to bill hours is increasing. Unfortunately, it remains an important, albeit misnamed, productivity metric. Indeed, rewarding time alone is the antithesis of measuring true productivity, which should focus on the efficiency of completing tasks — not the total number of hours used to get them done.

As one law firm management consultant told the NLJ, “We’re finally seeing the bottom of the legal recession…There’s been a reset. There are fewer lawyers producing more work and more revenue.”

When the Am Law 100 profit results come out in May, Citi’s prediction will come true: As the economy continues to sputter and young law school graduates worry about their prospects, overall average profits per equity partner will follow their steady upward trajectory.

Law firm management consultants might say all of this results from increased productivity that the “reset” of big law has produced. That’s one way to put it. But the the growing spread between highest and lowest within equity partnerships — coupled with the plight of everyone else — may reveal something more sinister: The worst economic downturn of modern times has provided protective cover to greed atop the pyramids.

FROM KENTUCKY TO CRAVATH TO CHASE

Posted on January 27, 2011 by thebellyofthebeast

Six months ago, I wrote about a new development at Cravath. (https://thebellyofthebeast.wordpress.com/2010/06/03/a-better-alternative-or-a-leap-from-the-frying-pan/) The Wall Street Journal reported that the firm was allowing lawyers in their 30s and 40s to “make a name for themselves” by taking the lead on client deals. Tradition dictated deference to elders in such matters, but Cravath’s lock-step system meant that “older attorneys didn’t mind because the pay they received didn’t get cut” as younger attorneys gained a higher profile. (http://online.wsj.com/article/SB10001424052748703630304575270472434024454.html)

“‘We’re more aggressive than we used to be,’ said 41-year-old Cravath partner James Woolery. ‘This is not your grandfather’s Cravath.’ He said the new approach means more ‘hustling for loose balls’ than in the past.”

When the article appeared, I wondered if Cravath’s experiment would backfire, leading young partners to consolidate clients, billings, and power for personal gain — even, perhaps. chafing at Cravath’s vaunted lock-step system. After all, financially motivated defections now pervade big law.

Alternatively, I speculated that allowing eager lawyers to run with client batons could be a win-win situation. If they remained loyal, the upstarts could grow the entire pie in true partner-like fashion.

I missed the obvious: Some rising young partners at Cravath didn’t want to be lawyers anymore. Woolery himself is now leaving to co-head JP Morgan Chase’s North American mergers and acquisitions. ((http://dealbook.nytimes.com/2011/01/20/cravaths-woolery-to-join-jpmorgan-as-senior-deal-maker/)

“I’ve had a business management focus, even at Cravath, and this opportunity allows me to expand that,” Wollery told the Times. He said the move would allow him to build on skills that he’d been honing, including business development.

Business development?

He elaborated for the Am Law Daily:

“Woolery points to his experience running Cravath’s business development group as the driving factor behind his decision to move to J.P. Morgan. In the five years that he has led the group, it has evolved from a pitch book operation to a more substantial research and development group consisting of 30 professionals — corporate and litigation attorneys, and analysts.

“‘Doing that work was what led me to wanting to do this job [at J.P. Morgan].'” (http://amlawdaily.typepad.com/amlawdaily/2011/01/woolery.html)

From the University of Kentucky College of Law to Cravath partner, he now moves to a position that doesn’t even require a law degree. Maybe there’s more behind Woolery’s move — more money, more challenges — who knows? But a successful young lawyer in search of more clients found a client in search of him, albeit not for his skills as an attorney.

Big firm lawyers are increasingly assuming non-attorney corporate positions. (http://amlawdaily.typepad.com/amlawdaily/2010/12/lawyers-ceos.html) It’s additional proof of the profession’s transformation to a business: Many large law firms have developed cultures that make them training grounds for corporate leaders. Fully corporatized lawyers don’t even need an MBA to advance. (Woolery doesn’t have one.)

As an educator of students tracking themselves toward the law, I wonder how rising legal stars now leaving the profession altogether would answer these questions:

ON LAW SCHOOL

Why did you attend law school in the first place? Like many others, did you view it as the last bastion of a liberal arts major who couldn’t decide what to do next? Did you regard it as a circuitous path to a corporate career? If so, wouldn’t getting an MBA have been more efficient?

ON THEIR JOBS

Did your legal work and resulting career match your expectations? If not, in what ways — good and bad?

ON LIFE

Have you enjoyed a satisfying career? Have changes in you, your firm, or the profession played a role in your departure from the profession? It’s not just about money, is it?

Most big law attorneys say they’re too busy billing hours to consider these questions at all, much less on a regular basis. It reminds me of Yogi Berra’s response to his wife’s complaints as they got lost while he drove to Cooperstown for his Hall of Fame induction ceremony.

“I know we’re lost,” he finally admitted, “but we’re making good time!”

Yogi arrived at his desired destination. Too many lawyers never think about theirs — and then wonder why they’re dissatisfied professionally.

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.”

LAW SCHOOL DECEPTION

Posted on January 12, 2011 by thebellyofthebeast

Last Sunday, the NY Times asked: Are law schools deceiving prospective students into incurring huge debt for degrees that aren’t worth it?

Of course they are. The U.S. News is an aider and abettor. As the market for new lawyers shrinks, a key statistic in compiling the publication’s infamous rankings is “graduates known to be employed nine months after graduation.” Any job qualifies — from joining Cravath to waiting tables. According to the Times, the most recent average for all law schools is 93%. If gaming the system to produce that number doesn’t cause students to ignore the U.S. News’ rankings altogether, nothing will.

My friend, Indiana University’s Maurer School of Law Professor Bill Henderson, told the Times that looking at law schools’ self-reported employment numbers made him feel “dirty.” I assume he’s concerned that prospective students rely on that data in deciding whether and where to attend law school. I agree with him.

But an equally telling kick in the head is buried in the lengthy Times article: Most graduates who achieve their initial objectives — starting positions in big firms paying $160,000 salaries — quickly lose the feeling that they’re winners. Certainly, they must be better off than the individuals chronicled in the article. What could be worse than student debt equal to a home mortgage, albeit without the home?

Try a legal job with grueling hours, boring work, and little prospect of a long-term career. Times reporter David Segal summarized the cliche’: “Law school is a pie-eating contest where first prize is more pie.”

These distressing outcomes for students and associates aren’t inevitable. In fact, they’re relatively new phenomena with a common denominator: Business school-type metrics that make short-term pursuit of the bottom line sterile, objective, and laudable. Numbers prove who’s best and they don’t lie.

Law school administrators manipulate employment data because they have ceded their reasoned judgment to mindless ranking criteria. (“[M]illions of dollars [are] riding on students’ decisions about where to go to law school, and that creates real institutional pressures,” says one dean who believes that pandering to U.S. News rankings isn’t gaming the system; it’s making a school better.)

Likewise, today’s dominant large firm culture results from forces that produced the surge in average equity partner income for the Am Law 50 — from $300,000 in 1985 to $1.5 million in 2009. Leveraged pyramids might work for a few at the top; for everyone else — not so much.

The glut of law school applicants, as well as graduates seeking big firm jobs to repay their loans, leaves law school administrators and firm managers with no economic incentive to change their ways. The profession needs visionaries who are willing to resist perpetuating the world in which debt-laden graduates are becoming the 21st century equivalent of indentured servants.

Henderson calls for law school transparency in the form of quality employment statistics. I endorse his request and offer a parallel suggestion: Through their universities’ undergraduate prelaw programs, law schools should warn prospective students about the path ahead before their legal journeys begin.

Some students enter law school expecting to become Atticus Finch or the lead attorneys on Law & Order. Others pursue large firm equity partnerships as a way to riches. Few realize that career dissatisfaction plagues most of the so-called winners who land what they once thought were the big firm jobs of their dreams.

A legal degree can lead to many different careers. The urgency of loan repayment schedules creates a practical reality that pushes most students in big law’s direction. If past is prologue, the vast majority of them will not be happy there. They should know the truth — the whole truth — before they make their first law school tuition payments. Minimizing unwelcome surprises will create a more satisfied profession.

Meanwhile, can we all agree to ignore U.S. News rankings and rely on our own judgments instead of its stupid criteria? Likewise, can big law managers move away from their myopic focus on the current year’s equity partner profits as a definitive culture-determining metric? I didn’t think so.

COMMENDABLE COMMENT AWARD

Posted on December 9, 2010 by thebellyofthebeast

Words matter. When I hear a lawyer’s remark that resonates profoundly beyond its immediate context. I’ll pass it along here. Nominations are now open for this new feature, which may have a darkside counterpart to this article’s title — perhaps “Condemnable Communication Award” (for which Steven Pesner’s memo on time submissions would have qualified — see “EXPLAINING BAD BEHAVIOR” https://thebellyofthebeast.wordpress.com/2010/12/02/explaining-bad-behavior/). But let’s launch this endeavor on a positive note.

December 5 wasn’t an ordinary Sunday for Jeffrey Kindler. At age 55, he surprised most of the business world when he retired after only four-and-a-half years as Pfizer’s CEO:

“I am excited at the opportunity to recharge my batteries, spend some rare time with my family, and prepare for the next challenge in my career.” (http://pfizer.mediaroom.com/index.php?s=5149&item=20608)

The stated desire for more family time often appears in such announcements. But he went farther: “The combination of meeting the requirements of our many stakeholders around the world and the 24/7 nature of my responsibilities has made this period extremely demanding on me personally.”

I don’t know if Kindler was a good or bad CEO. But with refreshing candor, he acknowledged that the unreasonable burdens of his job were threatening some of his life’s most important moments. Like most lawyers, he has probably found that to be true for a long time.

After graduating from Harvard (a year after me), he became a staff attorney with the FCC, clerked for Judge Bazelon and Justice Brennan, and then joined Williams & Connolly where he became a partner. He left big law for a senior in-house position at General Electric and then went to McDonalds before becoming Pfizer’s general counsel in 2002. The board surprised some industry observers when it selected Kindler — a relatively new lateral hire — to be CEO “effective immediately” on July 28, 2006. (Four years later, his successor likewise assumed control quickly, too. More about that later.)

A day after Kindler’s retirement, two business school professors appearing on CNBC praised his sincerity and lamented his departure. They also bemoaned the “short-termism” of investors who may have grown impatient with Pfizer’s sluggish stock performance since its Wyeth acquisition a year ago.

Shortly thereafter, reports circulated that the Pfizer board had scheduled a special meeting — on a Sunday — to review Kindler’s future. (http://www.bloomberg.com/news/2010-12-07/pfizer-chief-kindler-said-to-resign-after-snubbing-board-s-plan-for-deputy.html) Apparently, he preempted it.

Beyond news reports, I know nothing about Pfizer, its management or its internal politics. Kindler and I have never met, but both the progress of his career and the commentary surrounding his departure mirror what big law has become.

He advanced by moving out — bypassing the climb up one company’s internal ladder by parachuting into another. Similar lateral hiring into equity partnerships is now widespread. He continued that diagonal path to the top, but then “short-termism” emerged as his nemesis. A comparable mindset now endangers big law partners valued exclusively for their current contributions to yearly profits. Finally, when the end came, it was swift and certain.

Whether Kindler’s last act in his Pfizer career began with him or the board doesn’t matter to my Commendable Comment Award. He wins it because he wasn’t afraid to say that his job responsibilities consumed him beyond reason. Similar 24/7 burdens have taken a toll on many attorneys, especially as large firms have adopted the short-term profit-maximizing ethos of their corporate clients. Few admit to such strains, but the profession would be better if more did.

Regardless of the motivation for Kindler’s final statement, he deserves high marks for making it. Even without incorporating the background drama of a retirement, many firm managers could improve their institutions with a straightforward acknowledgement that some things aren’t easily measured, but should be treasured nonetheless.

Like the CNBC commentators, I have no reason to doubt Kindler’s sincerity. To skeptics who worry that such “soft” remarks seems disingenuous when contrasted with the hard-driving ambition that fuels any leader’s rise, I offer this: The thought is the father to the deed — and late is better than never at all.

Enjoy the holidays, Jeff.

THANKS

Posted on November 30, 2010 by thebellyofthebeast

Other than baseball, football, and well-tried cases, I’m not a fan of most contests. But I don’t mind this one because it suggests that my musings have struck a resonant chord.

For those who want to participate, I’ve added a link on the right sidebar of this blog. (If you aren’t already registered on the ABA site, you’ll have to do that before voting. There’s a “Register” link on the landing page. It’s easy — and you don’t have to be a lawyer. In fact, you don’t even have to like lawyers.)

Anyway, as actors often say, “Just being nominated is sufficient reward.”

Except I really mean it. Here’s the ABA’s press release:

“THE BELLY OF THE BEAST” CHOSEN AS ONE OF THE ABA JOURNAL’S BLAWG 100

(CHICAGO, IL – NOVEMBER 30) – Editors of the ABA Journal today announced they have selected “The Belly of the Beast” as one of the top 100 best law blogs by lawyers, for lawyers.   Now readers are being asked to vote on their favorites in each of the 4th Annual Blawg 100’s 12 categories. To vote, go to

http://www.abajournal.com/blawg100/2010/imho

Voting ends at close of business on Dec. 30, 2010.

“The Belly of the Beast” is written by Steven J. Harper, adjunct professor at Northwestern University’s School of Law and Weinberg College of Arts & Sciences, author of The Partnership and other books, contributor to The American Lawyer, and recent retiree after 30 years at Kirkland & Ellis LLP.

More lawyers than ever are blogging as evidenced by the more than 3,000 legal blogs in our online directory. And they’re writing about ever more specialized niches of the profession. That’s why this year’s edition of the Blawg 100 highlights more practice specific blogs than ever before.

***

Don’t worry. I won’t let it go to my head.

COCKROACHES, MEDICINE, AND THE BILLABLE HOUR

Posted on November 29, 2010 by thebellyofthebeast

Cockroaches should take lessons from the billable hour. Detractors notwithstanding, it has survived every economic downturn of the last 30 years including, apparently, this one. Although a recent ALM survey noted that almost 75% of client payments in 2009 were pursuant to “alternative fee arrangements,” almost 80% of those were simply discounts from attorneys’ hourly rates. (http://amlawdaily.typepad.com/amlawdaily/2010/10/billing.html)

Here’s the real problem: Whenever the regime eventually crumbles, the worst aspects of the billable hours culture will persist. Take fixed fee caps, for example. Even if they benefit some clients financially — a big “if” that’s a separate discussion — they create a Hobson’s choice for associates.

On one side is the pressure not to log all time. Keeping matters within internal budgets makes billing partners look good in their year-end reviews.

On the other side stands the billable hour as the definitive metric for measuring individual productivity. They might be working on fixed fee matters, but attorneys must still account for their time. Large firm minimum hours requirements aren’t going away.

What happens when externally fixed fees meet internal billable hours cultures? Ask your doctor.

Do you sometimes get the impression that your family physician is rushing through an appointment? That’s because the doctor is responding rationally to something called the relative value unit (RVU) — medicine’s equivalent to the billable hour.

In 1964, the AMA created reimbursement codes for the newly enacted Medicare program. Fifteen years later, a Harvard School of Public Health economist began investigating ways to compare the seemingly incomparable: the time and effort associated with doctors’ diverse tasks. The typical economist’s study sought to develop relative values for measuring productivity across a range of different activities — from well-child checkups to brain surgery.

The academic exercise remained theoretical until 1985 when Medicare expanded the inquiry: Might such a scale be used to control costs associated with spiraling “reasonable, customary and prevailing fee-for-services” payment schedules? In 1992, Congress linked the relative value unit system to the Medicare codes used for reimbursing more than 7,000 different physician tasks. Private health insurers soon adopted RVUs for reimbursement, too.

Physicians now generate RVUs to earn a living, but time becomes a critical limiting factor. For example, whether a family physician spends 10 or 30 minutes on a routine office visit, Medicare and insurance companies set physician reimbursement at the activity’s predetermined RVU value (0.7). That gets multiplied by the uniform RVU rate (about $40/RVU) for a total of $28. (The final bill exceeds $28 because practice expense and malpractice RVU-factors get added.)

Specialists’ tasks have greater RVU values than general practitioners.’ Compared to a 15-minute routine visit worth 0.7 RVU, a 30-minute colonoscopy is worth several times that. Such differences relate to physician training, skills, mental effort, judgment, stress, and other aspects of the work. But cynics note that specialists have dominated Medicare’s RVU schedule advisory boards.

Behavior has followed incentive structures:

— RVU-driven compensation differences have created shortages of family physicians.

— Specialists mean well, but they tend to view patients myopically through the prism of their expertise, rather than as entire beings. Piecemeal medicine results.

— The system encourages pills, procedures, and tests. Prescription drugs promise quick fixes that move patients out of their doctors’ offices sooner. Procedures generate high RVU values; tests requiring expensive equipment likewise reap generous reimbursement.

Meanwhile, doctors must meet minimum annual RVUs, sometimes pursuant to explicit contractual requirements. That should sound familiar to any big law associate.

As physicians ceded control of hospitals to lay managers, RVUs became a key tool by which the MBA mentality of misguided metrics overtook that profession. Don’t take my word for it. Ask your doctor — if he’ll give you the time.

What would happen if clients and the courts that approve fee petitions started “fee-capping” lawyers the way Medicare and insurance companies have sliced into doctors’ incomes since 1992? Probably unintended consequences no less dramatic than those still surprising the medical profession. Many haven’t been pretty.

Here’s the real kicker: Unlike the legal profession, most physicians have always liked their jobs.

“LIES, DAMN LIES, AND STATISTICS”

Posted on November 16, 2010 by thebellyofthebeast

ALM editor-in-chief Aric Press penned a provocative article about Indiana Law Professor Bill Henderson’s for-profit venture on recruiting, retention, and promotion. (http://amlawdaily.typepad.com/amlawdaily/2010/11/pressconventionalwisdom.html) The WSJ law blog and ABA Journal covered it, too. (http://blogs.wsj.com/law/2010/11/15/on-law-firms-and-hiring-is-a-new-paradigm-on-the-way/) Henderson is analyzing why some attorneys succeed in Biglaw and others don’t.

Does anyone else find his project vaguely unsettling?

At first, I thought of the venerable computer programming maxim, “garbage in, garbage out.” That’s because he’s asking Am Law 200 partners to identify values and traits they want in their lawyers — and he’s assuming they’ll tell him the truth. But will they admit to seeking bright, ambitious associates wearing blinders in pursuit of elusive equity partnerships typically awarded to fewer than 10% of large firm entering classes? Or that such low “success” rates inhere in the predominant Biglaw business model that requires attrition and limits equity entrants to preserve staggering profits?

Then I considered Mark Twain’s reflections on the three kinds of falsehoods: “Lies, damn lies, and statistics.” It came to mind because Henderson’s researchers “pour over the resumes and evaluations of associates and partners trying to identify characteristics shared by those who have become ‘franchise players’ and those who haven’t.” Here’s what those resumes and evaluations won’t reveal: the internal politics driving decisions.

Most Biglaw equity partners are talented, but equally deserving candidates fail to advance for reasons unrelated to their abilities. Rather, as the business model incentivizes senior partners to hoard billings that justify personal economic positions, those at the top wield power that makes or breaks young careers — and everybody knows it. Doing a superior job is important, but working for the “right” people is outcome determinative. Merit sometimes loses out to idiosyncrasy that is impervious to Henderson’s data collection methods.

But perhaps the biggest problem with Henderson’s plan is it’s goal: identifying factors correlating with individual success. Does the magic formula include “a few years in the military, a few years in the job force, or a few years as a law review editor?”

If managers warm to Henderson’s conclusions (after paying his company to develop them), they’ll leap from correlation to causation, develop checklists of supposed characteristics common to superstars like themselves, and hire accordingly. Law schools pandering to the Biglaw sliver of the profession (it’s less than 15% of all attorneys) could take such criteria even more seriously. Before long, prospective students will incorporate the acquisition of “success” credentials into their life plans.

The difficulty is that today’s Biglaw partners already favor like-minded proteges. That inhibits diversity as typically measured — gender, race, ethnicity, sexual orientation, and the like — along with equally important diversity of views and a willingness to entertain them. Even today, concerned insiders are reluctant to voice dissent from Biglaw’s prevailing raison d’etre — maximizing short-term profits at the expense competing professional values and longer-term institutional vitality. Won’t meaningful diversity — of backgrounds, life experiences, and resulting attitudes about professional mission — suffer as groupthink makes firms even more insular? Meanwhile, trying to improve overall “success” rates is a futile goal; they won’t budge until the leveraged pyramid disappears.

I don’t fault Henderson, who bypassed Biglaw practice for academia after his 2001 graduation. But Press’s warning is important: “To some extent, it doesn’t matter what Henderson and Co. discover. What matters is that the inquiries have begun…If we’ve learned anything from the last decade, it’s that we can’t predict the consequences of new information beyond acknowledging its power to disrupt.”

Consider two unfortunate examples. The flawed methodology behind U.S. News’ law school rankings hasn’t deterred most students from blindly choosing the highest-rated one that accepts them. (Exorbitant tuition and limited job prospects may be changing that.) Likewise, Biglaw’s transformation from a collegial profession to a short-term bottom-line business accelerated after publication of average partner profits at the nation’s largest firms (then the Am Law 50), beginning in 1985; I just published a legal thriller describing that phenomenon. (http://www.amazon.com/Partnership-Novel-Steven-J-Harper/dp/0984369104)

The most important things that happened to me — in Biglaw and in life — were fortuitous. No statistical model could have predicted them. Still, I hope Henderson’s study answers an important question: Would his likely-to-succeed factors have led any firm to hire me?

THE END OF LEVERAGE? JUST KIDDING.

Posted on November 11, 2010 by thebellyofthebeast

Since the beginning of the Great Recession, some observers have predicted the demise of the Biglaw leverage model. (http://www.law.com/jsp/article.jsp?id=1202428174244) Are they correct? After all, recent associate classes are dramatically smaller than in prior years. Unless equity partner ranks shrink proportionately, the argument goes, something has to give and that something will be the very business model itself. The days of using four or more associates to sustain a single equity partner must be numbered, right?

In fact, the model endures, but with structural innovations. What has been transient leverage — continuous non-equity attorney attrition coupled with annual replenishment from law schools — is giving way to something more permanent and, perhaps, more sinister for the future of the profession. Law firm management consultant Jerome Kowalski recently called it the “Associate Caste System.” (http://www.law.com/jsp/article.jsp?id=1202472939044&PostRecession_Law_Firms_A_New_Caste_System_Emerges)

New hires earning $160,000 a year are the “showcase pieces,” but they are a much smaller group than they once were. Below them at the same firms is a vast underbelly of lawyers. Some are full-time but have taken themselves off partner tracks and make less than their nominal classmates. At the bottom are contract attorneys whose jobs won’t last beyond their current projects. They work per diem with no benefits. Kowalski describes them as comparable to “those guys who hang around in front of a Home Depot waiting for some contractor to show up with a truck.”

The rise of legal outsourcing could add yet another attorney subclass contributor to Biglaw profits, provided firms can persuade clients to accept fees greater than what the people doing the outsourced work earn. That’s nothing new. For a long time, clients have regarded overpriced associates as a necessary cost incurred to retain a big-name attorney.

Does this add up to the demise of the lucrative leverage model that has kept average equity partner profits for the Am Law 100 well above $1 million annually for many years?

For all practical purposes, it means the opposite. Although big firms are hiring 30 or 35 new associates rather than the 100 or more of a few years ago, most of them will still be unpleasantly surprised when they don’t capture the equity partner brass ring after pursuing it for a decade or more. That component of the model remains intact. Meanwhile, the rest of the leverage action has moved to the growing ranks of underbelly people. For as long as they get paid less than their billing rates, they contribute to equity partner wealth.

In fact, many Biglaw managers prefer this new system. They save on recruiting (say, 35 instead of 150 new associates each year), summer programs, associate training, and other expenses associated with talent development. Meanwhile, the underclass of attorneys who know their places will resign themselves to their limited prospects: a source of permanent leverage.

This continues an ugly trend: Many big firms have been candidly closing long-term career windows for their youngest lawyers. For example, Morgan Lewis already had a non-partner track for those who opted onto it. But when the firm recently announced a return to lock-step associate compensation, it included this kicker: another permanent non-partner track for young lawyers who pursue partnership but don’t make it. (http://amlawdaily.typepad.com/amlawdaily/2010/11/morganlewispay.html)

Rather than up-or-out, it’s becoming stick around and make the equity partners some money. In earlier times, wise firm leaders either promoted such individuals to well-deserved equity partnerships or terminated them as counterproductive blockage that undermined morale and deprived more promising younger lawyers of developmental opportunities. Either way, positioning the next generation to inherit clients served long-term institutional interests. But that’s less important when equity partners jealously guard their clients to preserve personal economic positions and “long-term” doesn’t extend beyond current profits or the coming year’s equity partner compensation decisions.

Here’s my question: How will any aspect of this new world promote the profession’s unique and defining values or improve Biglaw’s dismal career satisfaction rates? Here’s an even better one: Does anyone care?

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The Belly of the Beast

Steven J. Harper, Esq.

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THANKS

COCKROACHES, MEDICINE, AND THE BILLABLE HOUR

“LIES, DAMN LIES, AND STATISTICS”

THE END OF LEVERAGE? JUST KIDDING.

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