Tag Archives: Hildebrandt

BIG LAW LEADERS “GET IT”? SERIOUSLY?

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The concluding lines of this year’s Client Advisory from Hildebrandt/Citi are defensive, if not petulant:

“Unlike the commentary of many observers of the legal profession suggesting that today’s senior management do not ‘get it,’ we believe the large law firms today have every capability to adjust to the changing market….”

That nifty non sequitur is also a rhetorical sleight of hand. Having “every capability to adjust” is not the same as actually adjusting. The suggestion that today’s senior law firm leaders “get it” implies that they are responding in healthy and productive ways to a period of dramatic change.

Well, most of them aren’t. Instead, they’re maximizing current income at great expense to the future of their institutions. But don’t take my word for it; take theirs.

Facts get in the way

Consider the dominant big firm strategy: lateral hiring and mergers to achieve top line revenue growth. In Citi’s 2012 Law Firm Leaders Survey, senior leaders self-reported that only 60 percent of their laterals were above “break even.” For 2013, the rate dropped to 57 percent. As for mergers, anyone who thinks bigger is always better should look at the decline in operating margins that has followed most recent big firm combinations. That phenomenon is called diseconomies of scale.

Moreover, even the self-reported “success rate” is inflated. It takes years to determine the true financial impact of a lateral hire, so most managing partners touting those efforts actually have no idea whether their recent acquisitions will benefit their firms’ bottom lines. In fact, if leaders already admit to mediocre results for the laterals they personally sponsored, imagine how much worse the reality must be.

Beyond the numbers

Notwithstanding previous failures on a massive scale, managing partners are still pursuing growth for the sake of growth. Unfortunately, it can be a loser in ways that go far beyond mere financial losses. The negative impact on a firm’s culture, morale, and long-term institutional stability can be devastating.

For example, the 2013 Hildebrandt/Citi Client Advisory reported that between 2007 and 2011, law firms increased the number of lateral partners by 10 percent. Meanwhile, homegrown promotions to partner during the period dropped by 21 percent. That trend is undermining already low associate morale.

The lateral hiring frenzy has demoralized partners, too. A loss of community afflicts partnerships of people who don’t know each other. That’s one reason that forty percent of respondents to Altman Weil’s May 2013 survey of firm leaders said their partners’ morale was lower than it was at the beginning of 2008.

Another reason for diminished partner morale is the way lateral hiring has contributed to higher internal equity partner compensation spreads. Bidding to attract so-called rainmakers has pushed the high end of the range up. So have existing partners who threaten to test the lateral market. In that zero sum game of dividing the partnership pie, the bottom end of the range has moved down. (For an example, take a look at James B. Stewart’s New York Times profile of a former Dewey & LeBoeuf partner who reportedly earned $350,000 while his “protector” earned $8 million.)

More collateral damage ignored

Accompanying the lateral hiring frenzy and short-term metrics that drive the prevailing big firm business model are destructive client silos. More than 70 percent of law firm leaders responding to the Altman Weil survey said that older partners were hanging on too long. In the process, they’re hoarding clients, billings, and opportunities in ways that block the transition of firm business to younger lawyers.

But leadership’s response to this problem is perverse: 80 percent of managing partners admit that they plan to continue tightening equity partner admission standards.

The ongoing failure of leadership also reveals itself in managing partners’ overall agendas. When asked to prioritize goals for their firms, they placed “client value” number eight — behind (1) increasing revenue, (2), generating new business, (3) growth, (4) profitability, (5) management change, (6) cost management, and (7) attracting talent.

Closer to the mark

In contrast to the Hildebrandt/Citi 2014 Client Advisory, the Georgetown Law Center/Peer Monitor 2014 Report on the State of the Legal Profession concludes that most law firm leaders don’t “get it” at all:

“[G]rowth for growth’s sake is not a viable strategy in today’s legal market…Strategy should drive growth and not the other way around. In our view, much of the growth that has characterized the legal market in recent years fails to conform to this simple rule and frankly masks a bigger problem – the continuing failure of most firms to focus on strategic issues that are more important for their long-term success than the number of lawyers or offices they have.”

The report explains that, in an effort to justify the counterproductive urge to grow, “law firm leaders feel constrained to articulate some kind of strategic vision…and the message that we need to ‘build a bigger boat’ is more politically palatable than a message that we need to fundamentally change the way we do our work.”

Similarly, the author of the 2013 Altman Weil survey, Thomas Clay, says that too many firms are “almost operating like Corporate America…managing the firm quarter-to-quarter by earnings per share.” That shortsighted approach is “not taking the long view about things like truly changing the way you do things to improve client value and things of that nature.”

Even clients recognize that most outside law firms aren’t adapting to new realities. An October 2013 Altman Weil Survey asked chief legal officers to evaluate the seriousness of their outside law firms in changing the legal service delivery model to provide greater value. On a scale from zero (not at all serious) to ten (doing everything they can), “for the fifth year, the median was a dismal ‘3.’”

Perhaps the authors of the Hilebrandt/Citi 2014 Client Advisory actually believe that most of their big law managing partner constituents “get it.” No one else does.

THE CULTURE OF CONTRADICTIONS

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In an ironic twist, the latest Client Advisory from the Citi Private Bank Law Firm Group and Hildebrandt Consulting warns: “Law firms discount or ignore firm culture at their peril.” Really?

Law firm management consultants have played central roles in creating the pervasive big law firm culture. But that culture seldom includes “collegiality and a commitment to share profits in a fair and transparent manner,” which Citi and Hildebrandt now suggest are vital. For years, mostly non-lawyer consultants have encouraged managing partners to focus myopically on business school-type metrics that maximize short-term profits. The report reveals the results: the unpleasant culture of most big firms.

Determinants of culture

For example, the report notes, associate ranks have shrunk in an effort to increase their average billable hours. That’s how firms have enhanced what Hildebrandt and CIti continue to misname “productivity.” From the client’s perspective, rewarding total time spent to achieve an outcome is the opposite of true productivity.

Likewise, the report notes that along with the reduction in the percentage of associates, the percentage of income (non-equity) partners has almost doubled since 2001. Hildebrandt and Citi view this development as contributing to the squeeze on partner profits. But income partners have become profit centers for most firms. As a group, they command higher hourly rates, suffer fewer write-offs, and enjoy bigger realizations.

From the standpoint of a firm’s culture, a class of permanent income partners can be a morale buster. That’s especially true where the increase in income partners results from fewer internal promotions to equity partner. Comparing 2007 to 2011, the percentage of new equity partner promotions of home-grown talent dropped by 21 percent.

Lateral culture?

In contrast to the more daunting internal path to equity partnership, laterals have thrived and the income gap within most equity partnerships has grown dramatically. “Lateral hiring is more popular than ever,” the report observes. In contrast to the drop in internal promotions, new equity partner lateral additions increased by 10 percent from 2007 to 2011.

This intense lateral activity is stunning in light of its dubious benefits to the firms involved. The report cites Citi’s 2012 Law Firm Leaders Survey: 40 percent of respondents admitted that their lateral hires were “unsuccessful” or “break even.” The remaining 60 percent characterized the results as “successful” or “very successful,” but for two reasons, that number overstates reality.

First, it typically takes a year or more to determine the net financial impact of a lateral acquisition. Most managing partners have no idea whether the partners they’ve recruited over the past two years have produced positive or negative net economic contributions. For a tutorial on the subject, see Edwin Reeser’s thorough and thoughtful analysis, “Pricing Lateral Hires.”

Second, when is the last time you heard a managing partner of a big firm admit to a mistake of any kind, much less a big error, such as hiring someone whom he or she had previously sold to fellow partners as a superstar lateral hire? These leaders may be lying to themselves, too, but in the process, they’re creating a lateral partner bubble.

Stability?

The Hildebrandt/Citi advisory gives a nod to institutional stability, mostly by observing that it’s disappearing: “The 21-year period of 1987-2007 witnessed 18 significant law firm failures. In recent years, that rate has almost doubled, with eight significant law firms failing in the last five years.” If you count struggling firms that merged to stave off dissolution, the recent number is much higher.

In a Bloomberg interview last October, Citi’s Dan DiPietro, chairman of the bank’s law firm group, said that he maintained a “somewhat robust watch list” of firms in potential trouble, ranging from “very slight concern to oh my God!”

Cognitive dissonance

Here’s a summary:

Culture is important, but associates’ productivity is a function of the hours they bill.

Culture is important, but associates face diminishing chances that years of loyalty to a single firm will result in promotion to equity partnership.

Culture is important, but lateral hiring to achieve revenue growth has become a central business strategy for many, if not most, big firms. It has also exacerbated internal equity partner income gaps.

Culture is important and, if a firm loses it, the resulting instability may cause that firm to disappear.

As you try to reconcile these themes, you’ll understand why, as with other Hildebrandt/Citi client advisories, the report’s final line is my favorite: “As always, we stand ready to assist our clients in meeting the challenges of today’s market.”

A NEW METRIC: THE MISERY INDEX

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Let’s call it what it is.

Large law firms and their management consultants have redefined a word — productivity — to contradict its true meaning. Recent reports from Hildebrandt and Citi measure it as everyone does: average billable hours per attorney.

No one questions this perversion because the prevailing business model’s primary goal is maximizing partner profits. Billables times hourly rates produce gross revenues. More is better and the misnomer — productivity — persists.

The Business Dictionary defines productivity as the “relative measure of the efficiency of a person [or] system…in converting inputs into useful outputs.” But the relevant output for an attorney shouldn’t be total hours spent on tasks; it’s useful work product that meets client needs. Total elapsed time without regard to the quality of the result reveals nothing about a worker’s value. More hours often mean the opposite of true productivity.

Common sense says that effort on the fourteenth hour of a day can’t be as valuable as that exerted during hour six. Fatigue compromises effectiveness. That’s why the Department of Transportation imposes rest periods after interstate truckers’ prolonged stints behind the wheel. Logically, absurdly high billables should result in compensation penalties, but prevailing big law economics dictate otherwise.

Here’s a partial cure. Rather than mislabel attorney billables as measures of productivity, an index should permit excessive hours to convey their true meaning: attorney misery. The Misery Index would be a natural corollary to NALP’s survey of minimum billable hour requirements. Attorneys now accept as given the 2,000 hour threshold that most firms maintain, even though current big law leaders faced no mandatory minimum levels when they were associates. As Yale Law School describes in a useful memo, 2,000 is a lot. But even if the 2,000-hour bell can’t be unrung, the Misery Index could reveal a firm’s culture.

To construct this metric for a given firm, start with attorneys billing fewer than 2,000 hours annually (including pro bono and genuine firm-related activities such as recruiting, training, mentoring, client development, and management); those lawyers wouldn’t count toward their firm’s Misery Index. However, at each 100-hour increment above 2,000, the percentage of attorneys reaching each higher numerical category would be added. To reflect the increasing lifestyle costs of marginal billables, attorneys with the most hours would count at every 100-hour interval preceding their own. Separate indices should exist for associates (AMI) and partners (PMI).

The Misery Index would reveal distinctions that firmwide averages blur. For example, Firm A has an Associate Misery Index of 125, calculated as follows:

50% of associates bill fewer than 2,000 hours = 0 AMI points

50% > 2,000 = 50  AMI points

40% > 2,100 = 40

25% > 2,200 = 25

10% > 2,300 = 10

None > 2,400

AMI: 125

Firm B’s AMI of 315 describes a much different place:

10% of associates bill fewer than 2,000 hours = 0 AMI points

90% > 2,000 = 90 points

75% > 2,100 = 75

60% > 2,200 = 60

45% > 2,300 = 45

30% > 2,400 = 30

15% > 2,500 = 15

None > 2,600

AMI: 315

A Misery Index would aid decision-making, especially for new graduates. Some would prefer firms with a high one; most wouldn’t. A Misery Index above 300 might prompt questions about the physical health of a firm’s attorneys; a Misery Index of zero — no one working more than 2,000 hours — might prompt questions about the health of the firm itself. Big disparities between partners (PMI) and associates (AMI) would be revealing, too.

Data collection is problematic. NALP won’t ask for the information and most firms won’t supply it — unless clients demand it. (In an earlier article, I explained why they should.) Alternatively, individual attorneys could provide the information anonymously, similar to The American Lawyer’s annual mid-level associate surveys.

Complementing the Misery Index would be firm-specific Attrition Rates by class year from starting associate to first year equity partner. NALP’s last report — before the 2008 financial crisis — showed big law’s five-year associate attrition rates skyrocketing to more than eighty percent, but significant differences existed among firms.

The Misery Index and Attrition Rates would be interesting additions to Am Law‘s “A-List” criteria that many big firms heed. Imagine an equity partner meeting that included this agenda item: “Reducing Our Misery Index and Attrition Rates.” It would certainly be a departure from scenes and themes in my best-selling legal thriller, The Partnership.

Big law is filled with free market disciples who urge better information as a panacea, as well as metrics to communicate it. Here’s their chance.

ACCELERATING IN THE WRONG DIRECTION

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Recently, law firm management consultant Hildebrandt Baker Robbins’ Kristin Stark offered her solution to problems that she sees with many large firm compensation systems:

“Firms need to be talking to their partners about their performance every year — and throughout the year. Ongoing coaching of partners on their performance and helping them make improvements has become a powerful tool for driving partner and firm performance in successful firms. High-performing partners want to work in an environment where co-owners are engaged and actively contributing to firm growth. Without this, a firm’s top performers are at risk.” (http://www.law.com/jsp/law/article.jsp?id=1202472843670&Partner_Compensation_The_Downturns_New_Touchy_Subject)

Stark buried the lead, but her key point appears to be that a firm’s principal mission should be to keep its rainmakers happy. Otherwise, they’re “at risk” — meaning that they’ll leave to make more money elsewhere.

Wait a minute. A few lines earlier, Stark described the growing gap in high-to-low partner compensation: “Before the recession, [it] was typically five-to-one in many firms. Very often today, we’re seeing that spread at 10-to-1, even 12-to-1.”

“You can imagine that creates a lot of problems,” she continued. “It drives further tension between partners over compensation and creates an environment of the ‘haves’ and the ‘have-nots’ in law firms.”

What should firms that have become beholden to a few rainmakers and their often oversized egos do? Whatever it takes to keep them? Won’t that exacerbate the resentment of those whom Stark calls the “have-nots”? What are the limits of tolerably bad behavior by the “haves”? Big billers always get a pass for hoarding clients. How about verbally abusing subordinates? Or worse?

Meanwhile, she suggests, firms should coach other lawyers on the importance of “improving performance.” That’s code for billing more hours and bringing in more business. Forget about mentoring the next generation, encouraging collegiality, enhancing attorney career satisfaction, or focusing on other professional values for which the dominant large law firm model lacks a metrics link to bottom-line equity partner profits.

It also means reconciling the “have-nots” to their proper places in the firm:

“In this market firms have to constantly reevaluate the expectations of a partner, communicate with partners about what is required of them, and incorporate partner goals and expectations into the compensation process,” Stark said.

In other words, everyone should understand the need to work harder so that the highest paid equity partners widen their already enormous compensation advantages over all others.

All of this is an interesting commentary on a group of extraordinarily talented men and women — a firm’s longstanding (but non-rainmaker) equity partners who, apparently, somehow lost the intelligence and personality traits that caused them to excel in the first place. As students, their brains and hard work took most of them to the best colleges and law schools. As associates, their ambitions carried them past peers into equity partnerships. Presumably, they served clients who valued their work.

When did they lose it? Admittedly, a few never deserved promotion, but internal firm political stars aligned in a way that allowed them to bypass quality control criteria. Success made others fat, happy, and lazy; still others burned out. But most equity partners achieved their status because they had a lot going for them — and still do. If they continue to enjoy the practice of law, that alone pushes them as it always has.

Not so, says Stark. They need coaching to keep their expectations in check. They must pander to top billers whose eternal answer to the question “How much is enough?” will always be “More.” They should live with the anxiety accompanying ongoing performance evaluations throughout the year. Never mind that, in Biglaw as in life, individual careers experience peaks and valleys; rarely is any overall upward trajectory a straight line.

Fear isn’t a productive ingredient in the recipe for motivating talent. But try telling that to some large firm managing partners and their outside consultants. On second thought, don’t bother. They already know everything.

KEEP FEEDING PROFITS THE BEAST. WHAT COULD GO WRONG?

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Most Biglaw equity partners are weathering the persistent economic storm quite well. But who’s paying the price?

As the economy cratered in 2009, average equity partner profits for the Am Law 100 actually edged up slightly — to $1.26 million. As the summer of 2010 ended, law firm management consultant Hildebrandt Baker Robbins reported that profits remained healthy in a stagnant market.  (http://www.hbrconsulting.com/PMIQ2-2010) (Its Peer Monitor Economic Index (PMI) purports to capture the “drivers of law firm profitability, including rates, demand, productivity and expenses.” How’s that for a nifty, all-inclusive metric?)

Recently, Citi released six-month data for 2010 showing increases in average equity partner profits compared to 2009, notwithstanding flat revenue and reduced demand. (http://amlawdaily.typepad.com/amlawdaily/2010/09/citimidyear.html)

How are the equity partners doing it? Look at the PMI components: revenue, expenses, and productivity.

1.  During the first half of 2010, billing rates trended  up  by 4%. According to Citi, that increase could reflect senior partners with higher billing rates doing work that younger lawyers once performed. Such hoarding is the way some partners respond to lean economic times. No one escapes the pressure to maintain hours.

2.  Reduced expenses is a nice way of saying that attorneys and staff lost their jobs. Black Thursday in mid-February 2009 was bad enough; Biglaw laid off thousands of associates that week. But Hildebrandt noted that headcount reductions actually peaked months later — in the fourth quarter of 2009. This “relentless focus on cost cutting has managed to sustain profitability.”

The chairman of Citi’s Law Firm Group added, “Given these results, we see the first six months of 2010 as lackluster from a volume perspective but made palatable due to belt-tightening.” Whose belts?

3.  Increased productivity is MBA-speak for squeezing more billable hours from attorneys. Hildebrandt expressed concern that the quarter’s 1.7% productivity increase marked a slowdown compared to the 2.3% gains of the two prior quarters. The prime directive remains: Get those hours up.

Now what?

Hilbedrandt’s report: “We may be reaching an inflection point where major fundamental changes in legal service delivery are needed to prosper in the years ahead. New approaches to firm structures, client management, pricing strategies and talent development need to be closely examined. The challenge to firms will be in their willingness to innovate, experiment and change longstanding firm traditions in order to find new avenues of growth and profitability.”

What does that mean? Last week, Hildebrandt’s Lisa Smith offered a five-year scenario in which increased efficiency, outsourcing, and use of staff attorneys could combine to reduce the number of current non-partner attorneys in the Am Law 200 from 65,000 to 47,500 — a 27% drop. (http://www.hbrconsulting.com/blog/archive/2010/09/23/chipping-away-at-the-traditional-model.aspx ) It’s unclear if her assumed efficiency gains included expected law firm consolidations, but mergers of any businesses usually eliminate jobs.

Meanwhile, non-economic metrics — the ones that the predominant Biglaw business model ignores — add another dimension. Associate satisfaction continues to plummet. If someone asked, many partners would express discontent as well. Particularly unhappy would be those feeling vulnerable to the metrics that make decisions automatic in too many big firms: billings, billable hours, and leverage ratios.

Think equity partners are safe? Think again. As Citi’s Law Firm Group chairman noted, “Most firms reduced equity partner headcount in the first half of 2010, so it’s clear that this is a focal point. We believe it will continue to be a priority throughout 2010.”

All of this brings to mind Martin Niemoller’s famous remark about Nazi Germany during the 1930s: “First they came for the Socialists, and I did not speak out because I was not a Socialist…” His litany continued through trade unionists and Jews before concluding,

“When they came for me, no one was left to speak for me.”

Here’s where the analogy fails: More than 85% of attorneys practice outside Biglaw. That’s a lot of survivors.

ALONG CAME LAW FIRM MANAGEMENT CONSULTANTS

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In the final analysis, Biglaw leaders have only themselves to blame, but they didn’t stumble into the world of misguided metrics on their own. They paid outside experts to guide the way — and they’re still doing it.

Thirty years ago, few undergraduates went to law school because they thought that a legal career would make them rich. For example, most students at Harvard with that ambition were on the other side of the Charles getting MBAs; the river formed a kind of natural barrier. The law was something special — a noble profession — or so most of us believed.

Particularly in large firms, nobility has yielded to business school-type metrics that focus on short-term profits-per-partner. The resulting impact on the internal fabric of such firms is depicted in my legal thriller, 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) But other collateral damage includes the decline of mentoring that produced great lawyers in my baby boomer generation. (See my article, “Where Have All The Mentors Gone?” – http://amlawdaily.typepad.com/amlawdaily/2010/07/harpermentors.html).

Among the reactions to my mentoring observations was this:

“I am particularly intrigued by your reference to the role modern legal consulting firms have played in the demise of law as a profession. This is worthy of a blog post in and of itself and I look forward to it.”

I discussed this subject in an earlier post, but it’s worth another look.

Hildebrandt Baker Robbins is the successor to Hildebrandt, Inc., one of the early pioneers in what became a cottage industry: law firm management consulting. The company’s 2010 Client Advisory includes this line:

“In our view, one of the serious misuses 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.”  (http://www.hildebrandt.com/2010ClientAdvisory)

Really? Who encouraged the use of this ubiquitous metric on which Hildebrandt has now soured? As Dana Carvey’s church lady character might say, “Could it be….Hildebrandt?”

Of course, it wasn’t alone. When The American Lawyer published its first ranking of the Am Law 50  (now  grown to 100) in 1985, what was once off limits in polite company — how much money a person made — became an open and notorious measuring stick of law firm performance: average profits per partner. Greed became respectable as inherently competitive firm leaders began teaching to the Am Law test so they could gain or retain position in its annual listing.

When the 1990-1991 recession rattled 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 16 years earlier had 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…” (“The NLJ 250: Annual Survey of the Nation’s Largest Law Firms — Overview — The Boom Abates,” The National Law Journal, September 30, 1991 (Vol. 14, No. 4))

So who could save us from ourselves? As they watched profits slide, worried law firm leaders turned to Hildebrandt and other experts who could assist in bringing business school principles and MBA-type metrics to their big firms. By 1996, Mr. Hildebrandt himself had diagnosed the situation and offered his remedy 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.” (“The NLJ 250 Annual Survey of the Nation’s Largest Law Firms: A Special Supplement — More Lawyers Than Ever In 250 Largest Firms,” The National Law Journal, September 30, 1996 (Vol. 19, No. 5))

With such cheerleaders at their sides, senior partners focused on the three legs supporting the PEP (profits per equity partner) stool: billings, billable hours, and associate/partner leverage ratios.

Hourly rates marched skyward — even during recessions — increasing an average of 6% to 8% annually from 1998 to 2007. Billable hours targets likewise rose. Yet talented attorneys who would have advanced to equity partner a decade earlier received their walking papers as firms increased leverage ratios, which doubled between 1985 and 2010 for the Am Law 50. (http://amlawdaily.typepad.com/amlawdaily/2010/05/classof1985.html) With a few sharp turns of the costs screw, the game was won.

The results were mixed. For equity partners in the Am Law 100, average profits soared to more than $1 million annually — and rose during the Great Recession. Yet today, attorneys in big firms have become the law’s most dissatisfied workers — even though lawyers as a group were already leading most occupations in that unpleasant race.

The law firm as collection of men and women bound together in common pursuit of a noble profession yielded to an MBA mentality that relied on business school metrics to produce more dollars — the new measure of individual status and firm success. Valued partners who wouldn’t have considered leaving in earlier times began to follow the money — eroding concepts of loyalty and shared mission that created a firm’s identity over generations.

Oh, what a mistake, Hildebrandt now urges — not unlike Harvard’s new business school dean who looks hopefully (but in vain) to the law as an alternative model that might restore integrity to that world. (See my earlier article, “The MBA Mentality Rethnks Itself?” — http://amlawdaily.typepad.com/amlawdaily/2010/05/harper1.html)

What does Hildebrandt now propose to replace profits per equity partner as the key measure of overall firm performance? Profits per employee. But it simultaneously suggests that client satisfaction ratings should replace billable hours while employee satisfaction ratings supplant leverage.

Is your head spinning over the interplay among these complicated and confusing new metrics? Hildebrandt has the answer:

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

How comforting.

2,000 HOURS

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Why is Yale an outlier? Last year, only 35% of its graduates started their careers in large firms. An equal number accepted judicial clerkships; many will eventually join biglaw for a while. Still, Yale has a longstanding pattern of trailing peer institutions that, until this year, routinely placed more than half of their graduating classes directly into big firms.

One explanation is Yale’s public service tradition. Recently, I stumbled onto another: the school encourages candor about associate life in biglaw.

For many reasons — including the quest for perceived status, the urgency of educational loan repayment schedules, and the promise of future riches — most graduates seek initial employment in big firms with stated minimum annual billable hour requirements. Unfortunately, students view such numbers as abstractions.

They don’t pause to consider what it means to say that 2,000 hours has replaced 1,800 as a critical evaluation metric. (A 1958 ABA pamphlet suggested 1,300 as an appropriate yearly goal. Seriously. That would qualify as part-time, non-partner track employment today.)

Yale publishes a brochure that breathes life into the numbers. “The Truth About The Billable Hour” outlines hypothetical workdays and should be required reading for any prospective lawyer.(http://www.law.yale.edu/documents/pdf/CDO_Public/cdo-billable_hour.pdf) 

When commuting, lunch, and bathroom breaks get included, the concept of billing 2,000 client hours assumes new meaning. It also provides perspective on legal consultant Hildebrandt Baker Robbins’s observation in its 2010 Client Advisory to our profession:

“The high point of law firm productivity was in the late 1990s, when average annual billable hours for associates in many firms were hitting 2,300 to 2,500.”

Astronomical billable hours are what Hildebrandt and others in its cottage industry told us was “productivity.” So guess what happened after they advised firms to increase it?

According to Hildebrandt in 2010: “The negative growth in productivity, even during the ‘boom’ years preceding the current downturn when demand was growing at a healthy rate, was driven to some extent by associate pushback on the unsustainable billable hour requirements at many firms.”

“Associate pushback” is a euphemism for skyrocketing attrition rates. Before the Great Recession, average associate attrition from the nation’s largest firms in 2007 had risen to 70% of that year’s new hires. (NALP published the data in its 2008 “Update on Associate Attrition.”) No one cares about that crisis level of turnover now because the demand for new graduates has collapsed and those who have jobs aren’t going anywhere soon — at least, voluntarily.

But if recent surveys are accurate, relatively few of the newly employed winners will find career satisfaction in their current firms. So what will happen after they finish repaying their school loans?

Like earlier crises confronting the profession, we’ll probably ignore that one when we get to it, too.

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.