Tag Archives: Debevoise & Plimpton

HAPPINESS IS…CRAVATH?

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Big law’s future has become big news. On September 25, The New York Times published a special section that included several articles on large firms; two are particularly interesting.

“Culture Keeps Firms Together in Trying Times” discusses the handful of large firms that have shunned the widespread eat-what-you-kill approach to partner compensation. It focuses on three firms, Cravath, Swaine & Moore, Debevoise & Plimpton, and Cleary, Gottlieb, Steen & Hamilton, all of which have retained lock-step compensation systems. For any class of associates, those who survive to partner continue advancing together throughout their careers.

“The only way a partner does better is if the firm does better,” says Debevoise presiding partner Michael W. Blair describing the behavior that follows such structural incentives.

Lock-step is a sharp contrast to most other big firms, which follow what Dewey & LeBoeuf’s management called the “barbell” system: Lots of service partners on one side of the barbell balance out a handful of star partners on the other side. Then-Dewey partner Jeffrey Kessler rationalized the yawning equity partner compensation gaps that this approach creates: “The value for the stars has gone up, while the value of service partners has gone down.”

Not worth it

The Times quotes Cleary managing partner Mark Leddy’s answer to the Kesslers of the world: “People who want to be a star and make $10 million a year don’t fit in here…Breaking the lock-step system for them would be an unacceptable cost to our culture.”

Why does culture matter? There are many answers, but Major, Lindsey & Africa’s recent compensation survey may have identified an important one. Almost eighty percent of partners in lock-step compensation systems are satisfied or very satisfied with their work. A closer look at the MLA survey reveals that the combined group of satisfied and very satisfied partners is about the same for lock-step as for non-lock-step firms. But the lock-step firms’ have a big advantage in the very satisfied group — fifty-five percent compared to only twenty-six percent for non-lock-step firms.

Satisfied versus very satisfied

That leads to James B. Stewart’s observations about Cravath, where he was an associate in the 1970s. In “A Law Firm Where Money Seemed Secondary,” Stewart notes that all attorneys in his firm were intelligent, well-credentialed and hard working, but those advancing to partner had something else in common: They loved their work. It gave them a huge competitive advantage over those who didn’t. Returning to the MLA survey, I think Stewart may have captured a significant difference between the lawyers who are very satisfied and those who are merely satisfied: Attitudes about work affect performance.

Stewart also notes that “of the 20 or so associates hired each year, one or two might be chosen to be a partner.” He concludes that “over the ensuing decades, Cravath doesn’t seem to have changed much.” He’s right.

But the rest of the large law firm segment of the profession has. In fact, many have modeled themselves after the Cravath attrition-and-leverage model, but they added an unfortunate twist away from lock-step compensation: Partners eat what they kill, so every year’s compensation review is a new self-justification exercise. That incentive structure produces a much different culture; most of it is ugly and little of it enhances a firm’s long-run stability.

About the associates…

Before getting too misty-eyed over life at Cravath, it’s worth pausing on one more data point. In the most recent Am Law Survey of Midlevel Associate Satisfaction, Cravath placed 119 out of 129 firms — down from 111 in 2011. The firm has been dropping steadily on that list since 2010, when it placed 84th out of 137. (Both Cleary Gottlieb and Debevoise did much better.)

A closer analysis suggests that Cravath associates do, indeed, enjoy their work. Unfortunately, they don’t seem to enjoy it enough to offset the things that place the firm near the bottom of the satisfaction survey.

Cravath scored above the all-firm averages in work-related subcategories, including quality of work assigned, opportunities to work with partners, and level of responsibility. But it received low marks in other subcategories, including likelihood of staying two years, morale, communication about partnership prospects, and family-friendliness. Lock-step partner compensation isn’t a panacea, but imagine how much worse a place like Cravath would be without it.

Following the money

Perhaps the most telling comment about the interaction between compensation and firm culture comes from former Dewey & LeBoeuf partner Ralph Ferrara who spent twenty-three years at lock-step Debevoise before making what he describes as “an imprudent decision” in leaving: “In my heart, I never left Debevoise; it’s a place that I still love to this day.”

If the bankruptcy judge approves the proposed former partners compensation plan, Ferrara will pay almost $3.4 million to help fund repayments to Dewey’s creditors. Even so, given the amounts he reportedly made at Dewey, his move in 2005 was probably advantageous financially. I wonder if the additional money was worth it to him — and how his heirs will spend it.

DO THEY COUNT AS BILLABLES?

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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.