Tag Archives: equity partner profits

LIZARD-BRAIN REMNANTS…

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Tuesday night’s Nova episode on PBS –“Mind Over Money” (April 27) — waded into the continuing debate over what went wrong to produce the recent economic collapse. Coincidentally, Goldman Sachs executives spent the day explaining themselves to the Senate Subcommittee on Investigations. Meanwhile, biglaw leaders around the world anxiously await the April 29 release of this year’s Am Law 100 rankings.

Maybe these things are related.

Nova interviewed scientific researchers who think they’ve identified the human brain’s unique response to money. MRIs show that it activates deep recesses in the mind — areas that evolutionists believe we share with the earliest forms of life, such as lizards.

Once engaged, those impulses become as powerful as any addiction and as strong as the instincts for sex and survival. They dominate our actions in ways that explain why, for example, people hold on to losing stocks too long and new participants in an auction experiment routinely bid more than $20 for a twenty-dollar bill. It’s not just that the efficient markets model of economic rationality fails; affirmatively irrational behavior takes over.

If these researchers are correct, money itself triggers something that can combine with competition and ego to produce a dangerous mix. When a subconscious reaction to dollar signs overrides rational thought, the resulting decisions can be — shall we say — problematic.

What’s the connection to Goldman Sachs and the Am Law 100? I’m not suggesting that obviously intelligent people at GS did anything illegal. Judges and juries will make that determination someday. Nor am I criticizing leaders of large or small law firms who pay attention to revenues and costs because they need to make a living, just like everybody else. The practice of law has never been an eleemosynary endeavor and never will be.

Still, the research shines an interesting light on the intersection of human behavior and free market capitalism. Just as stratospheric quarterly profits propelled Goldman to develop novel vehicles that continued to feed its insatiable profits beast, perhaps the fixation on annual Am Law rankings triggers an inner impulse in biglaw leaders that even they themselves don’t realize. When a money-laden thought — like average equity profits per partner — becomes a definitive decisional metric that defines professional standing and institutional culture, does reason become a casualty?

If so, what’s the antidote?

Perhaps it doesn’t matter. There’s not much incentive to recover from a socially acceptable addiction that defines who too many of us are.

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?

GOLDMAN SACHS — AN INITIAL OBSERVATION

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Media coverage since the SEC initiated its controversial enforcement action against Goldman on April 16 has reminded me of a conversation I had a few years ago with one of my kids’ twenty-something friends.

Immediately after college, he took an entry level position at Goldman. At the time, he properly regarded his offer as the ultimate reward for a distinguished record coupled with extraordinary personal charm. He didn’t know whether GS was the beginning of an investment banking career, but he hadn’t ruled it out. The pay was good and his student loan repayment program beckoned. (Sound familiar to any recent law school grads out there?)

At first, his enthusiasm was infectious:

“I’m getting pretty interesting assignments, including travel to attend presentations with more senior people. I’m working long hours, but the money is good. It’s nice to repay my loans and save a little money.”

Two years later, he was still working 16-hour days and his BlackBerry felt like a very long leash — or a choke-collar — that he could never remove.

“Here’s the real problem,” he told me. “When I look up at the successful people above me, I can’t find anyone whose life I’d want. The pressure, stress, and long hours never end. That’s a problem.”

I told him he had his eye on the right ball: look up the food chain and decide whether anyone leads the life you envision for yourself. When he completed repaying his student loans a year later, he quit to pursue a completely different line of work. He’s making less money, but his life is better.

Maybe his story doesn’t matter because he never belonged in investment banking in the first place. Then again, maybe his story — and his observations — are not unique to Goldman or investment banking or even biglaw. Like many talented young people who would have benefitted their organizations in the long-run, short-run reality drove them away.

Who will get this message to the top of such institutions? A recent NY Times article reveals the challenge, especially to any firm that is wildly successful in its financial mission of maximizing short-term profits:

“Even insiders acknowledge that Mr. [Lloyd] Blankfein [Goldman’s CEO], a former trader, has remade Goldman Sachs. He has built a giant powered by formidable trading operations rather than by bankers who give advice to corporate clients and help them raise money. In the past, Goldman was often run by two senior executives; one from trading and one from banking. Under Mr. Blankfein, the traders have consolidated their power.” (http://www.nytimes.com/2010/04/20/business/20blankfein.html?pagewanted=1)

Is it a problem? Here’s the rest of the NY Times quotation that caught my eye:

“Mr. Blankfein has surrounded himself with like-minded executives — ‘Lloyd loyalists,’ as they are known — plucked from the trading ranks….”

Are such lieutenants less likely to tell the emperor the truth about  his new clothes when he needs to hear it? It’s a question that many biglaw firm leaders might ponder as they strive to maximize profits per partner at the expense of other values that are less easily quantified. Maybe a biglaw episode of Undercover Boss would help.

PUZZLE PIECES – Part 11

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[The imaginary cross-examination of a real biglaw senior partner continues…]

Q: “By the way, when Am Law reports a firm’s average equity partner profits, that doesn’t tell us anything about the range, does it?”

Partner: “An average is an average. A range is a range.”

Q: “In some big firms, the range can be pretty substantial, can’t it?”

Partner: “Sure.”

Q: “In fact, at the top of elite firms like yours, the equity partners typically earn several million dollars a year more than the average, right?”

Partner: “We don’t comment on such matters.”

Q: “The point is, when you say ‘everything is relative,’ that’s true even within the equity partnership, right?”

Partner: “What’s your point?”

Q: “Even among the select group of winners who make it into the equity partnership, the even fewer who go on to become firm leaders — as you did — are the real success stories, aren’t they?”

Partner: “That’s the American way, isn’t it? A successful business depends on leaders and the market rewards us accordingly. In that sense, we all become products of the decisions we make.”

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.”

AND HUBRIS, too

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David Brooks is right on this one — and the legal profession is Exhibit A.

Before resuming my imagined cross-examination of a distressingly real biglaw senior partner in “PUZZLE PIECES,” I want to pause on Brooks’ April 9 NY Times column. He makes my point in a broader context: the pervasive absence of thoughtful reflection that passes for leadership is not unique to big law firms.

Looking at corporate America, he asks, “Who’s in charge?”

Then he answers his own question: “They are superconfident, forceful and charismatic.”

To these characteristics, I would add another: hubris.

Having navigated internal politics to reach the pinnacle of power in their organizations, they don’t revisit their guiding principles. Armed with an MBA (or at least, the equivalent mentality of misguided metrics), they validate their governance using the same criteria that swept them to the top.

As a result, attorneys who enjoyed every advantage as they rose through the ranks have now tied themselves to a mypoic view that encourages them to pull up the ladder on their kids’ generation. Compared to the growing national debt that preoccupies many with concern for our progeny’s well-being, baby boomer greed is wreaking far more enduring havoc.

Brooks argues in favor of an alternative style: the humble hound — a leader who combines “extreme personal humility with intense professional will” and “thinks less about her mental strengths than about her weaknesses…She understands she is too quick to grasp pseudo-ojective models and confident projections that give the illusion of control.”

To save them from themselves, big law firms need more such leaders. But who will mentor candidates through the daunting journey into equity partnerships and then upward?

Certainly not 64-year-old senior partners who don’t think about their own retirements until they receive lists of firm nominees for their management committees, only to find that because of advancing age their names aren’t on them.

What can you say about a leader for whom the approach of a 65th birthday comes as a surprise?

PUZZLE PIECES – Part 6

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Q: “OK, let’s get specific. Let’s talk about you. Your path to the top of your firm was a lot easier than it is for new associates today, right?”

Partner: “I don’t accept that. We’re a meritocracy. Cream rises to the top.”

Q:  “Just because cream rises to the top doesn’t mean you skim all of it off, does it?”

Partner: “That’s clever, but what’s your point?”

Q: “Are you saying that the path to equity partnership at your firm is no more difficult now than it was for you?”

Partner: “I don’t think about it that way.”

Q: “I’m sure you don’t. But I’m asking you to think about it that way now. According to Am Law, in 1995 your firm had 315 lawyers of whom 132 — more than 40% — were equity partners, right?”

Partner: “That’s what it reported.”

Q: “In Feburary 2010, American Lawyer reported that your firm ended 2009 with more than double that number of lawyers — almost 800 in all. But during that 14-year period, the number of equity partners rose by a measly 17 — to only 149 , right?”

Partner: “You’ve posed a compound question, but what’s your point?”

Q: “When you’re averaging only one additional equity partner per year on a net basis, every associate in an incoming class of 20, 30 or even more law school graduates faces pretty daunting odds against success, correct?”

Partner: “The best will still make it.”

Q: “And if your firm wants to preserve its equity partners’ multi-million dollar incomes, some highly capable attorneys — people good enough to have advanced if they’d been in your demographic group 30 years ago — won’t capture the brass ring of equity partnership today, will they?”

Partner: “We’ll always have room for the best.”

Q: “Your Honor, I move to strike the witness’ last answer as non-responsive.”

THE COURT: “Motion granted. The witness is instructed to answer the question.”

PUZZLE PIECES – Part 5

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Q: “According to Am Law, in a dozen years, your firm’s average equity partner profits soared by $2 million — from about $350,000 in 1995 to $2,350,000 in 2007, right?”

Partner: “That’s what they published.”

Q: “In 2007, you personally were at the top of the equity partnership, weren’t you?”

Partner: “I’m not going to apologize for success.”

Q: “I haven’t asked you to apologize yet, have I?”

Partner: “No.”

Q: “The point is: you were making a lot of money in 2007 when it first hit you that your 65th birthday was approaching, right?

Partner: “Yes.”

Q: “Millions of dollars a year?”

Partner: “Yes.”

Q: “That amount dwarfed what your mentors at the firm made 20 or more years earlier, didn’t it?”

Partner: “Sure. So what? All well-run big firms became more lucrative  over the past two decades.”

Q: “But not everyone in those firms — or yours — benefitted, did they?”

Partner: “Your question is too vague. You’ll have to be more specific.”