Tag Archives: Billable Hours

25 YEARS…

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

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

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

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

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

“The numbers don’t lie.”

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

“What are your billable hours?”

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

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

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

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

“I’m just trying to run a business.”

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

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

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

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

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

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

Don’t pretend that you don’t know –

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

SECOND AND THIRD THOUGHTS?

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

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

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

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

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

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

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

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

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

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

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

What’s the new goal?

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

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

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

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

Thanks so much for all of your help.

WHEN IS BAD NEWS REALLY GOOD NEWS IN DISGUISE?

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One of my former undergraduate students sent me a link to a WSJ.com article on the dismal job market for graduating law students. (http://online.wsj.com/article/SB10001424052748704866204575224350917718446.html)

Of course, the focus is where it always is: on reduced hiring at the nation’s largest firms.

This is not news to most of us in the profession. Big firms started laying off associates in big numbers shortly after the financial collapse in the fall of 2008. Last year, the Am Law 100 saw its first year-over-year reduction in attorney headcount since 1993. (http://www.law.com/jsp/tal/PubArticleTAL.jsp?id=1202448340864&Lessons_of_The_Am_Law_&hbxlogin=1)

Large firms always get the editorial lead on this subject, in part because that’s where most top students in the best law schools seek to begin their careers. Why they flock in that direction is a complicated question. Herd behavior accounts for some of it, but one factor has assumed overwhelming power in their decision-making calculus: When law degrees come with six-figure student loan debt, financial reality pushes graduates toward biglaw, which shows them the money.

Here’s the hitch. Few know what awaits them if they land one of those increasingly elusive starting positions. For some, the fit works. But for too many, the surprise turns out to be unpleasant.

In its 2007 “Pulse of the Profession” survey, the ABA found that big firm attorneys were unhappier with their careers than any lawyer group. Only 44% gave a positive response to the statement: “I am satisfied with my career.”  (http://www.abajournal.com/magazine/article/pulse_of_the_legal_professionunhappiest)

In contrast, lawyers working in the public sector reported an overall satisfaction rate of 68%.

Getting a public sector law job isn’t easy, either. But it’s curious that the nation’s largest firms continue to dominate the discussion, even though the biggest 250 firms employ fewer than 15% of all attorneys. When you consider associate and non-equity partner attrition rates from those places, the myopia becomes even more puzzling. Very few graduates who begin their careers in such places will stay for more than a few years.

So for current and prospective law students (and attorneys who have lost their jobs), short-term unemployment could become a catalyst for reassessment that leads to longer-term personal rewards.

But I also understand human nature. In the end, the shiny brass ring will continue to blind many people. American Lawyer recently reported that as headcount and average gross revenues declined in 2009 for the Am Law 100, average equity profits per partner increased — to $1.26 million.

How, you might ask, could that happen and what does it mean for those on the inside? I have my own views; they’re in my new novel, The Partnership. (http://www.amazon.com/Partnership-Novel-Steven-J-Harper/dp/0984369104/ref=sr_1_1?ie=UTF8&s=books&qid=1273000077&sr=1-1)

THE MBA MENTALITY RETHINKS ITSELF?

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Yesterday, the Harvard Business School named its new dean.

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

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

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

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

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

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

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

Does anyone have any candidates?

LIFE IMITATES ART

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Sunday’s lead article in the Business section of the May 2 NY Times brought to mind a passage in my forthcoming novel, The Partnership. It’s a legal thriller set against a power struggle at a fictional firm that has embraced biglaw’s twenty-year transformation from a profession to a bottom-line business.

First, the passage from my book, which will be available later this month:

“The crash of 2008 stalled a great run for most large firm equity partners. A year earlier, Michelman & Samson’s average partner profits had grown to almost $3 million. The reasons were obvious: the ratio of all attorneys to equity partners — a number that managers called leverage — doubled from three to six in only ten years. The firm tripled in size to more than two thousand attorneys in a dozen offices around the world. Average hours climbed as yearly billing rate increases far outstripped inflation. Trees, it seemed, really did grow to the sky.

“Michelman & Samson’s balanced portfolio of client work had historically provided protection against the vagaries of the business cycle…For some reason that mystified the firm’s Executive Committee, diversification wasn’t working as well this time. The lucrative corporate venture capital practice had led the firm’s fortunes upward, and it experienced the leading edge of the coming collapse. The transactional pipeline dried up first…The restructuring group picked up some of the slack, but not enough to maintain the historic profits of earlier times. Even worse, the uproar over executive compensation threatened to spill over into bankruptcy courts….”

Which brings me to the Sunday Times article. (http://www.nytimes.com/2010/05/02/business/02workout.html?) Throughout the current Great Recession, some lucrative pockets of biglaw have fared pretty well. For example, overall average equity partner profits of the Am Law 100 (released last Thursday) actually rose slightly in 2009 — even though gross revenue, headcount, and revenue per lawyer fell.

Is the leverage-billable hours model that produces such results sustainable? I don’t know, but it faces a new assault. Kenneth Feinberg, the Washington lawyer who serves as the “pay czar” for banks receiving tax dollars, received another assignment last June. The court in the Lehman bankruptcy appointed him to monitor attorneys’ fees in the case.

“Unemployment is over 9 percent, and to be paying first-year associates $500 an hour angers the public,” the Times quotes him. “People read about all of this and say that lawyers and the legal system are one more example of Wall Street out of control.”

The 77-year-old dean of the bankruptcy bar, Harvey Miller, responded with a spirited defense of the $164 million that his firm reportedly has incurred as Lehman’s lead counsel since its 2008 bankruptcy filing:

“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.'”

Miller sat on his firm’s management committee for 25 years. Where should I begin an analysis of what his remarks reveal about my once noble profession? 

Here’s one place: American Lawyer reported last week that the average equity partner profits of Miller’s firm — Weil Gotshal — increased to more than $2.3 million in 2009; their percentage of equity partners declined.

Here’s another: how many doctors make more than $1,000 an hour?

Here’s yet another: the Times noted that Miller’s firm also received $16 million in connection with the General Motors bankruptcy. Weren’t “public” taxpayer dollars involved in that one?

More thoughtful biglaw law attorneys declined to take the bait and refused comment to the Times.

Harvey won’t enjoy my novel.

28 DAYS – The Big Squeeze Continues

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While we’re waiting for NALP to reveal what it decided on April 26 — when it was supposed to grapple with the problem of getting biglaw firms to provide career tracking information on their non-equity partners (see my April 21 post: “Will Anyone Notice on April 27?”) — consider another recent NALP move…

Twenty-eight days sounds like a lot of time, doesn’t it?

On February 26, 2010, NALP announced a new provisional guideline. Beginning in August 2010, students receiving summer or permanent job offers from new prospective employers will have 28 days to respond. Yea or nay…up or down…fish or cut bait…

You get the idea.

NALP ignored the elephants in the room: law firms follow no uniform timetable in extending offers and, even worse, an accepted offer can turn out to be bogus when the employer later withdraws or defers it. When that happens, the victim is without recourse.

In other words, the ongoing capitulation to biglaw’s demands continues. In 2008, NALP adopted the prior rule giving students 45 days to ponder the decision that could shape their futures. Most big firms thought that was too long. Before that, students had until December 1. Before NALP existed, they had as much time as an individual firm gave them — which was usually a lot.

Do you detect a one-sidedness to the trend? Law firms have always retained flexibility to make rolling offers at their pleasure and to revoke them at will. Who’s looking out for the students?

Not NALP:

“Member feedback…has indicated that a shorter period will still allow students sufficient time to choose among competing offers.”  (http://www.nalp.org/provisionaltimingguidelines2010)

Ah, “member feedback.” Who provides that? Not students or anyone committed to their best interests, that’s for sure.

NALP’s board consists of biglaw representatives and law school career development officers seeking to maximize their graduates’ placements in large law firms. That means the big firms wield commanding voices.

The new guideline is an example. Biglaw scuttled NALP’s recommendation to move “the current recruiting model away from rolling response deadlines to a model based on ‘offer kickoff dates,’ the specific dates before which offers could not be made,” followed by a universal 14-day response period. That wasn’t perfect, but at least it would have allowed students to know all of their options before locking in their final answers.

Under the new rule, they’ll never know what might have been. Then again, based on biglaw’s associate attrition rates immediately preceding the Great Recession, the vast majority of new hires won’t remain with their first employers for more than three years anyway.

Whether students should rush like lemmings to the sea toward biglaw opportunities is a question that most students don’t consider, but they should. Shortening the response time won’t help them or the profession’s growing problem of attorney career dissatisfaction.

After piling up enormous law school debts as new job offers dwindle, are any of you prospective biglaw associates feeling squeezed again?

READ THE FOONOTES…

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Another 5-4 decision from the U.S. Supreme Court.

Civil rights advocates are unhappy with last week’s opinion limiting attorneys’ fees awards in federal cases where the losing defendant pays the winner’s lawyers. (Perdue v. Kenny A (http://www.supremecourt.gov/opinions/09pdf/08-970.pdf))

They shouldn’t be the only ones.

The plaintiffs’ attorneys in the case represented children in Georgia’s foster-care program. It took 30,000 hours of lawyer time over eight years before the state finally surrendered in a consent decree that revamped the entire system. The winners sought a bonus beyond what lawyers call the “lodestar” — an amount equal to the hours devoted to the case multiplied by the hourly rates prevailing in the community. 

The trial judge praised plaintiffs’ counsel as the best advocates he’d seen in 27 years on the bench. So he enhanced their fee award to produce an average attorney hourly rate of $435. The Supreme Court threw it out.

Justice Alito wrote for  the majority that included the usual conservative alignment — Justices Thomas, Scalia, Kennedy, Chief Justice Roberts, and himself. They sent the case back with more than a suggestion that an average rate of $249 was adequate. Never mind that it was below the statewide average for all Georgia lawyers — as Justice Breyer noted in a dissent  joined by Justices Stevens, Ginsburg, and Sotomayor. (Breyer op. at pp. 9-10)

I know what you’re thinking: Why feel sorry for the lawyers? Isn’t  $249/hour a lot of money? Sure, but as Justice Breyer observed, it pales in comparison to the rates that corporate clients routinely pay large firms where $249 won’t buy an hour with a second-year associate. Chief Justice Roberts’ rate when he left private practice to join the Court was probably three times that amount.

Which takes us to footnote 8. Alito was incredulous at the prospect of allowing the  higher fee award: the winning attorneys “would earn as much as attorneys at some of the richest law firms in the country.”

Excuse me? Is that a bad thing? Are outstanding civil rights lawyers suing on behalf of children and the oppressed less valuable to our society than biglaw senior partners? If he were still around, Clarence Darrow might have some thoughts on that one.

PUZZLE PIECES – Part 10

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[Continuing the imaginary cross-examination of a real senior partner profiled in the April 2010 issue of the ABA Journal(http://www.abajournal.com/magazine/article/not_done_yet)]

Q: “All right. Let’s look at 2009. In February, your firm cut 19 attorneys from its U.S offices and, a few weeks later, another 10 staffers?”

Partner: “We weren’t alone. Surely, you remember Black Thursday of that month — 800 biglaw attorneys and staff fired in a single day; over 1100 attorneys for the week.”

Q: “In March 2009, you said good-bye to 125 people — 63 attorneys and other time keepers and 62 adminsitrative staff?”

Partner: “With markets crashing, the firm couldn’t keep unproductive people on the payroll.”

Q: “And firms like yours couldn’t let their billable hours drop below 2,000 a  year, could they?”

Partner: “I don’t agree with that.”

Q: “Your firm’s responses for the NALP Directory said its minimum billable hours expectation for associates in 2008 was 1,950 in Philadelphia and 2,000 in New York, right?”

Partner: “So what? That’s not unique. Our press release explained that we’ve tried to match our resources with our projected needs.”

Q: “That press release came in July 2009, when your firm reportedly terminated another 25 associates along with staff and paralegal positions, right?”

Partner: “You’re citing Law.com and Above The Law.” 

Q: “And you’ve been shrinking your summer associate programs — in your Philadelphia headquarters, for example, from 37 in 2008 to 23 in 2009 to 13 in 2010, according to your NALP report?”

Partner: “If you say so.”

Q: “And in New York from 25 in 2009 to 12 this year?”

Partner: “Whatever the report says.”

Q: “Did your firm ever worry that it might be throwing its furniture into the fireplace in an effort to keep the house warm?”

Partner: “We’re keeping the best people. I’m not concerned.”

Q: “And you’re trying to keep the billable time of those survivors above 2,000 hours annually, aren’t you?

Partner: “That’s your characterization and conclusion, not mine.”

Q: “When you joined the firm in the early 1970’s, there’s wasn’t as much discussion about billable hours, which for most big firms in those days averaged around 1,700 a year, right?”

Partner: “It was a less important metric then. Times have changed.”

Q: “And another metric — leverage — now dictates that associates work eight years at your firm before receiving even non-equity partner consideration, right?”

Partner: “That’s what our NALP submission states.”

Q: “And the only thing your NALP submission says about the prospects for advancement to equity partnership thereafter is ‘CBC’ — case-by-case, right?”

Partner: “I don’t think we’re unusual in that respect. There are exceptions, but the pyramid is the prevailing large firm business model today. It endures because it works.”

PUZZLE PIECES – Part 7

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With the added context of David Brooks’ article on leadership, “The Humble Hound,” (NY Times, April 9, 2010) (http://www.nytimes.com/2010/04/09/opinion/09brooks.html), we resume the imaginary cross-examination of a very real senior partner profiled in “Not Done Yet” (ABA Journal, April 2010) (http://www.abajournal.com/magazine/article/not_done_yet)  

Partner: “If you’re asking me whether we have very talented attorneys who don’t progress to equity partnership, my answer is yes.”

Q: “Compared to you and those who rose those through the ranks with you, it’s a lot of very talented attorneys, isn’t it?”

Partner: “Sure.'”

Q: “That’s because today’s big firm business model requires leverage — lots of non-equity attorneys and other time-billers for every equity partner, right?”

Partner: “Look, big law firms have become businesses. I didn’t make it that way and I can’t ignore the marketplace. If we don’t maintain high equity partner profits through appropriate leverage ratios and other means, we’ll lose our ability to attract and retain the best people. If that happens, the entire institution will be at risk and we’ll endanger the jobs of everyone who works there. It’s called free market capitalism and I didn’t invent it.”

Q: “You didn’t invent the phrase, ‘pulling up the ladder,’ either, did you?”