TREATING SYMPTOMS; IGNORING THE DISEASE

On May 22, 2017, The Wall Street Journal ran an article about the legal profession’s enduring problem: psychological distress. For decades, attorneys have led most occupations in the incidence of serious psychological afflictions — depression, substance abuse, even suicide. Now some law firms are “tackling a taboo,” namely, the mental health problems of their lawyers.

Some observers theorize that a special “lawyer personality” is the culprit. In other words, we have only ourselves to blame, so no one should feel sorry for us. Then again, no one ever feels sorry for lawyers anyway. But attorney psychological distress has become a sufficient problem that, as the Journal reports, some big law firms are now “offering on-site psychologists, training staff to spot problems, and incorporating mental health support alongside other wellness initiatives.”

Stated differently, law firms are following the unfortunate path that has become a dominant approach in the medical profession: treating symptoms rather than the disease. Perhaps that’s because law firm leaders know that curing it would cut into their personal annual incomes.

The Facts

Other workers have serious psychological challenges, too. But attorneys seem to suffer in disproportionately high numbers. The Journal article cites a 2016 study of US lawyers finding that 20.6 percent of those surveyed were heavy drinkers (compared to 15.4 percent for members of the American College of Surgeons). Likewise, 28 percent experienced symptoms of depression (compared with eight percent or less for the general population). According to a 2012 CDC study cited in the Journal, attorneys have the 11th-highest suicide rate.

Now add one more data point. According to an ABA survey in 2007, lawyers in big firms are the least satisfied with their jobs. Anyone familiar with the prevailing big firm environment knows that it has deteriorated dramatically since 1985.

The New World

What has changed? For starters, just getting a job at a big law firm is more difficult. Corporate clients have found cost-effective alternatives to young attorneys billing $300 an hour to review documents. At many firms, demand remains soft.

But the real psychological problems begin after a new associate enters the door. For most of them, promotion to equity partner has become a pipe dream. In 1985, 36 percent of all lawyers in The American Lawyer’s first survey of the nation’s fifty largest firms were equity partners. In  2016, the comparable number was under 22 percent. More than 40 percent of all AmLaw 100 partners are now non-equity partners. The leverage ratio of equity partners to all attorneys has doubled. Stated another way, it’s twice as difficult to become an equity partner today as it was in 1985. That’s what’s been happening at the financial pinnacle of the profession.

The Business Model

There is nothing inevitable about the underlying business model that produces these outcomes. It’s a choice. In 1985, average profits per partner for the Am Law 50 was $300,000 — or about $700,000 in 2017 dollars. Today’s it’s $1.7 million. And the gap within most equity partnerships reflects their eat-what-you-kill culture. Instead of 3-to-1 in 1985, the ratio of highest-to-lowest partner compensation within equity partnerships often exceeds 10-to-1. As the rich have become richer, annual equity partner earnings of many millions of dollars has become commonplace.

At what cost? The future. As law firm leaders rely upon short-term metrics — billings, billable hours, and leverage ratios — they’re pulling up the ladder on the next generation. Too many associates; too few equity slots. Let the contest begin!

But rather than revisit the wisdom of the model, some big firm leaders have made what the Journal characterizes as a daring move: bring in a psychologist. It’s better than nothing, but it’s a far cry from dealing with the core problem that starts with the billable hour, moves through metrics that managers use to maximize short-run partner profits, and ends in predictable psychological distress — even for the so-called winners. The Journal notes that a psychologist at one firm was offering this sad advice to its attorneys: Take a cellphone reprieve by turning off all electronic devices between 2:00 am and 6:00 am.

But even such input from mental health professionals seems anathema to some firm leaders. According to the Journal, Dentons’ chairman Joseph Andrew says that his fear of offering an on-site psychologist was that “competitors will say we have crazy lawyers.”

Former Acting Attorney General Sally Yates recently told the New Yorker about her father, an attorney who suffered from depression and committed suicide. “Tragically,” Yates said, “the fear of stigma then associated with depression prevented him from getting the treatment he needed.”

For some firm leaders, “then” is still “now.” And that’s truly crazy.

ASSOCIATE PAY AND PARTNER MALFEASANCE

Cravath, Swaine & Moore raised first-year associate salaries from $160,000 to $180,000 — the first increase since January 2007. As most law firms followed suit, some clients pushed back.

“While we respect the firms’ judgment about what best serves their long-term competitive interests,” wrote a big bank’s global general counsel, “we are aware of no market-driven basis for such an increase and do not expect to bear the costs of the firms’ decisions.”

Corporate clients truly worried about the long-run might want to spend less time obsessing over young associates’ starting salaries and more time focusing on the behavior of older attorneys at their outside firms. In the end, clients will bear the costs of short-term thinking that pervades the ranks of big firm leaders. Some already are.

Historical Perspective

Well-paid lawyers never generate sympathy. Nor should they. All attorneys in big firms earn far more than most American workers. But justice in big law firms is a relative concept.

Back in 2007 when associate salaries first “jumped” to $160,000, average profits per equity partner for the Am Law 100 were $1.3 million. After a slight dip to $1.26 million in 2008, average partner profits rose every year thereafter — even during the Great Recession. In 2015, they were $1.6 million — a 27 percent increase from seven years earlier.

In 2007, only 19 firms had average partner profits exceeding $2 million; in 2015 that group had grown to 29. But the average doesn’t convey the real story. Throughout big law, senior partners have concentrated power and wealth at the top. As a result, the internal compensation spread within most equity partnerships has exploded.

Twenty years ago, the highest-paid equity partner earned four or five times more than those at the bottom. Today, some Am Law 200 partners are making more than 20 times their lowest paid fellow equity partners in the same firm.

It Gets Worse

Meanwhile, through the recent prolonged period of stagnant demand for sophisticated legal services, firm leaders fueled the revolution of partners’ rising profits expectations by boosting hourly rates and doubling leverage ratios. That’s another way of saying that they’ve adhered stubbornly to the billable hours model while making it twice as difficult for young attorneys to become equity partners compared to 25 years ago.

The class of victims becomes the entire next generation of attorneys. Short-term financial success is producing costly long-term casualties. But those injuries won’t land on the leaders making today’s decisions. By then, they’ll be long gone.

So What?

Why should clients concern themselves with the culture of the big firms they hire? For one answer, consider two young attorneys.

Associate A joins a big firm that pays well enough to make a dent in six-figure law school loans. But Associate A understands the billable hour regime and the concept of leverage ratios. Associate attrition after five years will exceed 80 percent. Fewer than ten percent of the starting class will survive to become equity partners. Employment at the firm is an arduous, short-term gig. In return for long-hours that overwhelm any effort to achieve a balanced life, Associate A gets decent money but no realistic opportunity for a career at the firm.

Associate B joins one of the few firms that have responded to clients demanding change away from a system that rewards inefficiency. Because billable hours aren’t the lifeblood of partner profits, the firm can afford to promote more associates to equity partner. Associate B joins with a reasonable expectation of a lengthy career at the same firm. Continuity is valued. Senior partners have a stake in mentoring. The prevailing culture encourages clients to develop confidence in younger lawyers. Intergenerational transitions become seamless.

Associate A tolerates the job as a short-term burden from which escape is the goal; Associate B is an enthusiastic participant for the long haul. If you’re a client, who would you want working on your matter?

The Same Old, Same Old

As clients have talked about refusing to pay for first-year associate time on their matters, big firms’ upward profit trends continue. But the real danger for firms and their clients is a big law business model that collapses under its own weight.

As it has for the past eight years, Altman-Weil’s recently released 2016 “Law Firms In Transition” survey confirms again the failure of leadership at the highest levels of the profession. Responses come from almost half of the largest 350 firms in the country. It’s a significant sample size that provides meaningful insight into the combination of incompetence and cognitive dissonance afflicting those at the top of many big firms.

When asked about the willingness of partners within ten years of retirement to “make long-term investments in the firm that will take five years or more to pay off,” fewer than six percent reported their partners’ “high” willingness to make such investments. But at most firms, partners within ten years of retirement are running the place, so the investments aren’t occurring.

Almost 60 percent of firm leaders reported moderate or high concern about their law firms’ “preparedness to deal with retirement and succession of Baby Boomers.” Meanwhile, they resolve to continue pulling up the ladder, observing that “fewer equity partners will be a permanent trend going forward” as “growth in lawyer headcount’ remains a “requirement for their firms’ success.”

Do law firm leaders think they are losing business to non-traditional sources and that the trend will continue? Survey says yes.

Do law firm leaders think clients will continue to demand fundamental change in the delivery of legal services? Survey says yes. (56 percent)

Do law firm leaders think firms “are serious about changing their legal service delivery model to provide greater value to clients (as opposed to simply reducing rates)”? Survey says no. (66 percent)

Do clients think law firms are responding to demands for change? Survey says most emphatically no! (86 percent)

But do law firm leaders have confidence that their firms are “fully prepared to keep pace with the challenges of the new legal marketplace”? Survey says yes! (77 percent)

If cognitive dissonance describes a person who tries to hold two contradictory thoughts simultaneously, what do you call someone who has three, four or five such irreconcilable notions?

At too many big law firms the answer is managing partner.

LAW SCHOOLS AND THE NEW YORK TIMES

On June 17, Noam Scheiber’s article, “An Expensive Law Degree and No Place to Use It,” appeared in The New York Times. He focused on individual human tragedies resulting from the legal education bubble.

Four days later, Professor Steven Davidoff Solomon countered with his Times column, “Law School Still a Solid Investment, Despite Pay Discrepancies.” Notwithstanding the title, he’s moving in Scheiber’s direction.

Learning from Mistakes

Professor Solomon’s prior ventures into legal education haven’t gone particularly well. In November 2014, he wrote “[T]he decline in enrollment could lead to a shortage of lawyers five years from now.” Highlighting Thomas Jefferson School of Law as one of the marginal schools fighting to remain alive, Solomon suggested, “It may be tempting to shut them in these difficult times, but it can cost tens of millions to open a new one. Better to invest and cut back on expenses for a while and see what happens.”

Consistent with his area of expertise — financial and securities regulation — Professor Solomon was relying on the market to work. But in legal education, it never gets a chance. Bankruptcy laws and the federal student loan program insulate law schools from accountability for their graduates’ poor employment outcomes.

Waiting to “see what happens” became a triumph of hope over reality. For the Thomas Jefferson class of 2013, the full-time long-term JD-required employment rate nine months after graduation was 29 percent. For the class of 2014, it was 30 percent. Even with an additional month for the class of 2015 to find jobs, the ten-month FTLT-JD-required employment rate was 24 percent. But the school did win that nagging fraud case brought by a recent graduate.

In April 2015, Solomon’s column on legal education and the profession was so riddled with errors that I climbed out of a hospital bed to write a responsive post culminating in this question, “Whatever happened to The New York Times fact-checker?”

Almost There

With all of that carnage in the rearview mirror, Professor Solomon’s June 21 article assumes a more moderate tone. Most importantly, he acknowledges the different legal education markets that exist for new graduates: “[I]t is clear that it is harder out there for the lower-tier law schools and their graduates.”

Noting that some big firms announced starting salary increases to $180,000 for the class of 2016, he cautions, “Only the lucky 17 percent of graduates earn salaries this high. To be in this group, you needed to go to a top 10 school or graduate in the higher ranks of the top quartile of law schools. Things are harder for every other law graduate.”

Solomon also accepts the bimodal distribution of starting salaries that results from the different markets for law graduates: “[W]hile 17 percent of graduates earned median salary of $160,000 in 2014, about half had a median starting salary of $40,000 to $65,000.”

The article could and should have ended with this: “Either way, it is clear that it is harder out there for lower-tier law schools and their graduates.”

In Defense of Fellow Professors?

Four days before Solomon’s article, Noam Scheiber’s Times piece profiled once-hopeful students at Valparaiso University School of Law. They’d incurred massive debt for a JD degree, but couldn’t find jobs requiring one. Scheiber also quoted a professor who recently headed the school’s admissions committee: “If we could go back, I think we should have erred a little more on the side of turning people down.”

Immediately after the publication of Scheiber’s article, social media took over when a law professor complained in an open letter to Scheiber: “Have you seen this line of peer-reviewed research, which estimates the boost to earning from a law degree including the substantial proportion of law graduates who do not practice law?”

The cited “line of peer-reviewed research” consisted of one study, co-authored by that professor in 2013. When Scheiber invited the professor to identify any factual errors in his article, the professor provided six alleged mistakes. For anyone interested in diving into those weeds, Scheiber posted the six items and his response on his Facebook page, including this:

“It’s not worth reviewing the controversy about your work on law graduate earnings here, since the criticisms are well-established. But suffice it to say, I think it’s strange to respond to a claim that the economic prospects of people graduating after the recession have fundamentally changed relative to those who graduated before the recession with a study that only includes people who graduated prior to 2009.”

(UPDATE: On Friday, June 24, the professor responded to Scheiber’s response.)

Among the many other criticisms to which Scheiber refers is the 2013 study’s failure to consider differences among law schools in their graduates’ incomes. In other words, it ignored the actual law school markets.

Nearing the Finish Line

Professor Solomon’s latest article centers on the importance of recognizing those different markets. But he still cites the 2013 study for the proposition that “most law students earned a premium of hundreds of thousands of dollars over what they would have earned had they not gone to law school, even taking into account the debt they accrue.”

Even so, Solomon’s slow walk away from the 2013 study improves on his April 2015 column. There, he relied on it to suggest that an “acceleration in compensation results in a premium of $1 million for lawyers over their lifetime compared with those who did not go to law school.” Now he’s down to “hundreds of thousands of dollars” for “most law students.”

Professor Solomon teaches at a top school, UC-Berkeley. He knows that plenty of students at other schools have a tough road ahead. Solomon no longer refers to an overly broad $1 million lifetime premium. He has also added a qualifier (“most law students” — meaning a mere 51 percent) — to whatever he thinks the study proves about the economic benefit of a JD. In other words, he has rendered the 2013 study meaningless to anyone considering law school today.

So why does Professor Solomon continue to cite the study at all? Better not to ask. Accept progress wherever you find it.

 

BIG LAW’S SHORT-TERMISM PROBLEM

Recently, the New York Times devoted a special section of “Dealbook” to short-termism. Big law firms made a prominent appearance in an article focusing on leadership transition. Citing statistics at the managing partner level, the Times reports that only three percent of law firm managing partners are under age 50. Twelve percent are over 70. Almost half are between 60 and 70.

The Tip of the Graying Iceberg

The core problem of transition runs deeper than a single demographic data point about the age of those at the top of the big law pyramid. The developing crisis goes far beyond the question of who the next managing partner will be.

At most firms, aging partners at all partnership levels are hanging on to clients and billings. For them, it’s a matter of survival. Except for lock-step firms, equity partners “eat what they kill” — that is, their closely guarded silos of clients and billings determine their annual compensation.

In that culture, hoarding becomes essential to preserving annual compensation that partners come to regard as rightfully theirs — and theirs alone. Stated in language that many senior partners use in criticizing today’s young attorneys, these aging lawyers have developed a wrong-headed sense of entitlement.

The fact that they’re making far more than they dreamed of earning in law school doesn’t matter to them. Neither does the fact that they are compromising the future of their firms. But their short-term gains could become the institution’s long run catastrophe.

See the Problem

Surveys confirm that law firm leaders recognize the resulting problem. Seven years ago, Altman Weil issued the first of its annual “Law Firms in Transition” series. Since then, the survey has documented a fundamental failure of leadership on this issue.

For example, in the 2011 survey, Altman Weil asked firm leaders to name the areas in which they had the greatest concerns about their firms’ preparedness for change: “The top issue, identified by 47% of all firms, was the retirement and succession of Baby Boom lawyers in their law firms.”

In the 2012 survey, 70 percent of managing partners had “moderate” or “high” concern about client transition as senior partners retire. On a scale of one (no concern) to ten (extreme concern), the median score was seven.

In the 2013 survey, only 27 percent of managing partners reported that they had a formal succession planning process in place.

Ignore the Problem

How have these leaders responded to what they have identified for years as the most pressing long-term problem facing their firms? Poorly.

The 2015 survey observes, “In 63% of law firms, partners aged 60 or older control at least one quarter of total firm revenue, but only 31% of law firms have a formal succession planning process.”

There’s a reason that law firm leaders balk at meaningful transition planning. It requires them to accept the fact that they won’t run their firms forever. But contemplating one’s own mortality can be unpleasant.

It also requires them to rethink their missions. Leadership is not about maximizing this year’s partner profits or pursuing growth for the sake of growth to create illusory empires over which a dictator can preside. It requires a willingness to create incentive structures that encourage long-term institutional stability.

Toward that end, lofty aspirations are easier to state than to achieve. But here are a few governing principles:

— Client service should be central to everything a law firm does.

— Partner cooperation should trump partner competition.

— Clients and billings should flow seamlessly to the next generation while allowing aging partners to retain a sense of self-worth as firms encourage them to prepare for their “second acts,” whatever they may be.

— The culture of a firm should encourage partners to sacrifice some short-term financial self-interest in the effort to leave the firm better than they found it — just as their mentors did for most of them.

Become the Problem

The most creative leaders understand that all of this means thinking outside the conventional billable hour box that remains central to the short-term growth and profit-maximizing mindset. In that respect, the contrast between the absence of true leadership and clients’ desires is striking.

Since 2009, Altman Weil has done an annual survey of corporate chief legal officers, too. The survey asks the CLOs: “How serious are law firms about changing their legal service delivery model to provide greater value to clients?”

The responses are on a scale of one (not at all serious) to ten (doing everything they can), Every year since the survey began, the median score has been three. Three out of ten. Stated differently, as far as clients are concerned, their outside lawyers have little interest in responding to demands for change.

Likewise, LexisNexis/Counsel Link’s most recent semi-annual report analyzing six key metrics confirms the impact of short-termism:

— Clients want alternative fee arrangements. AFAs account for only seven percent of all billings.

— Clients want relief from high hourly rates. For the trailing 12-month period ending on June 30, 2015, big firms of more than 750 attorneys had a median partner billing rate of $711 an hour — up 6 percent from the period ending on December 31, 2014. (For firms of 501-750 lawyers the median hourly rate during the same period increased by only $5 an hour.)

The Future Is Here

As big firm leaders drag their feet, clients aren’t waiting for them. They have figured out that the biggest of big law premiums isn’t always worth it. An October 2013 study of $10 billion in client fee invoices by LexisNexis/Counsel Link concluded the “large enough” firms of 201-500 lawyers are eating into the market share of firms with more than 750 lawyers.

From 2010 to 2013, the biggest firms saw their market share drop from 26 percent to 22 percent. Meanwhile, the market share of the “large enough” firms increased from 18 to 22 percent. For high-fee matters totaling $1 million or more, the shift was even more dramatic: “large enough” firms increased their market share from 22 to 41 percent.

Anyone believing that most big law firm leaders are long-term thinkers preparing their firms for a challenging future is ignoring the actual behavior of those leaders. Most of them are focused on getting rich today. That’s not a strategy for success tomorrow.

LABOR DAY

Labor Day marks the end of summer. It’s also a time to reflect on our relationship with work. Lawyers should do that more often. In that regard, some big law leaders will find false comfort in their 2015 Am Law Midlevel Associates Survey ranking.

In a recent New York Times Op-Ed, “Rethinking Work,” Swarthmore College Professor Barry Schwartz suggests that the long-held belief that people “work to live” dates to Adam Smith’s 1776 statement in “Wealth of Nations”: “It is in the interest of every man to live as much at his ease as he can.”

Schwartz notes that Smith’s idea helped to shape the scientific management movement that created systems to minimize the need for skill and judgment. As a result, workers found their jobs less meaningful. Over generations, Smith’s words became a self-fulfilling prophecy as worker disengagement became pervasive.

“Rather than exploiting a fact about human nature,” Schwartz writes, “[Smith and his descendants] were creating a fact about human nature.”

The result has been a world in which managers structure tasks so that most workers will never satisfy aspirations essential for job satisfaction. Widespread workplace disengagement — afflicting more than two-thirds of all workers, according to the most recent Gallup poll — has become an accepted fact of life.

Lawyers Take Note

Schwartz’s observations start with those performing menial tasks: “Maybe you’re a call center employee who wants to help customers solve their problems — but you find out that all that matters is how quickly you terminate each call.”

“Or you’re a teacher who wants to educate kids — but you discover that only their test scores matter,” he continues.

And then he takes us to the legal profession: “Or you’re a corporate lawyer who wants to serve his client with care and professionalism — but you learn that racking up billable hours is all that really counts.”

More than Money

Many Americans — especially lawyers who make decent incomes — have the luxury of thinking beyond how they’ll pay for their next meal. But relative affluence is no excuse to avoid the implications of short-term thinking that has taken the legal profession and other noble pursuits to an unfortunate place.

You might think that short-term profit-maximizing managers would heed the studies demonstrating that worker disengagement has a financial cost. But in most big law firms, that hasn’t happened. There’s a reason: Those at the top of the pyramid make a lot of money on eat-what-you-kill business models. They can’t see beyond their own short-term self-interest — which takes them only to their retirement age.

Maintaining their wealth has also been a straightforward proposition: Pull up the ladder while increasing the income gap within equity partnerships. The doubling of big firm leverage ratios since 1985 means that it’s now twice as difficult to become an equity partner in an Am Law 50 firm. Top-to-bottom compensation spreads within most equity partnerships have exploded from three- or four-to-one in 1990 to more than 10-to-1 today. At some firms, it’s 20-to-1.

What Problem?

Then again, maybe things aren’t so bad after all. The most recent Am Law Survey of mid-level associates reports that overall satisfaction among third- through fifth-level associates is its highest in a decade. But here’s the underlying and problematic truth: Big law associates have adjusted to the new normal.

Thirty-one percent of Am Law Survey respondents said they didn’t know what they’d be doing in five years. Only 14 percent expected to make non-equity partner by then. They see the future and have reconciled themselves to the harsh reality that their firms have no place for them in it.

No one feels sorry for big firm associates earning six-figure incomes, but perhaps someone should. As Professor Schwartz observes, work is about much more than the money. In that respect, he offers suggestions that few large firms will adopt: “giving employees more of a say in how they do their jobs… making sure we offer them opportunities to learn and grow… encouraging them to suggest improvements to the work process and listening to what they say.”

I’ll add one specially applicable to big law firms: Provide meaningful career paths that reward talent and don’t make advancement dependent upon the application of arbitrary short-term metrics, such as leverage ratios, billable hours, and client billings.

What’s the Mission?

Schwartz’s suggestions are a sharp contrast to the way most big law firm partners operate. They exclude their young attorneys from firm decision-making processes (other than recruiting new blood to the ranks of those who will leave within five years of their arrival). Compensation structures reward partners who hoard clients rather than mentor and develop talent for the eventual transition of firm business to the next generation. The behavior of partners and the processes of the firm discourage dissent.

“But most important,” Schwartz concludes, “we need to emphasize the ways in which an employee’s work makes other people’s lives at least a little bit better.”

Compare that to the dominant message that most big law firm leaders convey to their associates and fellow partners: We need to emphasize the ways in which an attorney’s work makes current equity partners wealthier.

Law firm leaders can develop solutions, or they can perpetuate the problem. It all starts from the top.

ANOTHER COLOSSAL LATERAL MISTAKE

Lateral hires are risky. Even managing partners responding to the Hildebrandt/Citi 2015 Client Advisory’s confidential survey admitted that only about half of their lateral partners are break-even at best — and the respondents had unrestrained discretion to decide what qualified as “break-even.” As Ed Newberry, co-global managing partner of Squire Patton Boggs told Forbes, “[L]ateral acquisitions, which many firms are aggressively pursuing now … is a very dangerous strategy because laterals are extremely expensive and have a very low success rate….”

Beyond the financial perils, wise firm leaders understand that some lateral partners can have an even greater destructive impact on a firm’s culture. In late 2014, former American Lawyer editor-in-chief Aric Press interviewed Latham’s outgoing chairman Bob Dell, who was retiring after a remarkably successful 20-year run at the top of his firm. Dell explained that he walked away from prospective lateral partners who were not a good cultural fit because they stumbled over Latham’s way of doing things.

Press wrote: “Culture, in Dell’s view, is not a code word for soft or emotional skills. ‘We think we have a high-performance culture,’ he says. ‘We work at that. That’s not soft.'”

Under the Radar and Under the Rug

Most lateral hiring mistakes attract little public attention. Firm leaders have no reason to highlight their errors in judgment. Fellow partners are reluctant to tell their emperors any unpleasant truth. If, as the adage goes, doctors bury their mistakes and lawyers settle theirs, then managing partners pretend that their mistakes never happened and then challenge anyone to prove them wrong. The resulting silence within most partnerships is deafening.

Every once in a while, a lateral hire becomes such a spectacular failure that even the press takes note. When that happens, the leaders of the affected law firm have nowhere to hide. Which takes us to James Woolery, about whom I first wrote five years ago.

Without mentioning Woolery specifically, I discussed a May 28, 2010 Wall Street Journal article naming him was one of several Cravath, Swaine & Moore partners in their late-30s and early-40s taking “a more pro-active approach, building new relationships and handling much of the work that historically would have been taken on by partners in their 50s.”

“We’re more aggressive than we used to be,” 41-year-old Cravath partner James Woolery told the Journal. “This is not your grandfather’s Cravath.”

A Serial Lateral

Six months later, it wasn’t Woolery’s Cravath, either. He’d already left to co-head J.P. Morgan Chase’s North American mergers and acquisitions group.

In 2013, only two years after accepting the Chase job, Woolery moved again. With much fanfare, he negotiated a three-year deal guaranteeing him at least eight million dollars annually to join Cadwalader, Wickersham & Taft. How was the cultural fit? The firm’s chairman, Chris White, described him as “the epitome of the Cadwalader lawyer” who deserved the lucrative pay package that made him the firm’s highest paid partner. A new title created especially for Woolery — deputy chairman — also made clear that he was White’s heir apparent.

To no one’s surprise, in 2014 Cadwalader announced that Woolery would take over as chairman in early 2015. As he prepared to assume the reins of leadership, the firm took a dramatic slide. The current issue of The American Lawyer reports that Cadwalader posted the worst 2014 financial results of any New York firm. Woolery’s guarantee deal looked pretty good as his firm’s average partner profits dropped by more than 15 percent. The firm’s profit margin — 26 percent — placed it 87th among Am Law 100 firms.

On January 19, 2015, the firm’s managing partner, Patrick Quinn, convened a conference call with all Cadwalader partners to convey a stunning one-two punch: Woolery would not become chairman, and he was leaving the firm to start a hedge fund. Woolery was not on the call to explain himself.

Unpleasant Press

No law firm wants this kind of attention. No client wants its outside firm to project uncertainty and instability at the top. No one inside the firm wants to hear about someone who has now been “thrust into the role of designated chairman of the firm,” as The American Lawyer described Patrick Quinn.

Woolery is gone, and so is Chris White, the former Cadwalader chairman who sold fellow partners on Woolery and his stunning guaranteed compensation package. White, age 63, left the firm in November to become co-CEO of Phoenix House, the nation’s largest non-profit addiction rehabilitation center.

Meanwhile, newly designated Cadwalader chairman Quinn says that the firm has no plans to change its strategy, including its reliance on lateral partner hiring. Maybe Chris White can use his new job to help Quinn and other managing partners shake their addiction to laterals. Apparently, first-hand experience with failure isn’t enough.

THINKING BEYOND THE AM LAW 100 RANKINGS

It’s Am Law 100 time. Every year as May 1 approaches, all eyes turn to Big Law’s definitive rankings — The American Lawyer equivalent of the Sports Illustrated swimsuit issue. But behind those numbers, what do law firm leaders think about their institutions and fellow partners?

The 2015 Citibank/Hildebrandt Client Advisory contains some interesting answers to that question. Media summaries of those annual survey results tend to focus on macro trends and numbers. Will demand for legal services increase in the coming months? Are billable hours up? Will equity partner profits continue to rise? Will clients accept hourly rate increases? Or will client discounts reduce realizations?

Those are important topics, but some of the survey’s best nuggets deserve more attention than they get. So as big law firm partners everywhere pore over the annual Am Law 100 numbers, here are five buried treasures from this year’s Citibank/Hildebrandt Client Advisory that will get lost in the obsession over Am Law’s short-term growth and profits metrics. They may reveal more about the state of Big Law than any ranking system can.

Chickens Come Home To Roost

1. “While excess capacity remains an issue, we are hearing from a good number of firms that mid-level associates are in short supply.”

My comment: After 2009, most firms reduced dramatically summer programs and new associate hiring to preserve short-term equity partner profits. That was a shortsighted failure to invest in the future, and it’s still pervasive. See #4 and #5 below.

The Growth Trap

2. “Many [law firm mergers] have tended to be mergers of strong firms with weaker firms, or mergers of firms that are pursuing growth for growth’s sake. On this latter trend, it is our view that these mergers are generally ill-conceived. In our experience, combining separate firm revenues does not necessarily translate into better profit results and long-term success.”

My comment: Regardless of who says it (or how often), many managing partners just don’t believe it.

The Lateral Hiring Ruse

3. “For all the popularity of growth through laterals, the success rate of a firm’s lateral strategy can be quite low. For the past few years, we have asked leaders of large firms to quantify the rate of success of the laterals they hired over the past five years. Each year, the proportion of laterals who they would describe as being above ‘break even’, by their own definition, has fallen. In 2014, the number was just 54 percent of laterals who had joined their firms during 2009-2013.” [Emphasis added]

My comment: Think about that one. The survey allows managing partners to use their own personal, subjective, and undisclosed definition of “success.” Even with that unrestricted discretion to make themselves look good, firm leaders still admit that almost half of their lateral hiring decisions over the past five years have been failures — and that they’re track record has been getting worse! That’s stunning.

Pulling Up The Ladder

4. “We are now seeing [permanent non-partner track associates and other lower cost lawyers] appear among some of the most elite firms. When we ask these firms whether they are concerned that expanding their lawyer base beyond partner-track associates will hurt their brand, their response is simply that this is what their clients, and the market in general demands.”

My comment: At best such managing partner responses are disingenuous; at worst they are lies. Clients aren’t demanding non-partner track attorneys; they’re demanding more value from their outside lawyers. Thoughtful clients understand the importance of motivating the next generation’s best and brightest lawyers with meaningful long-term career opportunities.

Permanent dead-end tracks undermine that objective. So does the continuing trend in many firms to increase overall attorney headcount while keeping the total number of equity partners flat or declining. But rather than accept responsibility for the underlying greed that continues to propel equity partner profits higher, law firm leaders try to blame clients and “the market.” For the truth, they should consult a mirror.

The Real Problem

5. “Leaders of successful firms also talk about getting their partners to adopt a more long-term, ‘investment’ mindset. In an industry where the profits are typically paid out in a short time to partners, rather than being retained for longer term investment, this can be a challenge.”

My comment: Thinking beyond current year profits is the challenge facing the leadership of every big firm. Succeeding at that mission is also the key assumption underlying the Client Advisory’s optimistic conclusion:

“It is clear to us that law firms have the capacity and the talent to adapt to the needs of their clients, and meet the challenges of the future — contrary to those who continually forecast their death.”

I’m not among those forecasting the death of all big firms. In fact, I don’t know anyone who is. That would be silly. But as in 2013 and 2014, some large firms will fail or disappear into “survival mergers.” As that happens, everyone will see that having what the Client Advisory describes as “the capacity and talent to adapt” to the profession’s dramatic transformation is not the same as actually adapting. The difference will separate the winners from the losers.