TREATING SYMPTOMS; IGNORING THE DISEASE

Posted on June 1, 2017 by thebellyofthebeast

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.

ANOTHER BIG LAW FIRM STUMBLES

Posted on December 19, 2016 by thebellyofthebeast

King & Wood Mallesons was never really a law firm. For starters, it was a verein — a structure that allowed three distinct firms to create a branding opportunity — King & Wood in China, Mallesons in Australia, and SJ Berwin in the United Kingdom. As things turned out, when SJ Berwin came on board in 2013, the verein whole quickly became less than the sum of its parts.

As The American Lawyer’s Chris Johnson and Rose Walker put it in their recent article, a verein is “a holding structure that allows member firms to retain their existing form. The structure…enabled the three practices to combine quickly and keep their finances separate.”

But the structure also means that when one member of the verein hits hard times, the others can walk away. For KWM, “the Chinese and Australian partnerships have effectively been able to stand back and watch as the European practice burned.”

Not Just a Verein Problem

To be sure, the verein structure exacerbates SJ Berwin’s current difficulties. But before leaders of big non-verein firms become too self-satisfied, they might consider whether their own firms risk the same dangers now afflicting KWM.

As Johnson and Walker report, the firm’s compensation system produced bad behavior. KWM awarded client credit to the partner who physically signed the invoice. That effectively encouraged partners to refer work to rival firms, rather than other KWM partners.

Think about that last sentence for a minute.

“It was one of the things that killed the firm,” says one former London partner. “If I sent work to other [KWM] partners, it would be out of my numbers at the end of the year. It was better for me to send it to another firm, as I’d then still be the one invoicing the client, so I’d get the credit for everything.”

A Team of One, Not One Team

When it came to cross selling among offices and practice groups, management talked a good game. Indeed, the verein’s 2013 merger tag line was “The Power of Together.” But here, too, behavior followed internal financial incentives. The compensation committee focused on individual partner performance, not the “one team, one firm” sound bite on its “vision and values” website page.

“There was a complete disconnect between what management said we should do and what the remuneration committee would reward us for doing,” says a former partner.

Lessons Not Learned, Again

As KWM’s European arm disintegrates, most law firm leaders will probably draw the wrong conclusions about what went wrong. Emerging narratives include: SJ Berwin had been on shaky ground since the financial crisis hit in 2008; the firm lacked competent management; the principal idea behind the combination — creating a global platform — was sound; only a failure of execution produced the bad outcome.

For students of law firm failures, the list sounds familiar. It certainly echoes narratives that developed to explain the 2012 collapse of Dewey & LeBoeuf. But the plight of KWM — especially the SJ Berwin piece — is best understood as the natural consequence of a partnership that ceased to become a partnership. In that sense, it resembles Dewey & LeBoeuf, too.

The organizational structure through which attorneys practice law together matters. The verein form allows King & Wood and Mallesons to back away from Sj Berwin with limited fear of direct financial exposure. But as SJ Berwin careens toward disaster, fellow verein members will suffer, at a minimum, collateral damage to the KWM brand.

What’s the Future Worth?

The lesson for big law firm leaders seems obvious. Since the demise of Dewey, that lesson has also gone unheeded. A true partnership requires a compensation structure that rewards partner-like behavior — collegially, mentoring, expansion and transition of client relationships to fellow partners, and a consensus to pursue long-term strategies promoting institutional stability rather than maximizing short-term profit metrics.

Firms that encourage attorneys to build individual client silos from which partners eat what they kill risk devastating long-term costs. They’re starving firm of their very futures. Unfortunately, too many big law firm leaders share a common attitude: the long-term will be someone else’s problem.

In a line that stretches back to Finley Kumble and includes Dewey & LeBoeuf, Bingham McCutchen, and a host of others, the names change, but the story remains the same. So does a single word that serves both as those firms’ central operating theme and as their final epitaph: greed.

BIG LAW RESISTS THE ASSAULT ON DEMOCRACY

Posted on August 24, 2016 by thebellyofthebeast

Call them unsung heroes.

When attorneys in big law firms get things right, they deserve more attention than they receive. Recently, some of them have won important victories in the profession’s noblest pursuit: protecting our republic. And they’re not getting paid anything to do it.

Start with North Carolina. On July 29, a unanimous court of appeals threw out that state’s voter ID law. In an 83-page opinion, the court wrote that the law had targeted African Americans “with almost surgical precision.”

Behind that monumental win was an enormous investment of money and manpower — all of it pro bono. Daniel Donovan led a team of lawyers from Kirkland & Ellis LLP through two trials over a four-week period. More than fifty witnesses testified. After losing in the trial court — which issued a 479-page opinion denying relief — the plaintiffs appealed. On July 29, they won. Think of it as Kirkland & Ellis’s multi-million dollar contribution to democracy.

On, Wisconsin!

The same day that the court of appeals threw out North Carolina’s unconstitutional voter ID law, a federal judge in Madison invalidated Wisconsin’s effort to disenfranchise African Americans and Latinos. Big law firm partner Bobbie Wilson at Perkins Coie LLP was at the center of that effort. A nine-day trial and more than 45 witnesses (including six experts) culminated in Judge James B. Peterson’s 119-page ruling in favor of the plaintiffs.

On August 22, the seventh circuit court of appeals denied the request of Governor Scott Walker’s administration to stay Judge Peterson’s ruling.

North Dakota

Three days later, Richard de Bodo of Morgan, Lewis & Bockius LLP won a challenge to North Dakota’s voter ID laws. The targets of that legislation were Native Americans.

Like similar statutes enacted throughout the country since 2010, voter ID laws in North Carolina, Wisconsin, and North Dakota were products of a Republican-controlled legislature and governorship. The real motivation behind such restrictions on a fundamental right is as ugly as it is obvious.

Fighting Against the Demographic Tide of History

In 2014, the Brennan Justice Center noted that North Carolina and Wisconsin were in select company: “Of the 11 states with the highest African-American turnout in 2008, 7 have new restrictions in place: Mississippi (73.1 percent), South Carolina (72.5), Wisconsin (70.5), Ohio (70.0), Georgia (68.1), North Carolina (68.1), and Virginia (68.1).”

Of the 12 states with the largest Hispanic population growth between 2000 and 2010, North Carolina was one of nine that made it harder to vote. The others were South Carolina, Alabama, Tennessee, Arkansas, North Carolina, Mississippi, South Dakota, Georgia, and Virginia.

Rigged Elections? Yes, But in Whose Favor?

Now that the Republican nominee for President of the United States is pushing a dangerous and destructive new theme, the battle to vote has now assumed a great significance.

“I’m afraid the election is going to be rigged,” Donald Trump warned at a rally in Columbus, Ohio on August 1, right after the North Carolina federal appeals court ruled.

That evening he told an interviewer: “I’m telling you, November 8, we’d better be careful, because that election is going to be rigged. And I hope the Republicans are watching closely, or it’s going to be taken away from us.”

Dedicated attorneys — especially those in big firms willing to donate enormous resources to the cause — have worked hard to protect the right of every eligible person to vote. If they hadn’t, then the North Carolina legislature might, indeed, have rigged the election in a key swing state that President Obama had won. But that’s not what Trump meant, was it?

No, he sees a different enemy.

“[P]eople are going to walk in, they are going to vote 10 times maybe. Who knows?” he said in an August 2 interview.

He now has a website page: “Help Me Stop Crooked Hillary From Rigging This Election.” Such whining is actually much more than that. It’s a campaign tactic uniting two sinister and pervasive themes: racial division and attacks on the rule of law.

Facts Don’t Matter

Trump began stoking fear and division with a promise to build a wall to keep out Mexicans, whom he called rapists and drug dealers. He then coupled it with a “deportation force” to “round ’em up,” sending 11 million illegal immigrants “back where they came from.”

Then he professed ignorance about David Duke. (“I don’t know anything about David Duke… I know nothing about white supremacists.”) Before long, he unleashed hostility toward “Mexican” Judge Gonzalo Curiel. After scaring people, it was a short step for him to becoming their self-professed “law-and-order” savior.

Now he is wrapping his message in a long-discredited canard. Defenders of unconstitutional voter ID laws persist in fomenting “election fraud” paranoia, even though it lacks any factual basis. Professor Justin Levitt at Loyola Law School, Los Angeles tracked all claims of alleged voter ID fraud and found a grand total of 31 credible allegations – out of more than one billion ballots cast.

In the North Dakota case, Judge Daniel L. Hovland wrote, “There is a total lack of any evidence to show voter fraud has ever been a problem in North Dakota.”

Likewise, in the Wisconsin case, the judge ruled. “The Wisconsin experience demonstrates that a preoccupation with mostly phantom election fraud leads to real incidents of disenfranchisement, which undermine rather than enhance confidence in elections, particularly in minority communities. To put it bluntly, Wisconsin’s strict version of voter ID law is a cure worse than the disease.”

And in the North Carolina case, a unanimous court of appeals concluded, “The record thus makes obvious that the ‘problem’ the majority in the General Assembly sought to remedy was emerging support for the minority party.”

Mob Mentality

The cry of phantom election fraud feeds Trump’s narratives, while taking them a perilous step farther: de-legitimizing an election that polls now show Trump is losing “hugely.” As his prospects sag, his vile rhetoric escalates.

Shortly after an August 10 poll showed Trump trailing in Pennsylvania by double digits, he went to that state and told an Altoona crowd, “Go down to certain areas and watch and study and make sure other people don’t come in and vote five times… The only way we can lose, in my opinion – I really mean this, Pennsylvania – is if cheating goes on… ”

Never mind that Pennsylvania hasn’t voted for a Republican Presidential nominee since 1988. Even an incumbent, George H.W. Bush, couldn’t carry it in 1992.

Trump then continued waving his red herring: “Without voter ID there’s no way you’re going to be able to check in properly.”

Scorched Earth

The real danger to democracy isn’t election rigging or cheating. It’s Donald J. Trump. De-legitimization – the ultimate ad hominem attack on a process to undermine its outcome – is a standard tactic from his deal-making playbook. When it appeared that he might not arrive at the Republican convention with enough delegates to secure the nomination, he warned about “riots,” if someone else won.

Never mind the rules; they’re for losers. Anyone fearing that Trump will win should fear more that he won’t.

Trump knows that facts don’t matter because – true or false – the branding sticks. For example, there was never any evidence to support Trump’s wild “birther” claims about President Obama in 2011. But five years later, 20 percent of Americans still believe — today — that he was born outside the United States.

Some people will always believe anything Trump says, even as he contradicts himself from one moment to the next. His infamous line was pretty accurate: “I could stand in the middle of Fifth Avenue and shoot somebody, and I wouldn’t lose any voters.”

Perhaps he is discovering that “any” was an overstatement. But his de-legitimization strategy worked against most Republican politicians, who folded like cheap suits rather than break from the man-baby who would be king. Now the stakes are higher. His targets are the rule of law, the essence of democracy, and the peaceful transfer of Presidential power that occurs every four years.

The Real Losers

The eventual victims of Trump’s scorched earth approach will be the American people. If, as with his false “birther” claims five years ago, 20 percent of voters – about half of his current supporters – believe that Trump’s defeat results from a “rigged” election that “cheaters” won, the collateral damage to the county will be profound.

Donald Trump lives in a simple binary world of winners and losers – and he’s all about winning at any cost. He measures success in dollars. His latest tactic makes democracy itself the loser. Try putting a price on that. And thank some big law firms and their attorneys who are willing to make the investment required to stand in his way.

ASSOCIATE PAY AND PARTNER MALFEASANCE

Posted on July 13, 2016 by thebellyofthebeast

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.

BIG LAW’S SHORT-TERMISM PROBLEM

Posted on December 16, 2015 by thebellyofthebeast

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.

DEWEY: 10 LESSONS LOST

Posted on September 23, 2015 by thebellyofthebeast

National news organizations began working on stories about the verdicts in the Dewey & LeBoeuf case long before the jury’s deliberations ended.

“What are the lessons?” several reporters asked me.

My initial inclination was to state the obvious: Until the jury renders its decision, who can say? But that would be an unfortunately limited way of viewing the tragedy that befell a once noble law firm. In fact, the trial obscured the most important lessons to be learned from the collapse of Dewey & LeBoeuf.

Lesson #1: You Are What You Eat

During the twelve months prior to the firms’ October 2007 merger, Dewey Ballantine hired 30 lateral partners; LeBoeuf Lamb hired 19. The combined firm continued that trend as Dewey & LeBoeuf became one of the top 10 firms in lateral recruiting. By 2011, 50 percent of the firm’s partners were post-2005 laterals into Dewey & LeBoeuf or its predecessors.

A partnership of relative strangers is not well-positioned to withstand adversity.

Lesson #2: Mind the Gap

To accomplish aggressive lateral hiring often means overpaying for talent and offering multi-year compensation promises. By 2012, Dewey & LeBoeuf’s ratio of highest-to-lowest paid equity partners was 20-to-1.

A lopsided, eat-what-you-kill partnership of haves and have-nots has difficulty adhering to a common mission.

Lesson #3: Not All Partners Are Partners

One corollary to a vast income gap within the equity ranks is the resulting partnership-within-a-partnership. As those at the top focus on the short-term interests of a select few, the long-run health of the institution suffers.

A partnership within a partnership can be a dangerous management structure.

Lesson #4: The Perils of Confirmation Bias

Firm leaders and their fellow partners are vulnerable to the same psychological tendencies that afflict us all. When former Dewey chairman Steven H. Davis held fast to his perennial view that better times were just around the corner, fellow partners wanted to believe him.

Magical thinking is not a business strategy.

Lesson #5: Short-termism Can Be Lethal

Short-term thinking dominates our society, even for people who view themselves as long-term strategists. At Dewey, the need to maximize current year partner profits and distribute cash to some partners overwhelmed any long-term vision that Davis sought to pursue.

In the not-so-long run, a firm can die.

Lesson #6: Behavior Follows Incentive Structures

Most firms hire lateral partners because they will add clients and billings. To prove their worth, laterals build client silos to prevent others from developing relationships with “their clients.” Similarly, there’s no incentive for partners in “eat-what-you-kill” firms to mentor young attorneys or facilitate the smooth intergenerational transition of client relationships.

Over time, the whole can become far less than the sum of its parts.

Lesson #7: Disaster Is Closer Than You Think

When the central feature of a firm’s culture is ever-increasing partner profits, even small dips become magnified. Incomes that are staggering to ordinary workers become insufficient to keep restless partners from finding a new place to work.

Death spirals accelerate.

Lesson #8: Underlings Beware

On cross-examination, some of the prosecution’s witnesses testified that at the time they made various accounting adjustments to Dewey’s books, they didn’t think they’d done anything wrong. But now they are parties to plea agreements that could produce prison time.

Deciding that something isn’t wrong is not always the same as determining that it’s right.

Lesson #9: Greed Governs

Who among the Dewey partners received the $150 million in bond proceeds from the firm’s 2010 bond offering? I posed that question a year ago and we still don’t know the answer. During the first five months of 2012 — as the firm was in its death throes — a small group of 25 partners received $21 million while the firm drew down its bank credit lines. Who masterminded that strategy?

In a November 2012 filing with the Dewey bankruptcy court, Steven Davis explained why Dewey collapsed: “While ‘greed’ is a theme…, the litigation that eventually ensues will address the question of whose greed.” (Docket #654) He was referring to some of his former partners who ignored the role that fortuity had played in creating their personal wealth.

Hubris is a powerfully destructive force.

Lesson #10: Superficial Differences Don’t Change Outcomes

For the three years that Dewey has been in the news, many big law firm leaders have been performing the task at which attorneys excel: distinguishing adverse precedent. In great detail, they explain all of the ways that their firms are nothing like Dewey. But they fail to consider the more significant ways in which their firms are similar.

A walk past the graveyard is easier when you whistle. Louder is better. Extremely loud and running is best.

LABOR DAY

Posted on September 2, 2015 by thebellyofthebeast

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.

THE PERVASIVE AMAZON JUNGLE

Posted on August 19, 2015 by thebellyofthebeast

Amazon’s founder and CEO, Jeff Bezos, hates the recent New York Times article about his company. He says it “doesn’t describe the Amazon I know.” Rather, it depicts “a soulless, dystopian workplace where no fun is had and no laughter heard.” He doesn’t think any company adopting such an approach could survive, much less thrive. Anyone working in such a company, he continues, “would be crazy to stay” and he counts himself among those likely departures.

The day after the Times’ article appeared, the front page of the paper carried a seemingly unrelated article, “Work Policies May Be Kinder, But Brutal Competition Isn’t.” It’s not about Amazon; it’s about the top ranks of the legal profession and the corporate world. Both are places where the Times’ version of Amazon’s culture is pervasive — and where such institutions survive and thrive.

The articles have two unstated but common themes: the impact of short-termism on working environments, and how a leader’s view of his company’s culture can diverge from the experience of those outside the leadership circle.

Short-termism: “Rank and Yank”

Bezos is hard-driving and demanding. According to the Times, his 1997 letter to shareholders boasted, “You can work long, hard or smart, but at Amazon.com you can’t choose two out of three.”

The Times reports that Amazon weeds out employees on an annual basis: “[T]eam members are ranked, and those at the bottom eliminated every year.” Jack Welch pioneered such a “rank and yank” system at General Electric long ago and many companies followed his lead. Likewise, big law firms built associate attrition into their business models.

Theoretically, a “rank and yank” system produces a higher quality workforce. But in recent years, a new generation of business thinkers has challenged that premise. Even GE has abandoned Welch’s brainchild.

As currently applied, the system makes no sense to Stanford Graduate School of Business professor Bob Sutton, who observed, “When you look at the evidence about stack ranking…. The kind of stuff that they were doing [at GE], which was essentially creating a bigger distribution between the haves and the have nots in their workforce, then firing 10% of them, it just amazed me.”

If Amazon uses that system, which focuses on annual short-term evaluations, it’s behind the times, not ahead of the curve.

Haves and Have Nots

Professor Sutton’s comment about creating a bigger gap between the haves and the have nots describes pervasive law firm trends as well. The trend could also explain why Bezos and the Times may both be correct in their contradictory assessments of Amazon’s culture. That’s because any negative cultural consequences of Bezos’ management style probably don’t seem real to him. Bezos is at the top; the view from below is a lot different.

This phenomenon of dramatically divergent perspectives certainly applies to most big law firms. As firms moved from lock-step to eat-what-you-kill partner compensation systems, the gap between those at the top and everyone else exploded. Often, the result has been a small group — a partnership within the partnership — that actually controls the institution.

Those leaders have figured out an easy way to maximize short-term partner profits for themselves: make the road to equity partner twice as difficult than it was for them. As big firm attorney-partner leverage ratios have doubled since 1985, today’s managers are pulling up the ladder on the next generation. It’s no surprise that those leaders view their firms favorably.

Their associates have a decidedly different impression of the work environment. Regular attrition began as a method of quality control. At many firms, it has morphed into something insidious. Leadership’s prime directive now is preserving partner profits, not securing the long-run health of the institution. Short-term leverage calculations — not the quality of a young attorney’s lawyering — govern the determination of whether there is “room” for potential new entrants.

About the Long-Run

Such short-term thinking weakens the institutions that pursue it. As Professor Sutton observes: “We looked at every peer reviewed study we could find, and in every one when there was a bigger difference between the pay at of the people at the bottom and the top there was worse performance.”

That’s understandable. After all, workers behave according to signals that leadership sends down the food chain. Dissent is not a cherished value. Resulting self-censorship means the king and the members of his court hear only what they want to hear. People inside the organization who want to advance become cheerleaders who suppress bad news. Being a team player is the ultimate compliment and the likeliest path to promotion.

One More Thing

Bezos’ letter to his employees about the Times article encourages anyone who knows of any stories “like those reported…to escalate to HR.” He says that he doesn’t recognize the Amazon in the article and “very much hopes you don’t, either.”

One former employee frames Bezos’ unstated conundrum correctly: “How do you possibly convey to your manager the intolerable nature of your working conditions when your manager is the one telling you, point blank, that the impossible hours are simply what’s expected?”

Note to Jeff B: Escalating to HR won’t eliminate embedded cultural attitudes.

Then again, maybe I’m wrong about all of this. On the same day the Times published its piece on the increasingly harsh law firm business model, the Wall Street Journal ran Harvard Law School Professor Mark J. Roe’s op-ed: “The Imaginary Problem of Corporate Short-Termism.”

It’s all imaginary. That should come as a relief to those working inside law firms and businesses that focus myopically on near-term results without regard to the toll it is taking on the young people who comprise our collective future.

THINKING BEYOND THE AM LAW 100 RANKINGS

Posted on April 22, 2015 by thebellyofthebeast

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.

A MYTH THAT MOTIVATES MERGERS

Posted on October 8, 2014 by thebellyofthebeast

In a recent interview with The American Lawyer, the chairman of Edwards Wildman, Alan Levin, explained the process that led his firm to combine with Locke Lord. It began with a commissioned study that separated potential merger partners into “tier 1” and “tier 2” firms. The goal was to get bigger.

“Size matters,” he said, “and to be successful today, you really have to be in that Am Law 50.”

When lawyers deal with clients and courts, they focus on evidence. Somehow, that tendency often disappears when they’re evaluating the strategic direction of their own institutions.

Bigger Is…?

There’s no empirical support for the proposition that economies of scale accompany the growth of a law firm. Back in 2003, Altman Weil concluded that 30 years of survey research proved it: “Larger firms almost always spend more per lawyer on staffing, occupancy, equipment, promotion, malpractice and other non-personnel insurance coverages, office supplies and other expenses than do smaller firms.” As firms get bigger, the Altman Weil report continued, maintaining the infrastructure to support continued growth becomes more expensive.

Since 2003, law firms have utilized even more costly ways to grow: multi-year compensation guarantees to overpaid lateral partners. Recently, Ed Newberry, chairman of 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 — by some studies lower than 50 percent across firms.”

The Magic of the Am Law 50?

Does success require a place in the Am Law 50? If size is the only measuring stick, then the tautology holds. Big = successful = big. But if something else counts, such as profitability or stability, then the answer is no.

The varied financial performance of firms within the Am Law 50 disproves the “bigger is always better” hypothesis. The profit margins of those firms range from a high of 62 percent (Gibson Dunn) to a low of 14 percent (Squire Sanders — which is in the process of merging with Patton Boggs).

Wachtell has the highest profit margin in the Am Law 100 (64 percent), and it’s not even in the Am Law 50. But that firm’s equity partners aren’t complaining about its 2013 average profits per partner: $4.7 million — good enough for first place on the PPP list. Among the 50 largest firms in gross revenues, 17 have profit margins placing them in the bottom half of the Am Law 100.

Buzzwords Without Meaning

A cottage industry of law firm management consultants has developed special language to reinforce a mindless “size matters” mentality. According to The Legal Intelligencer, Kent Zimmermann of the Zeughauser Group said recently that Morgan Lewis’s contemplated merger with Bingham McCutchen “may be part of a growing crop of law firms that feel they need to be ‘materially larger’ in order to increase brand awareness, [which is] viewed by many of these firms as what it takes to get on the short list for big matters.”

Not so fast. In the Am Law rankings, Morgan Lewis is already 12th in gross revenues and 24th in profit margin (44 percent). It doesn’t need to “increase brand awareness.” That concept might help sell toothpaste; it doesn’t describe the way corporate clients actually select their outside lawyers.

In a recent article, Casey Sullivan and David Ingram at Reuters suggest that Bingham’s twelve-year effort to increase “brand awareness” through an aggressive program of mergers contributed mightily to its current plight. The authors observe that In the early 1990s “[c]onsultants were warning leaders of mid-sized firms that their partnerships would have to merge or die, and [Bingham’s chairman] proved to be a pioneer of the strategy.”

Consultants have given big firms plenty of other bad advice, but that’s a topic for another day. Suffice it to say that Bingham’s subsequent mergers got it into the Am Law 50. However, that didn’t protect the firm from double-digit declines in 2013 revenue and profits, or from a plethora of partner departures in 2014.

In his Legal Intelligencer interview, Kent Zimmermann of Zeughauser also said that he has “seen firms with new leadership in place look to undertake a transformative endeavor like this [Morgan Lewis-Bingham] merger would be.” If Zimmermann’s overall observation about firms with new leadership is true, such leaders should be asking themselves: transform to what? Acting on empty buzzwords risks a “transformative endeavor” to institutional instability.

Soundbites

In contrast to Alan Levin’s “size matters” sound bite, here’s another. A year ago, IBM’s general counsel, Robert Weber, told the Wall Street Journal, “I’m pretty skeptical about the value these big mergers give to clients…I don’t know why it’s better to use a bigger firm.”

Weber should know because he spent 30 years at Jones Day before joining IBM. But is anyone listening? IBM’s long-time outside counsel Cravath, Swaine & Moore probably is. Based on size and gross revenues, Cravath doesn’t qualify for the Am Law 50, but its clients and partners don’t care.

Uncertain Outcomes

Does becoming a legal behemoth add client value? Does it increase institutional nimbleness in a changing environment? Does it enhance morale, collegiality, and long-run firm stability? Do profit margins improve or worsen? Why are many big firm corporate clients — H-P, eBay, Abbott Labs, ConocoPhilllips, Time Warner, DuPont, and Procter & Gamble, among a long list — moving in the opposite direction, namely, toward disaggregation that increases flexibility?

Wearing their “size alone matters” blinders, some firm leaders aren’t even asking those questions. If they don’t, fellow partners should. After all, their skin is in this game, too.

DANGEROUS ADVICE FOR LAW FIRM LEADERS

Posted on May 21, 2014 by thebellyofthebeast

During the past 25 years, law firm management consulting has grown from cottage industry to big business. In a recent Am Law Daily article, “What Critics of Lateral Hiring Get Wrong,” Brad Hildebrandt, one of its pioneers, provides a comforting message to his constituents:

“Large law firms are weathering the storm of the past five years and continue to transform their businesses to operate with efficiency and agility amid a new set of client expectations.”

Hildebrandt v. Altman Weil

Hildebrandt correctly notes that painting all large firms with a single brush is a mistake. But his general description of most firms today is at odds with the results of Altman Weil’s recent survey, “2014: Law Firms in Transition.” The summary of responses from 803 law firm leaders (including 42 percent of the nation’s largest 350 firms) offers these highlights:

— “The Survey shows clear consensus among law firm leaders on the changing nature of the legal market…. [But] law firms are proceeding without an apparent sense of urgency.”

— “Less than half of the law firms surveyed are responding to the pressures of the current market by significantly changing elements of their traditional business model.”

— “Most firms are not making current investments in a future they acknowledge will be different – and different in seemingly predictable ways.”

— “Only 5.3 percent of firms are routinely looking farther than five years out in their planning.”

Altman Weil’s conclusions comport with its October 2013 Chief Legal Officer Survey. When clients rated outside law firms’ seriousness about changing legal service delivery models to provide greater value, the median score was three out of ten — for the fifth straight year.

Hildebrandt v. Georgetown/Thomson Reuters Peer Monitor and Henderson

So what are most big firms doing? Growth through aggressive lateral hiring. Hildebrandt responds to “academics, journalists, former practicing attorneys, and countless legal bloggers” who question that strategy. Count me among them.

Acquiring a well-vetted lateral partner to fill a specific strategic need is wise. But trouble arises when laterals become little more than portable books of business whose principal purpose is to enhance an acquiring firm’s top line revenues.

“Growth for growth’s sake is not a viable strategy in today’s market,” the 2014 Georgetown/Thomson Reuters Peer Monitor Report on the State of the Legal Market observes. Nevertheless, the report notes, most firms are pursuing exactly that approach: “[Growth] masks a bigger problem — the continuing failure of most firms to focus on strategic issues that are more important….”

Professor William Henderson has done extensive empirical work on this subject. “Is Reliance on Lateral Hiring Destabilizing Law Firms?” concludes: “[T]he data is telling us that for most law firms there is no statistically significant relationship between more lateral partner hiring and higher profits.”

Hildebrandt v. Citi/Hildebrandt

Big law partners acknowledge the truth behind Henderson’s data. According to the 2014 Citi/Hildebrandt Client Advisory, only 57 percent of law firm leaders describe their lateral recruits during 2008-2012 as successful, down from 60 percent last year. If those responsible for their firms’ aggressive lateral hiring strategies acknowledge an almost 50 percent failure rate, imagine how much worse the reality must be. Nevertheless, the lateral hiring frenzy continues, often to the detriment of institutional morale and firm culture.

With respect to culture and morale, Hildebrandt rejects the claim that lateral partner hiring crowds out homegrown associate talent. But the 2013 Citi/Hildebrandt Client Advisory suggests that it does: Comparing “the percentages of new equity partners attributable to lateral hires vs. internal promotions in 2007…with percentages in 2011 reveals a marked shift in favor of laterals” — a 21 percent decrease in associate promotions versus a 10 percent increase in lateral partner additions.

Nevertheless, Hildebrandt offers this assessment:

“In the six years prior to the recession, many firms admitted far too many partners—some into equity partnership, many into income partnership. A driving factor in the number of partners in the lateral marketplace is that firms are coming to grips with the mistakes of the past. Lax admissions standards have been a far greater issue than mistakes made on laterals.”

When I read that passage, it seemed familiar. In fact, Chapter 5 of my latest book, The Lawyer Bubble – A Profession in Crisis, opens with this quotation:

“The real problem of the 1980s was the lax admission standards of associates of all firms to partnerships. The way to fix that now is to make it harder to become a partner. The associate track is longer and more difficult.”

Those were Brad Hildebrandt’s words in September 1996. (“The NLJ 250 Annual Survey of the Nation’s Largest Law Firms: A Special Supplement — More Lawyers Than Ever In 250 Largest Firms,” National Law Journal)

“Fool Me Once, Shame On You…”

Evidently, most firms followed Hildebrandt’s advice in the 1990s because the overall leverage ratio in big law firms has doubled since then. His recent suggestion that “lax admission standards” caused firms to make “far too many” equity partners during the six years prior to the Great Recession of 2008-2009 is particularly puzzling. In the May 2008 issue of American Lawyer, Aric Press noted that during the “Law Firm Golden Age” from 2003 to 2007, “Partners reaped the benefits of hard work — and of pulling up the ladder behind them. Stoking these gains has been a dramatic slowdown in the naming of new equity partners.”

Meanwhile, the swelling ranks of income partners reflect a different strategy: using the non-equity partner tier as a profit center. The strategy is misguided, but pursuing it has been intentional, not a “mistake.” (Take a look at the American Lawyer article, “Crazy Like a Fox,” by Edwin Reeser and Patrick McKenna.)

Even so, Hildebrandt’s words reassure firms that are recruiting laterals for all the wrong reasons and/or tightening the equity partner admission screws. Tough love might better serve the profession.

THE ILLUSION OF LEISURE TIME

Posted on April 30, 2014 by thebellyofthebeast

Back in January, newspaper headlines reported a dramatic development in investment banking. Bank of America Merrill Lynch and others announced a reprieve from 80-hour workweeks.

According to the New York Times, Goldman Sachs “instructed junior bankers to stay out of the office on Saturdays.” A Goldman task force recommended that analysts be able to take weekends off whenever possible. Likewise, JP Morgan Chase gave its analysts the option of taking one protected weekend — Saturday and Sunday — each month.

“It’s a generational shift,” a former analyst at Bank of America Merrill Lynch told the Times in January. “Does it really make sense for me to do something I really don’t love and don’t really care about, working 90 hours a week? It really doesn’t make sense. Banks are starting to realize that.”

The Fine Print

There was only one problem with the noble rhetoric that accompanied such trailblazing initiatives: At most of these places, individual employee workloads didn’t change. Recently, one analyst complained to the Times that taking advantage of the new JP Morgan Chase “protected weekend” policy requires an employee to schedule it four weeks in advance.

Likewise, a junior banker at Deutsche Bank commented on the net effect of taking Saturdays off: “If you have 80 hours of work to do in a week, you’re going to have 80 hours of work to do in a week, regardless of whether you’re working Saturdays or not. That work is going to be pushed to Sundays or Friday nights.”

How About Lawyers?

An online comment to the recent Times article observed:

“I work for a major NY law firm. I have worked every day since New Year’s Eve, and billed over 900 hours in 3 months. Setting aside one day a week as ‘sacred’ would be nice, but as these bankers point out, the workload just shifts to other days. The attrition and burnout rate is insane but as long as law school and MBAs cost $100K+, there will be people to fill these roles.”

As the legal profession morphed from a profession to a business, managing partners in many big law firms have become investment banker wannabes. In light of the financial sector’s contribution to the country’s most recent economic collapse, one might reasonably ask why that is still true. The answer is money.

To that end, law firms adopted investment banking-type metrics to maximize partner profits. For example, leverage is the numerical ratio of the firm’s non-owners (consisting of associates, counsel, and income partners) to its owners (equity partners). Goldman Sachs has always had relatively few partners and a stunning leverage ratio.

As most big law firms have played follow-the-investment-banking-leader, overall leverage for the Am Law 50 has doubled since 1985 — from 1.76 to 3.52. In other words, it’s twice as difficult to become an equity partner as it was for those who now run such places. Are their children that much less qualified than they were?

Billables

Likewise, law firms use another business-type metric — billable hours — as a measure of productivity. But billables aren’t an output; they’re an input to achieve client results. Adding time to complete a project without regard to its impact on the outcome is anathema to any consideration of true productivity. A firm’s billable hours might reveal something about utilization, but that’s about it.

Imposing mandatory minimum billables as a prerequisite for an associate’s bonus does accomplishes this feat: Early in his or her career, every young attorney begins to live with the enduring ethical conflict that Scott Turow wrote about seven years ago in “The Billable Hour Must Die.” Specifically, the billable hour fee system pits an attorney’s financial self-interest against the client’s.

The Unmeasured Costs

Using billables as a distorted gauge of productivity also eats away at lawyers’ lives. Economists analyzing the enormous gains in worker productivity since the 1990s cite technology as a key contributor. But they ignore an insidious aspect of that surge: Technology has facilitated a massive conversion of leisure time to working hours — after dinner, after the kids are in bed, weekends, and while on what some people still call a vacation, but isn’t.

Here’s one way to test that hypothesis: The next time you’re away from the office, see how long you can go without checking your smartphone. Now imagine a time when that technological marvel didn’t exist. Welcome to 1998.

When you return to 2014, read messages, and return missed calls, be sure to bill the time.

Failure of Leadership

Posted on December 4, 2013 by thebellyofthebeast

The American Lawyer’s annual leaders survey reveals that most law firm managing partners are living in denial. When the changing world intrudes in ways that they can no longer ignore, another psychological state — cognitive dissonance — sets in as they try simultaneously to hold contradictory ideas in their heads. As a consequence, what is happening today at the top of most big firms is the antithesis of leadership.

Denial

In the Am Law leaders survey, 70 percent of respondents said that the sluggish demand for legal services in 2013 would continue through 2014. That’s not surprising. In 2012, only a fourth quarter surge saved many firms from the abyss. The unusual circumstances producing that phenomenon aren’t present this year.

If 2014 will be more of the same as firms compete for business in a zero-sum game, how do individual managing partners size up their situations? Unrealistically. Two-thirds of the 105 leaders responding to the survey of Am Law 200 firms were “somewhat optimistic” about the prospects for their firms in 2014. Another ten percent were “very optimistic.”

More than 80 percent expect profits per partner to grow in 2014 — and one-fourth of those expect growth to exceed five percent. They’ll use the same old model — 98 percent expect billable hour increases, even though three-fourths of respondents said their realization rates for 2013 are 90% or worse. They also said that only 18 percent of their matters include an alternative fee arrangement.

Cognitive dissonance

They can’t all be right about 2014 — for which an overwhelming majority say that “things will be tough for almost everyone else, but my firm will thrive.” More importantly, most of them won’t be right. So what are today’s leaders doing to prepare their firms for more of the harsh reality that they’ve already experienced for the past several years? Not much.

A staggering 85 percent of managing partners said they were somewhat worried (61 percent) or very worried (24 percent) about partners who are not billing enough hours. Almost 70 percent are concerned that some partners are staying on too long before retirement.

An Altman Weil Survey found similar results last summer. Seventy percent of law firm leaders said that older partners were hanging on too long. In the process, they are hoarding clients, billings, and opportunities in ways that impede the transition of firm business to younger lawyers. Yet the drive to maximize short-term profits led 80 percent of firm leaders to admit that they planned to respond to current pressures by tightening equity partner admission standards. Pulling up the ladder on the next generation is not the way to motivate the young talent needed to solve the transition problem.

Morale

All of this may be working well for some partners at the top of what remains a leveraged pyramid business model. But even among the partners, all is not well. The Altman Weil Survey reported that 40 percent of law firm leaders thought partner morale was lower than it had been in 2008. In other words, deequitizations and partnership purges during the Great Recession haven’t produced greater happiness in the survivor cohort.

The Am Law Survey confirms that this downward trend continues. In 2012, 63 percent of managing partners characterized the morale of their partners as “somewhat optimistic.” In 2013, it dropped to 56 percent — near the 2009 nadir of 54 percent.

Leadership lemmings

Every survey reveals that most big firm leaders have their eyes on a single mission: growth. Whether through aggressive lateral hiring or mergers and acquisitions, some managing partners are cobbling together entities that aren’t really law firm partnerships. They’ve forgotten that a sense of community and common purpose is essential to maintaining organizational morale. They’ve also forgotten that no law firm is better than the quality of its people.

Most leaders also acknowledge that a myopic growth strategy imposes significant financial and other costs on their institutions — overpaying for so-called rainmakers who are less than advertised; sacrificing the stability that comes from a cohesive culture in exchange for current top line revenues; incentivizing partners to hoard clients because billings determine compensation and client silos facilitate lateral exits; discouraging the development of talent that should comprise the future of the firm.

As managing partners build empires that they hope will be too big to fail, they might spend a little time considering whether their denial and cognitive dissonance are producing entities that are too big to succeed.

THE NEWEST BIG LAW PARTNERS SPEAK

Posted on November 13, 2013 by thebellyofthebeast

A recent survey of associates who became partners in their Am Law 200 firms between 2010 and 2013 produced some startling results. The headline in The American Lawyer proclaims that new partners “feel well-prepped and well-paid.” But other conclusions are troubling.

More than half (59 percent) of the 469 attorneys responding to the survey were non-equity partners. That’s significant because for them the real hurdle has yet to come. Most won’t advance to equity partnership in their firms. But even the combined results paint an unattractive portrait of the prevailing big law firm business model.

Lateral progress

It should surprise no one that institutional loyalty continues to suffer as the leveraged big law pyramid continues to depend on staggering associate attrition rates. According to the survey, almost half of new partners said that “making partner is nearly impossible.”

It’s toughest for home grown talent. Forty-seven percent of new partners switched firms before their promotions, most within the previous four years. An earlier survey of 50 Am Law 200 firms made the point even more dramatically: 59 percent of those who made partner in 2013 began their careers elsewhere. Long ago, a lot of older partners became wise to this gambit. They learned to hoard opportunities and preserve client silos as the way to move up and/or acquire tickets into the lucrative lateral partner market.

Somewhat paradoxically in light of their lateral paths into the partnership, 90 percent of new partners thought that commitment to their firms was of great or some importance as a factor in their promotion to partner. Yet almost 60 percent said that, since making partner, their commitment to the firm had decreased or only stayed the same.

Why don’t they feel like winners?

More than 80 percent of respondents thought that the “ability to develop and cultivate new clients” was “of great or some importance” in their promotion to partner. Yet more than half of new partners said that they received no formal training in business development.

Other results also suggest that a big law partnership has become an increasingly mixed bag. Almost eight out of ten said their business development efforts had increased since making partner. How did they make room for those activities in their already full workdays as “on-track-for-partner associates”? Eighty-three percent reported that time with their family “had decreased or stayed the same.” More than half said that control of their schedules had decreased or stayed the same. Making partner doesn’t seem to help attorneys achieve the kind of autonomy that contributes to career satisfaction and overall happiness.

The meaning of it all

More than 60 percent of new partners were satisfied or very satisfied with their compensation. Maybe money alone will continue to draw the best law graduates into big firms. A more important question is whether they will stay.

Most partners running today’s big firms assume that every associate has the same ambition that they had: to become an equity partner. Meanwhile, they’ve been pulling up the ladder on the next generation. Leverage ratios in big firms have doubled since 1985; making equity partner is now twice as difficult as it was then. Does anyone really believe that the current generation of young attorneys contains only half the talent of its predecessors?

The law is a service business. People are its only stock in trade. For today’s leaders who fail to retain and nurture young lawyers, the future of their institutions will become grim indeed. As that unfortunate story unfolds, they will have only themselves to blame. Then again, if these aging senior partners’ temporal scopes extend only to the day they retire, perhaps they don’t care.

AS CLIENTS SPEAK, WHO’S LISTENING?

Posted on October 28, 2013 by thebellyofthebeast

Many big law firms pursue a path of mindless growth through mergers and lateral hiring, but few managing partners seem to question the wisdom of that strategy. Growth for its own sake gets protective cover in false rhetoric about serving clients. But contrary data continue to accumulate on the subject of what clients really want.

Challenging traditional views

Two recent articles ought to send a chill down the spine of big law partners everywhere. The first is a recent article for the Harvard Business Review Blog, “Why the Law Firm Pedigree May Be a Thing of the Past,” by Dina Wang and Firoz Dattu.

As the title suggests, the authors argue that clients are increasingly searching for value and efficiency at the expense of big law firms that rely on their brand alone to attract and retain business at premium rates. Insofar as the authors believe that truly elite law firms may be in mortal danger, I think they overstate their case. The most sophisticated clients with the most complex problems will continue to seek top legal talent. Much of that talent will reside in elite firms that will retain their stature, provided they create environments that appeal to the best young lawyers.

But it’s more difficult to quibble with the authors’ survey of general counsel at 88 major companies. In matters that were high-stakes (but not necessarily bet-the-company), 74 percent were less likely to use an Am Law 20 or Magic Circle firm than a less-pedigreed firm, provided they achieved legal cost savings of at least 30 percent. (The article suggests that the actual cost savings in such situations could exceed 60 percent.)

Follow the money

Now couple that finding with these recent Counsel-Link survey results:

“Among the firms with 201-500 lawyers, referred to as ‘Large Enough’ firms in this report, the share of U.S. legal fees paid by clients has grown from 18% three years ago (July 1, 2009 – June 30, 2010) to 22% in the trailing 12 months that ended June 30, 2013.”

Who’s lunch are the “Large Enough” firms eating? The megafirms’:

“Simultaneously, the share of U.S. legal fees paid by clients with more than 750 lawyers, the ‘Largest 50,’ has gone in the opposite direction — from 26% to 20% over the same period.”

The shift is even more dramatic in higher fee legal work: “‘Large Enough’ firms have almost doubled the share of high fee litigation matters — those matters generating outside counsel fees totaling $1 million or more (High Fee Work). ‘Large Enough’ firms grew their portion of U.S. High Fee Work from 22% three years ago to 41% in the trailing 12 months.”

Disruption as a powerful market force

How are the “Large Enough” firms doing it? Here’s a partial answer: “‘Large Enough’ firms billed nearly twice as much under alternative fee arrangements as did the ‘Largest 50’ firms over the trailing 12 months.”

None of this should come as a surprise. For years, law firm management consultants have been saying that there are no economies of scale in the practice of law once a firm reaches about 100 attorneys. In fact, maintaining the infrastructure to support continuous expansion at the largest firms actually produces diseconomies.

Embedded interests die hard

Firms engaged in aggressive lateral hiring and law firm mergers might be adding top line revenues, but most are also adding disproportionately more costs. According to the 2013 Hildebrandt Consulting Client Advisory, 60 percent of law firm managing partners said (in an anonymous survey) that their lateral hires had been financial successes. If 40 percent are willing to admit to deploying a strategy that is “break even at best,” imagine how worse the reality must be.

Perhaps the accumulating intelligence about clients’ actual desires and the true costs (both financial and cultural) of a growth strategy will cause some managing partners pursuing that strategy to pause. Maybe they’ll reconsider the construction of global behemoths that serve their own egos but little else. Don’t count on it.

ARE LAWYERS BECOMING HAPPIER?

Posted on September 16, 2013 by thebellyofthebeast

A recent scholarly study and the 2013 Am Law Midlevel Associates Survey together pose an intriguing question: Is the legal profession becoming happier? If so, that would be a welcome development.

Perhaps the answer is yes and I should take partial credit, at least for improved associate morale in some big firms. After all, for years I’ve been writing and speaking about the extent to which the profession has evolved in ways that undermine attorney well being, especially in large firms. Since the publication of my book, The Lawyer Bubble, many managing partners have invited me to address their partnership meetings on that subject. But before getting too carried away, let’s take a closer look.

No Buyer’s Remorse!

In “Buyers’ Remorse? An Empirical Assessment of the Desirability of a Lawyer Career,” Professors Ronit Dinovitzer (University of Toronto), Bryant Garth (University of California, Irvine – School of Law), and Joyce S. Sterling (University of Denver Strum College of Law) analyzed data from the After the JD project. It tracks about 4,500 lawyers from the class of 2000 who responded to questions in 2003, 2007, and 2012.

Among other things, the authors conclude that “the evidence of mass buyer’s remorse [over getting a legal degree] is thin at best.” (p. 3) I’m not convinced.

First, a new lawyer entering the market in 2000 has enjoyed better times for the profession than graduates of the last several years. That doesn’t render data from the class of 2000 meaningless, but a study based on the experience of those attorneys shouldn’t become a headline-grabber that unduly influences anyone considering a legal career today.

Second, the authors rely only on responses that attorneys provided in 2007. The answers they gave in 2012 are “currently being cleaned and readied for analysis” (p. 5), so the authors didn’t use them. What was the rush to get to print with 2007 data? Why not wait and use the 2012 results to see whether accelerating law firm trends since 2007 affected responses from even the comparatively lucky class of 2000.

(For more on those trends, including partner de-equitizations, salary reductions for non-equity partners, and the environment that has accompanied the accelerating drive to increase short-term profits, read Edwin Reeser’s excellent two-part article in the ABA Journal.)

More on the Data

In the end, After the JD is a useful source of information. But it’s an overstatement to argue, as Dinovitzer et al. assert, “the data from the AJD project are the best (and almost only) data available on the issues currently being debated.” (p. 5)

In fact, there have been dozens of studies on attorney satisfaction, including an October 2007 ABA survey in which six out of ten attorneys who have been practicing 10 years or more said they would not recommend a legal career to a young person. And that was prior to the Great Recession.

Now before defensive academics pull out their knives, let me state clearly that I’m not suggesting that the ABA’s online survey of 800 lawyers is somehow superior to the obviously more comprehensive After the JD project. It’s not. But contrary to the authors’ assertion, AJD is far from “the only data available on the issues currently being debated.”

For example, Professor Jerome A. Organ (University of St Thomas School of Law) recently published a compilation of 28 attorney surveys taken between 1984 and 2007. Rates of satisfied attorneys ranged from a low of 59 percent (South Carolina – 2008) to a high of 93 percent (Minnesota – 1987). The latest national study on Organ’s list (ABA/NALP – 2007) reported a satisfaction rate of 76 percent. (He excluded the ABA’s reported 55 percent satisfaction rate in 2007 because it “was not a random sample of attorneys.” n. 144.)

The Am Law Survey

Meanwhile, Am Law’s annual Midlevel Associates Survey of third-, fourth-, and fifth-year associates reported record high levels of associate satisfaction. Are their lives improving?

Anecdotal evidence of another possibility comes from an observed shift in attitudes among students in my undergraduate and law classes over the past several years. Many members of the youngest generation of lawyers (and would-be lawyers) are so concerned about finding jobs that they are now equating satisfaction with getting and keeping one long enough to repay their staggering student loans. That might explain why the same Am Law survey found that only 10 percent of men and 6.5 percent of women saw themselves as equity partners at their current firms in five years.

Now What?

Even so, inquiries that I receive from law firm managing partners provide more anecdotal proof that some firms have decided to value associate morale. The question is whether firm leaders will have the courage to push positive change into the very heart of the prevailing big law firm business model.

On that front, the news is less encouraging. In March 2013, Forbes reported on a “Career Bliss” survey of 65,000 employees that ranked “law firm associate” first on the list of “Unhappiest Jobs in America.” Likewise, in a recent Altman Weil Flash Survey, 40 percent of managing partners reported that partner morale at their firms in 2013 was lower than at the beginning of 2008 (pre-recession).

The Bottom Line

In the end, Dinovitzer et al. seem encouraged that “the overall trend is that more than three-quarters of respondents, irrespective of debt, express extreme or moderate satisfaction with the decision to become a lawyer.”

That’s supposed to be good news. But there are more than 1.2 million attorneys in the U.S.. Even a 75 to 80 percent satisfaction rate leaves more than 200,000 lawyers with what sure looks like buyer’s remorse.

The profession can do better than a “C.”

LATEST SYMPTOMS OF AN AILING PROFESSION

Posted on September 4, 2013 by thebellyofthebeast

Together, three recent stories capture much of what ails the legal profession: 1) law schools continue to produce way too many lawyers for the number of anticipated jobs requiring a JD degree; 2) future attorneys incur staggering debt for a three-year degree that can and should be obtainable in two; and 3) many senior partners in big law firms at the pinnacle of the profession have lost an appreciation for their good fortune and a sense of perspective that comes with it.

The End of Lawyers?

The first story reports a continuing drop in the number of law school applicants — more than 30 percent since 2010! Could this be the beginning of what one law professor has predicted will be an actual shortage of lawyers by 2016?

No.

Using 2010 as a baseline against which to measure the comparative decline in applications is misleading. The Great Recession produced a surge of 2009-2010 applicants seeking a three-year reprieve from an impossible job market. At that time, law school still looked like a safe bet, largely because deans could tout 93 percent employment rates without disclosing which of their graduates held jobs that were short-term, part-time, school-funded, or didn’t require a legal degree.

Another fact is more salient: Overall acceptance rates have increased dramatically. In 2003, about half of the 98,000 applicants were admitted. In 2012, law schools took 75 percent of the 68,000 applicants. Bottom line: prior to the Great Recession, first-year enrollment totaled about 49,000; in 2012, it was 44,500. That drop is certainly affecting some law schools. But the overall decline is not as dramatic as the hyperbolic headlines. If first-year enrollment ever falls below 30,000 and stays there for a few years, that will be newsworthy.

What Are Students Getting For Their Money?

Meanwhile, President Obama weighed in on the subject of eliminating the third year of law school. It’s been a great idea for a long time. Of course, the third year will survive the President’s criticism because it accounts for one-third of law school tuition revenues. Such a central component of the law school business model won’t die easily.

Some members of the legal academy defend the third year of formal legal education as necessary for increasingly complex times. That argument may prove too much. After the first year teaches prospective attorneys to think like lawyers and the second year covers basic substantive legal areas, the most relevant legal training occurs outside the classroom under the tutelage of practicing lawyers. Many attorneys develop specialties, but that doesn’t result from taking one or two advanced courses during the third year of law school.

Deans can pass blame for the enduring third year onto the ABA. It has long been a victim of regulatory capture by the institutions it’s supposed to be supervising for the well being of all attorneys and the profession. The vast majority of states require graduation from an ABA-accredited law school and the ABA’s rules insist on course work that requires three academic years to complete. That’s why the few schools that offer accelerated two-year JDs are simply cramming three years of credits into two calendar years.

Moreover, the accelerated programs rarely reduce the cost of law school. Most of the schools offering accelerated programs charge the same total tuition as their traditional three-year programs.

Meanwhile, At Big Firms…

A final story is developing over financial reports concerning the overall performance of big law firms in 2013: Revenues are flat; demand is down. Partner profits might not rise this year!

Where you stand depends on where you sit, I suppose. But what does it say about the most lucrative segment of the profession when law firm management consultants can induce panic at the prospect that average equity partner profits might remain steady or — perish the thought — drop to still-astounding six- or seven-figure levels that seemed remarkably good less than a decade ago?

I think it suggests that too many partners have forgotten why they went to law school in the first place. Very few became attorneys because they thought it would make them rich. But they’ve grown accustomed to that pleasant surprise.

Maybe the next generation will do better.

THE TRUE COST OF THE WEIL LAYOFFS

Posted on June 26, 2013 by thebellyofthebeast

The Wall Street Journal describes the layoffs of 60 lawyers and 110 staff as “the starkest sign yet that the legal industry continues to struggle after the recession.” But who, exactly, is struggling?

Not the owners of the business. The overall average profits for equity partners in the Am Law 100 reached record levels in 2012. Even during the darkest days of the Great Recession in 2008, PPP for that group remained comfortably above $1.2 million before resuming the climb toward almost $1.5 million last year.

Not equity partners at Weil, Gotshal & Manges, who earned a reported average PPP of $2.2 million in 2012, according the the American Lawyer.

So Who Suffers?

One group of victims consists of 60 young people who had done everything right until everything went wrong for them on June 24. They’re intelligent, ambitious, and hard-working. Exemplary performance in high school earned them places in good colleges where they graduated at the top of their classes. They attended excellent law schools and excelled, even as the competition got tougher.

All of those accomplishments landed them great jobs. In the midst of a dismal legal job market, they went to work at one of the nation’s most prestigious law firms. Making more than $160,000 a year, many believed that soon they might throw off the yoke of six-figure student loan debt.

Now, they’re unemployed.

Another group of victims consists of 110 staffers who also got the boot. According to the NY Times, approximately half of them were secretaries. These behind-the-scenes workers often go unappreciated by lawyers who mistakenly take all of the credit for their own success.

A third group is a reported 10 percent of partners, many of whom who will suffer compensation cuts of “hundreds of thousands of dollars,” according to the NY Times.

“It’s All About the Future”

Announcing the layoffs, executive partner Barry Wolf described the move as “about the future of the firm and strategically positioning us for the next five years.” But layoffs aren’t about weeding out associates who don’t measure up to the rigorous quality standards necessary for equity partnerships. They’re about matching supply (of associates) with demand (for legal work) according to undisclosed criteria.

In fact, it seems a bit strange to talk about a firm positioning itself for the future while simultaneously dropping a morale bomb on its associates (and some partners) during the height of the summer program. The best and the brightest young prospects are working in big firms where luring that talent into the firms is a top priority. Bad public relations from a high-profile layoff can have a chilling effect that outlasts a single news cycle.

And what is that future going to look like? Will Weil be hiring any new associates over the next 12 months? Or 18 months? Or even 24 months? If so, I know 60 candidates with big firm experience (at Weil) who may be interested.

There is no shortage of current students who will continue to seek high-paying jobs at Weil, Gotshal & Manges. But what if negative publicity dissuades those few with the rare qualities necessary to become superstar partners from even signing up for on-campus interviews? By its very nature, such longer-run damage is impossible to know, much less measure.

Big Law’s Cheerleaders Applaud the Move

Law firm management consultants applauded Weil’s move. That’s not surprising because they have been central players in the profession’s transformation to just another business. They consistently endorse businesslike steps to maximize short-term profits. They expect other firms to follow Weil’s lead, and perhaps some will. Law firm consultant Peter Zeughauser said, “Weil is a bellwether firm and this will be a real wake up call.”

The etymology of bellwether may be relevant. In the mid-15th century, a bell was hung on a wether, a castrated ram that led a domesticated flock. In that way, the noise from the bellwether made it possible to hear the flock coming before anyone saw it.

In an informal Am Law survey, other firm leaders have distanced themselves from Weil. Before following that lead ram, perhaps they’re giving some thought to where it is going.

PROOF OF THE PROFESSION’S CRISIS

Posted on June 5, 2013 by thebellyofthebeast

This article won the “Big Law Pick of the Week.” BigLaw‘s weekly newsletter reaches the world’s largest law firms and the general counsel who hire them.

Someone should remind law firm leaders that the Fifth Amendment protection against self-incrimination isn’t just for clients. It can work for them, too. The latest Altman-Weil survey of firm leaders is proof of widespread management incompetence, stupidity, and worse.

The survey went to the chairs or managing partners of 791 firms with 50 or more lawyers. Firms with more than 250 lawyers (that is, mostly Am Law 200 firms) had a much higher response rate (42 percent) than smaller firms (26 percent). In other words, the survey results tilt toward big law firm attitudes.

The troubling big picture

The Am Law Daily’s summary includes comments from the survey’s author, Thomas Clay, who said 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.”

For example, 95 percent of respondents view increased pricing competition as an ongoing trend, and 80 percent expect shifts to non-hourly billing structures. But only 29 percent have made significant changes to their own pricing practices in the wake of the recession.

Group stupidity

It gets worse. When asked to identify their greatest challenges over the next 24 months, the item that managers cite most often is “increasing revenue.” The rest of the list is, in order: new business, growth, profitability, management transition, cost management, and attracting talent. If you’re wondering where clients fit — other than as a source of revenue and profits in items one, two, and three — “client value” finished eighth.

Long-term thinking? Forget it. The client silo mentality and resulting culture of short-termism are widespread and deep. Almost 30 percent of law firm leaders say their firms lack adequate mid-level partners to whom they could transition clients. In another set of responses, they reveal why: 78 percent say that “senior partners don’t want to retire”; 73 percent admit that “senior partners don’t want to forfeit current compensation by transitioning client work.”

Lateral incompetence

Meanwhile, lateral hiring remains the prevailing strategy to achieve growth. Ninety percent of respondents plan to hire laterals in 2013; more than 60 percent seek entire practice groups. For firms of more than 250 lawyers, the numbers are even more startling: 100 percent plan to acquire laterals; 92 percent plan to acquire groups.

How much time do lateral partners get to prove their worth? Almost 60 percent of responding firm leaders say two years or more; 30 percent don’t set a time frame.

What happens when laterals don’t meet the expectations that brought them into the firm? Two-thirds of firm leaders said that they “sometimes, rarely or never” tell unproductive lateral hires to leave.

Institutional ineptitude

Almost 40 percent of respondents say their partners’ morale is lower compared to the beginning of 2008. And those partners survived the purges of 2009 and beyond.

If you’re looking for contributors to declining morale, try these. Seventy-two percent of firm leaders report that fewer equity partners will be a permanent trend going forward. Three-fourths have either tightened their standards or take them more seriously. Meanwhile, 92 percent of responding two-tier firms don’t have an up-or-out policy as non-equity partner profit centers grow.

To summarize:

Managing partners know that change is coming and clients are demanding it, but firms aren’t revisiting their basic strategies or business models.

Growth and profits finish far ahead of enhancing client value as most law firm leaders’ top concerns.

Leaders view aggressive lateral hiring as critical to law firm growth, but when laterals don’t produce, most firms don’t do much about it.

Succession planning is problematic because senior partners don’t want to relinquish compensation that is tied to their client billings.

As senior leaders continue to pull up the equity partner ladder on the next generation, morale plummets and managing partners worry about the absence of mid-level talent to serve clients in the future.

Taking all of this together, psychologists would call it a severe case of cognitive dissonance — simultaneously holding contradictory thoughts in your head. Those who assert that most big firms are resilient and face no life-threatening problems are wrong. A crisis of leadership is already upon us as lot of supposedly smart people continue to do some really dumb things. Don’t take my word for it; they’re outing themselves.

UGLINESS INSIDE THE AM LAW 100 – PART 2

Posted on May 15, 2013 by thebellyofthebeast

Part I of this series considered the possibility that a key metric — average partner profits — has lost much of its value in describing anything meaningful about big law firms. In eat-what-you-kill firms, the explosive growth of top-to-bottom spreads within equity partnerships has skewed the distribution of income away from the bell-shaped curve that underpins the statistical validity of any average.

Part II considers the implications.

Searching for explanations beyond the obvious

In recent years, equity partners at the top of most big firms have engineered a massive redistribution of incomes in their favor. Why? The next time a senior partner talks about holding the line on equity partner headcount or reducing entry-level partner compensation as a way to strengthen the partnership, consider the source and scrutinize the claim.

One popular assertion is that the high end of the internal equity partner income gap attracts lateral partners. In fact, some firms boast about their large spreads because they hope it will entice laterals. But Professor William Henderson’s recent analysis demonstrates that lateral hiring typically doesn’t enhance a firm’s profits. Sometimes selective lateral hiring works. But infrequent success doesn’t make aggressive and indiscriminate lateral hiring to enhance top line revenues a wise business plan.

According to Citi’s 2012 Law Firm Leaders Survey, even law firm managing partners acknowledge that, financially, almost half of all lateral hires are no better than a break-even proposition. If leaders are willing to admit that an ongoing strategy has a failure rate approaching 50 percent, imagine how bad the reality must actually be. Even worse, the non-financial implications for the acquiring firm’s culture can be devastating — but there’s no metric for assessing those untoward consequences.

A related argument is that without the high end of the range, legacy partners will leave. Firm leaders should consider resisting such threats. Even if such partners aren’t bluffing, it may be wiser to let them go.

“We’re helping young attorneys and building a future”

Other supposed benefits to recruiting rainmakers at the high end of a firm’s internal partner income distribution are the supposedly new opportunities that they can provide to younger attorneys. But the 2013 Client Advisory from Citi Private Bank-Hildebrandt Consulting shows that lateral partner hiring comes at the expense of associate promotions from within. Homegrown talent is losing the equity partner race to outsiders.

In a similar attempt to spin another current trend as beneficial to young lawyers, some managing partners assert that lower equity partner compensation levels lower the bar for admission, making equity status easier to attain. Someone under consideration for promotion can more persuasively make the business case (i.e., that potential partner’s client billings) required for equity participation.

Such sophistry assumes that an economic test makes any sense for most young partners in today’s big firms. In fact, it never did. But now the prevailing model incentivizes senior partners to hoard billings, preserve their own positions, and build client silos — just in case they someday find themselves searching for a better deal elsewhere in the overheated lateral market.

Finally, senior leaders urge that current growth strategies will better position their firms for the future. Such appealing rhetoric is difficult to reconcile with many partners’ contradictory behavior: guarding client silos, pulling up the equity partner ladder, reducing entry level partner compensation, and making it increasingly difficult for home-grown talent ever to reach the rarified profit participation levels of today’s managing partners.

Broader implications of short-term greed

In his latest book, Tomorrow’s Lawyers, Richard Susskind wrote that most law firm leaders he meets “have only a few years left to serve and hope they can hold out until retirement… Operating as managers rather than leaders, they are more focused on short-term profitability than long-term strategic health.”

Viewed through that lens, the annual Am Law 100 rankings make greed respectable while masking insidious internal equity partner compensation gaps that benefit a relatively few. Annual increases in average partner profits imply the presence of sound leadership and a firm’s financial success. But an undisclosed metric — growing internal inequality — may actually portend failure.

Don’t take my word for it. Ask lawyers from what was once Dewey & LeBoeuf and a host of other recent fatalities. Their average partner profits looked pretty good — all the way to the end.

UGLINESS INSIDE THE AM LAW 100 — PART I

Posted on May 1, 2013 by thebellyofthebeast

Every spring, the eyes of big firm attorneys everywhere turn to the American Lawyer rankings — the Am Law 100 — and the contest surrounding its key metric: average profits per equity partner (PPP). But if the goal is to obtain meaningful insight into a firm’s culture, financial strength or profitability for most of its partners, those focusing on PPP are looking at the wrong ball.

Start with the basics

For years, firms have been increasing their PPP by reducing the number of equity partners. American Lawyer reports that cutbacks in equity partners, when done correctly, are “a solid management technique, not financial chicanery.” But as firms are now executing the strategy, it looks more like throwing furniture into the fireplace to keep the equity house warm.

Since 1985, the average leverage ratio (of all attorneys to equity partners) for the Am Law 50 has doubled from 1.76 to more than 3.5. It’s now twice as difficult to become an equity partner as it was when today’s senior partners entered that club. Between 1999 and 2009, the ranks of Am Law 100 non-equity partners grew threefold; the number of equity partners increased by less than one-third.

Arithmetic did the rest: average partner profits for the Am Law 50 soared from $300,000 in 1985 ($650,000 in today’s dollars) to more than $1.7 million in 2012.

The beat goes on

Perhaps it’s not financial chicanery, but many firms admit that they’re still turning the screws on equity partner head count as a way to increase PPP. According to the American Lawyer’s most recent Law Firm Leaders’ Survey, 45 percent of respondent firms de-equitized partners in 2012 and 46 percent planned to do so in 2013.

But even when year-to-year equity headcount remains flat, as it did this year, that nominal result masks a destabilizing trend: the growing concentration of income and power at the top. In fact, it is undermining the very validity of the PPP metric itself.

An unpublished metric more important than PPP

The internal top-to-bottom spread within the equity ranks of most firms doesn’t appear in the Am Law survey or anywhere else, but it should, along with the distribution of partners at various data points. As meaningful metrics, they’re far more important than PPP.

Even as overall leverage ratios have increased dramatically, the internal gap within equity partnerships has skyrocketed. A few firms adhere to lock-step equity partner compensation within a narrow overall range (3-to-1 or 4-to-1). But most have adopted higher spreads. In its 2012 financial statement, K&L Gates disclosed an 8-to-1 gap — up from 6-to-1 in 2011. Dewey & LeBoeuf’s range exceeded 20-to-1.

This growing internal gap undermines the informational value of PPP. In any statistical analysis, an average is meaningful if the underlying sample is distributed normally (i.e., along a bell-shaped curve where the average is the peak). But the distribution of incomes within most big firm equity partnerships bears no resemblance to such a curve.

Cultural consequences

Rules governing statistical validity have real world implications. Growing internal income spreads render even nominally stable equity partner head counts misleading. Lower minimum profit participation levels make room for more equity partner bodies, but what results over time is Dewey & LeBoeuf’s “barbell” system. A handful of rainmakers dominates one side of the barbell; many more so-called service partners populate the other — and they rarely advance very far.

As Edwin B. Reeser and Patrick J. McKenna wrote last year, in Am Law 200 firms, “Typically, two-thirds of the equity partners earn less, and some perhaps only half, of the average PPP.” Statisticians know that for such a skewed distribution, the arithmetic average conveys little that is useful about the underlying population from which it is drawn.

Why it matters

For firms that don’t have lock-step partner compensation, the PPP metric doesn’t reveal very much. For example, consider a firm with two partners and an 8-to-1 equity partner spread. If Partner A earns $4 million and Partner B earns $500,000, average PPP is $2.25 million — a number that doesn’t describe either partner’s situation or the stability of the firm itself. But the underlying details say quite a bit about the culture of that partnership.

Firms with the courage to do so would follow the lead of K&L Gates and disclose what that firm calls its “compression ratio” and then take it a step farther: reveal their internal income distributions as well. But such revelations might lead to uncomfortable conversations about why, especially during the last decade, managing partners have engineered explosive increases in internal equity partner income gaps.

A future post will consider that topic. It’s not pretty.

THE LAWYER BUBBLE — Early Reviews and Upcoming Events

Posted on March 29, 2013 by thebellyofthebeast

The New York Times published my op-ed, “The Tyranny of the Billable Hour,” tackling the larger implications of the recent DLA Piper hourly billing controversy.

And there’s this from Bloomberg Business Week: “Big Law Firms Are in ‘Crisis.’ Retired Lawyer Says.”

In related news, with the release of my new book, The Lawyer Bubble – A Profession in Crisis, my weekly posts will give way (temporarily) to a growing calendar of events, including:

TUESDAY, APRIL 2, 2013, 10:00 am to 11:00 am (CDT)
Illinois Public Media
“Focus” with Jim Meadows
WILL-AM – 580 (listen online at http://will.illinois.edu/focus)

TUESDAY, APRIL 2, 2013, 1:00 pm to 2:00 pm (CDT)
“Think” with Krys Boyd
KERA – Public Media for North Texas – 90.1 FM (online at http://www.kera.org/think/)

THURSDAY, APRIL 4, 2013, 11:00 am to Noon (EDT)
Washington, DC
“The Diane Rehm Show”
WAMU (88.5 FM in DC area) and NPR

FRIDAY, APRIL 5, 2013, 10:45 am to 11:00 am (EDT)
New York City
“The Brian Lehrer Show”
WNYC/NPR (93.9 FM/820 AM in NYC area)
(http://www.wnyc.org/shows/bl/)

SATURDAY, APRIL 6, 2013, Noon (EDT)
New Hampshire Public Radio
“Word of Mouth” with Virginia Prescott
WEVO – 89.1 FM in Concord; available online at http://nhpr.org/post/lawyer-bubble)

WEDNESDAY, APRIL 10, 2013, 8:00 am to 9:00 am (CDT)
“The Joy Cardin Show”
Wisconsin Public Radio (available online at http://www.wpr.org/cardin/)

FRIDAY, APRIL 12, 2013
“The Shrinking Pyramid: Implications for Law Practice and the Legal Profession” — Panel discussion
Georgetown University Law Center
Center for the Study of the Legal Profession
600 New Jersey Avenue NW
Location: Gewirz – 12th floor
Washington, D.C.

TUESDAY, APRIL 23, 2013, 7:00 pm (CDT) (C-SPAN 2 is tentatively planning to cover this event)
The Book Stall at Chestnut Court
811 Elm Street
Winnetka, IL

Here are some early reviews:

“The Lawyer Bubble is an important book, carefully researched, cogently argued and compellingly written. It demonstrates how two honorable callings – legal education and the practice of law – have become, far too often, unscrupulous rackets.”
—Scott Turow, author of Presumed Innocent and other novel

“Harper is a seasoned insider unafraid to say what many other lawyers in his position might…written with keen insight and scathing accusations…. Harper brings his analytical and persuasive abilities to bear in a highly entertaining and riveting narrative…. The Lawyer Bubbleis recommended reading for anyone working in a law related field. And for law school students—especially prospective ones—it really should be required reading.”
—New York Journal of Books

“Anyone looking into a career in law would be well advised to read this thoroughly eye-opening warning.”
—Booklist, starred review

“[Harper] is perfectly positioned to reflect on alarming developments that have brought the legal profession to a most unfortunate place…. Essential reading for anyone contemplating a legal career.”
—Kirkus Reviews

“[Harper] burns his bridges in this scathing indictment of law schools and big law firms…. his insights and admonitions are consistently on point.”
—Publishers Weekly

“Imagine that the elite lawyers of BigLaw and the legal academy were put on trial for their alleged negligence and failed stewardship. Imagine further that the State had at its disposal one of the nation’s most tenacious trial lawyers to doggedly build a complete factual record and then argue the case. The result would be The Lawyer Bubble. If I were counsel to the elite lawyers of BigLaw and the legal academy, I would advise my clients to settle the case.”
—William D. Henderson, Director of the Center on the Global Legal Profession and Professor at the Indiana University Maurer School of Law

“With wit and insight,The Lawyer Bubble offers a compelling portrait of the growing crisis in legal education and the practice of law. This book is essential reading for anyone concerned about the profession or contemplating a legal career.”
—Deborah L. Rhode, Professor of Law and Director of the Center on the Legal Profession, Stanford University

“This is a fine and important book, thoughtful and beautifully written. It makes the case – in a responsible and sober tone – that we are producing far too many lawyers for far too small a segment of American society. It is a must-read for leaders of law firms, law schools, and the bar, as the legal profession continues its wrenching transition from a profession into just another business.”
—Daniel S. Bowling III, Senior Lecturing Fellow, Duke Law School

“In this superb book, Steven Harper documents, ties together and suggests remedies for the deceit that motivates expanding law school enrollment in the face of a shrinking job market, the gaming of law school rankings and the pernicious effect of greed on the leadership of many of our nation’s leading law firms. The lessons he draws are symptomatic, and go well beyond the documented particulars.”
—Robert Helman, Partner and former Chairman (1984-98), Mayer Brown LLP; Lecturer, University of Chicago Law School

“Every sentient lawyer realizes that the legal profession is in crisis, but nobody explains the extent of the problem as well as Steven Harper. Fortunately, he also proposes some solutions – so there is still room for hope. This is an essential book.”
—Steven Lubet, author of Fugitive Justice and Lawyers’ Poker

“Steven Harper’s The Lawyer Bubble is an expression of tough love for the law, law firms and the people who work in them. The clear message is take control of your destiny and your firm to avoid the serious jeopardy that confronts far too many firms today. Whether you are a partner, associate, or law student, you should read this compassionate and forceful work.”
—Edwin B. Reeser, Former managing partner, author, and consultant on law practice management

“Harper chronicles the disruption of his once-genteel profession with considerable sadness, and places the blame squarely at the wing-tipped feet of two breeds of scoundrel: law school deans, and executive committees that have run big law firms …” –“Bar Examined” – Book Review in The Washington Monthly (March/April 2013)

SOMEBODY’S CHILD

Posted on March 20, 2013 by thebellyofthebeast

Nine years ago, Senator Rob Portman (R-Ohio) supported a constitutional amendment banning same-sex marriage. Now he wants Congress to repeal the provisions of the Defense of Marriage Act that deny federal recognition to such marriages. Apparently, his reversal on this issue began two years ago when his college freshman son told Portman and his wife that he was gay.

Plenty of prominent national figures have similarly changed their views. The tide of history seems overwhelming, even to conservative commentator George Will. Others can debate whether Portman and those who have announced newly acquired positions favoring gay rights are courageous, hypocrites, opportunists, or something else.

For me, the more important point is that his own child’s connection to the issue caused Portman to think differently about it. Applied to lawyers, the question become simple:

What if the profession’s influential players treated the young people pursuing a legal career as their own children?

Portman’s explanation

In 2011, Portman knew that his son was gay when 100 law graduates walked out of his commencement address at the University of Michigan.

“But you know,” he told CNN recently, “what happened to me is really personal. I mean, I hadn’t thought a lot about this issue. Again, my focus has been on other issues over my public policy career.”

His key phrases are pregnant with larger implications: “[W]hat happened to me is really personal….I hadn’t thought a lot about this issue.”

Start with law school deans

As the lawyer bubble grew over the past decade, some deans and university administrators might have behaved differently if a “really personal” dimension required them to think “a lot” about their approaches. Perhaps they would have jettisoned a myopic focus on maximizing their law school rankings and revenues.

At a minimum, most deans probably would have disclosed earlier than 2012 that fewer than half of recent graduates had long-term full-time jobs requiring a legal degree. It seems unlikely that, year after year, they would have told their own kids that those employment rates exceeded 90 percent. Perhaps, too, deans would have resisted rather than embraced skyrocketing tuition increases that have produced six-figure non-dischargeable educational debt for 85 percent of today’s youngest attorneys.

Then consider big firm senior partners

At the economic pinnacle of the profession, big firms have become a particular source of not only attorney wealth, but also career dissatisfaction. In substantial part, both phenomena happened — and continue to happen — because managing partners have obsessed over short-term metrics aimed at maximizing current year profits and mindless growth.

For example, the billable hour is the bane of every lawyer’s (and most clients’) existence, but it’s lucrative for equity partners. If senior partners found themselves pushing their own kids to increase their hours as a way to boost those partners’ already astonishing profits, maybe they’d rethink the worst consequences of a destructive regime.

Similarly, the average attorney-to-equity partner leverage ratio for the Am Law 100 has doubled since 1985 (from 1.75 to 3.5). Perhaps managing partners wouldn’t have been so quick to pull up the ladder on lawyers who sat at their Thanksgiving tables every year, alongside those managing partners’ grandchildren who accompanied them. Not every young associate in a big firm should advance to equity partner. But offering a 5 to 10 percent chance of success following 7 to 12 years of hard work isn’t a motivator. It invites new attorneys to prepare for failure.

Finally, compared to the stability of a functional family, the current big law firm lateral partner hiring frenzy adopts the equivalent of periodic divorce as a cultural norm. Pursued as a growth strategy, it destroys institutional continuity, cohesion, community, and morale. Ironically, according to Professor William Henderson’s recent American Lawyer article “Playing Not to Lose,” it offers little or no net economic value in return.

Adopting a family outlook or a parental perspective isn’t a foolproof cure for what ails the legal profession. Indeed, running law schools and big firms according to the Lannister family’s values (“The Game of Thrones”) — or those of Don Corleone’s (“The Godfather”) — might not change things very much at all.

It’s also worth remembering that Oedipus was somebody’s child, too.

FROM CRAVATH TO CHASE TO CADWALADER

Posted on February 27, 2013 by thebellyofthebeast

James Woolery is on the move again. We’ve never met, but I’m beginning to feel as if I know the guy.

Woolery first appeared in my June 3, 2010 post about a policy change at Cravath, Swaine & Moore. The Wall Street Journal featured the then-41-year-old Cravath partner in an article about the firm’s plan to allow lawyers in their 30s and 40s to “make a name for themselves” by taking the lead on client deals. Historically, the WSJ reported, Cravath had reserved that role for partners in their 50s.

Six months later, I wrote about Woolery’s departure from Cravath to become co-head of JP Morgan Chase’s North American mergers and acquisitions group. He told the New York Times that he’d developed a business development focus and the Chase opportunity allowed him to build on those skills. So much for practicing law.

Now, two years after joining Chase, Woolery has become the first firmwide deputy chair of Cadwalader, Wickersham & Taft — a new position apparently created specially for its prominent lateral hire. The Wall Street Journal suggested that the move “is a big personal bet for Mr. Woolery. He is jumping back to the legal industry when it is still struggling with a shortage of work, and he is leaving J.P.Morgan just as mergers are showing new signs of life.”

Regardless of the particular reasons for Woolery’s various moves, the contrast between where he started (Cravath) and where he has now ended (Cadwalader) is remarkable.

Cravath

Whatever else people may think of Cravath, it has an unrivaled reputation for attracting first-rate attorneys. It is also a partnership in the truest sense of that concept: A single tier with a lock-step compensation system that resists an undue emphasis on short-term thinking. The Cravath model promotes longer run values, such as institutional stability.

For example, a lateral hiring frenzy pervades big law, but it’s a relatively rare event at Cravath. The firm focuses on developing talent internally. Its attorneys work hard, run a challenging gauntlet to equity partnership, and reap rich rewards for success.

In May 2007, an American Lawyer interviewer asked Cravath’s then-presiding partner Evan R. Chesler whether partners would stick around if the firm made less money. “I don’t know the answer to that,” he said. “I think there is more glue than just money.”

Cadwalader

Cravath’s ethos wouldn’t appeal to attorneys drawn to Cadwalader’s culture. In the mid-1990s, Cadwalader began moving aggressively toward what its new chairman Robert O. Link Jr. called a meritocracy. Others call it “eat-what-you-kill.”

In a February 2007 interview with the American Lawyer, Link expressed an attitude about firm culture that differed dramatically from Chesler’s. “Everyone should wake up in the morning and feel a little vulnerable,” he said.

Link meant it. In 1995, the 268-lawyer Cadwalader firm’s two-tier partnership had 76 equity partners, giving it a leverage ratio of three-and-a-half. By 2005, the firm had nearly doubled in size, but it had only 75 equity partners. Its leverage ratio of seven far exceeded that of all other Am Law 100 firms.

Cadwalader’s asset-backed structured finance practice fueled much of its growth. By 2007, it had 645 lawyers and a stunning leverage ratio of eight-and-a-half. But when the residential housing market cratered and took asset-back structured finance legal work with it, the firm’s fortunes slid badly.

By the end of 2012, Cadwalader had 435 lawyers — down more than 200 from five years earlier. Only 55 of them were equity partners — down 20 from 2007. The good news for the survivors was that by 2012, average equity partner profits had recovered almost completely to their 2007 all-time high of $2.7 million.

Differences that transcend metrics

As Cadwalader became smaller, Cravath maintained average partner profits ranging from $2.5 to $3.2 million, a leverage ratio of approximately four, and moderate growth from 412 to 476 attorneys. Even more to the point, it’s hard to imagine any circumstance short of dissolution that would cause Cravath to shed almost a third of its equity partners, as Cadwalader did from 2007 to 2012.

Back in May 2010, Woolery told the Wall Street Journal, “This is not your grandfather’s Cravath.” It’s not clear what that characterization of his former firm means or if it is correct, but offspring sometimes underestimate the value of a grandfather’s gifts. And offspring sometimes grow up to be grandparents themselves.

THE CULTURE OF CONTRADICTIONS

Posted on January 16, 2013 by thebellyofthebeast

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.”

BONUS TIME – 2012

Posted on November 28, 2012 by thebellyofthebeast

It’s always interesting when two respected legal writers approach the same story in different ways. That happened in the coverage of recently announced associate bonuses.

Ashby Jones at the Wall Street Journal penned an article in the November 27 print edition of the paper that ran under this headline:

“Cravath Sends Cheer — Law Firm Lifts Bonuses for Some Associates as Much as 60%”

As always, Jones accurately reports what is true, namely, that Cravath, Swaine & Moore led this year’s associate bonus announcements with an increase over last year’s base bonus levels. Five paragraphs in, he acknowledges that this significant bump still leaves associates well below the 2007 pay scale. The highest associate bonuses this year are $60,000, compared to $110,000 for combined regular and special bonuses in 2007.

Meanwhile, at the New York Times…

On the same day that Ashby Jones’s article ran in the WSJ, Peter Lattman at the New York Times was a bit more circumspect. In that paper’s print edition, the bold line that ran in the middle of the story reads:

“[Cravath’s] year-end awards set the bar for others, and the payouts are up a bit in 2012.”

Like Jones, Lattman observes that base bonus amounts are substantially higher than previously. But he correctly notes that “when spring bonuses are added to the equation, there has been little increase for Cravath’s associates over the last two years. The law firm did not award spring bonuses in 2012, but last year paid its associates a small stipend in addition to a year-end award. When 2011’s spring bonuses and year-end bonuses are added together, total bonus compensation actually exceeds this year’s level.”

Both Jones and Lattman report that Cravath had $3.1 million in average partner profits for 2011. For perspective, that’s slightly above the $3.05 average for 2006, and not all that far from the $3.3 million all-time high in 2007. Needless to say, associate bonuses haven’t enjoyed a similar recovery. But depending on what happens in the spring, they still could, which leads to a final point.

Who’s right?

The answer is Elie Mystal over at Above the Law. Mystal observes that spring bonuses more properly belong in the analysis of total compensation for the immediately preceding calendar year. That is, a bonus paid in early 2011 is really compensation for 2010.

The analysis is straightforward. Big law firms waiting for more complete information on how the fiscal year will end preserve flexibility by lowballing the November bonus numbers. Evidently, Cravath concluded that its $3.1 million average partner profits for 2011 were inadequate to justify any significant spring bonus for associates in early 2012.

The fate of the “special” bonus

The question now is whether spring bonuses are gone forever. After all, they first appeared as “special bonuses” — meaning that they came with this implied caveat: don’t build those dollars into next year’s expectations. Of course, that message has landed on deaf ears. But it gives firm leaders a way to convince themselves that it’s fair to leave associate compensation far below 2007 levels, even though average partner profits have recovered almost completely to those lofty heights. Indeed, some firms have even bested their pre-recession records.

In all of this, two things are working against associates who dream of a return to the good old days (of 2007). First, the glut of attorneys grows as the demand for new associates shrinks. Second, most law firm leaders are dealing with a revolution of rising expectations among senior equity partners. The potential loss of a rainmaker strikes fear in the hearts of many firm leaders.

But here’s a reason to hope. True visionaries seeking long-term institutional stability let such troublemakers walk. They promote cultural values that transcend the impact on the current year’s income statement. They let resulting gains in client service and attorney morale produce ample financial and non-financial rewards for all.

And all of this reveals itself in how partners at the top of a firm treat associates at the bottom — a place where too many seem to have forgotten that they themselves once stood.

A BIG LAW FIRM THREE-WAY

Posted on November 13, 2012 by thebellyofthebeast

With Hurricane Sandy and the election dominating last week’s headlines, news of another blockbuster merger didn’t receive the attention that it deserved. Later this month, the combination of SNR Denton, the Canadian firm (Fraser, Milner & Casgrain – FMC), and Paris-based Salans will create a 2,500-attorney enterprise known as Dentons, assuming their respective partners approve the merger. The transaction merits a closer look.

Not so long ago

Twenty years ago, Elliott Portnoy graduated from Harvard Law School. In 2002, he joined Sonnenschein, Nath & Rosenthal. Prior to that, he’d headed the public policy group of Arent Fox, an Am Law 200 firm, in Washington, D.C.

In June 2006, at age 40, Portnoy became the youngest chairman in Sonnenschein’s history. At the same time, the firm released a new strategic plan whereby it would increase average equity partner profits from $800,000 to $1.4 million by 2008. That didn’t happen.

In 2007, Sonnenschein had 600 lawyers and average partner profits of $915,000, but since then it hasn’t seen profits numbers that high. Central components of its strategy have been the aggressive recruitment of lateral partners and the pruning away of others. In early 2008, 37 lawyers and 87 non-attorney employees received their walking papers. By year-end, average partner profits had dropped to $805,000. Of course, the onset of the Great Recession contributed to that decline, but many other firms weathered the storm with much less damage.

Time to merge

The 2008 drop in average partner profits didn’t seem to affect Sonnenschein’s strategic plan. Aggressive lateral hiring continued, including 100 lawyers from failing Thacher, Proffitt & Wood in December 2008. Average partner profits kept dropping — to $780,000 in 2009. The following year, 2010, brought the ultimate lateral hiring event: Sonnenschein’s merger with U.K.-based Denton, Wilde & Sapte to create a 1,200-lawyer firm.

As a Swiss verein, the two firms retained their independent financial status. But according to the Am Law Global 100, SNR Denton’s first full year as a combined entity produced overall average partner profits of $700,000 in 2011. The former Sonnenschein side of the firm reported $880,000 in average partner profits, so Portnoy heralded the merger a success and “not a destination, but a part of the journey.”

The journey continues

In 2011, SNR Denton was one of several firms exploring merger possibilities with Dewey & LeBoeuf as it careened toward disaster. According to the Wall Street Journal, Sonnenschein’s leadership had named its proposed deal “A Phoenix Rises from the Ashes” and contemplated a full-scale merger that combined all 1,000 Dewey & LeBoeuf attorneys with SNR Denton. Borrowed money would have financed the transaction — a tactic apparently drawn from the big law firm “lessons not learned” list.

Unexpected bad news may have saved SNR Denton from itself. According to the Journal, the deal was gaining momentum when it cratered after Dewey’s revelation that Manhattan district attorney Cyrus Vance, Jr. had opened a criminal investigation into Dewey.

Doubling down on a dubious approach

The journey has now led to the proposed combination of SNR Denton, FMC, and Salans. If consummated, the merger would double the size of the current SNR Denton. If the transaction goes through, what results won’t be a partnership. Whether it would become a profitable business venture for the participants is an open question.

To help answer that question, SNR Denton’s management got limited outside help. According to Portnoy and SNR Denton’s global chairman Joseph Andrew, “branding and advertising advisers” recommended a single-name moniker, Dentons. (Do they know that Dr. Dentons are children’s pajamas with feet?) But Andrew also noted that the firm used no strategic legal consultants or advisers in its process.

I don’t know if the other firms had advisers. Nor do I know if Salans had advisers in 1998, when it blazed a trail by becoming the first major law firm to complete a transatlantic merger, acquiring Christy & Viener. But that transaction didn’t turn out very well.

Maybe this time will be different. For the sake of many fine lawyers and even greater numbers of staff who are relying on management to chart a wise course for three law firms, let’s hope so. Among the most important lessons of Dewey & LeBoeuf are these: the margin for leadership error is slim and the consequences of missteps can be catastrophic.

BIG LAW FIRM MANAGEMENT PUZZLES

Posted on November 7, 2012 by thebellyofthebeast

Last month, ALM Legal Intelligence released “Thinking Like Your Client: Strategic Planning In Law Firms,” a curiously titled survey of Am Law 200 law firm leaders. The title is curious because the results demonstrate that most law firm managing partners are neither thinking like clients nor planning strategically for their firms’ futures.

Lateral self-delusion

The appendix of actual law firm responses from 79 out of all Am Law 200 partners is more interesting than the narrative explanations in the report. For example, one question asked them to identify their firms’ top three priorities. In order, the most frequent answers were:

Growing the firm’s revenues — 66 percent

Talent acquisition and retention — 59 percent

Improving firm profitability — 54 percent

Eighty percent said they had a strategic plan in place to address firm priorities. But other responses suggest that the plans are pretty simple: hire more lateral partners.

When asked how, as part of their strategic plans, firms were pursuing growth in the next two years, 96 percent said “acquiring laterals.” Seventy-six percent of the 75 respondents who listed this strategy said they would pursue laterals “aggressively.” More than 70 percent of respondents expect that, as a staffing category, lateral partner hires will increase over the next five years.

Yet they also acknowledge that laterals have been a mixed bag. Only 28 percent of managing partners said that their lateral strategies over the past five years have been “very effective — most laterals have been retained and contributed to business growth.” And those are just the dollar impacts. Ignored are the cultural consequences for a firm whose growth strategy depends on endless acquisition of outside talent. Nevertheless, most big firm leaders are doubling down on a dubious approach.

Is it really about the clients?

As for other half of the report’s title — “thinking like your client” — fewer than a third of respondents included “client performance management and client satisfaction measurement” as one of their top three priorities. Responses to other questions echoed that attitude. Forty-one percent admitted that they had no plan in place to build, track and measure client loyalty and satisfaction. When asked what aspect of their client relationships they would most like to change, only 21 percent said higher service levels — far behind the desire to take work from other firms and improve profitability.

When asked to identify the top three metrics they regarded as most important in managing firm performance, leaders listed a familiar trinity: firm revenue, firm profit, and profit per partner. Client retention metrics got a whopping 4 percent response, tied at the bottom of the list with “other.”

Only 18 percent use “client retention metrics” to reward partners, but more than 70 percent identified collections, firm profit, billings and client business development as the key criteria. (Apparently dollars from new clients are worth more than dollars from old ones.)

Look out for what’s next

How well is all of this working? Better for some than for others, and that will continue. When asked whether non-partner to partner leverage ratios had left their firms properly resourced to provide exceptional client service while also growing the firm business, 70 percent of law firm managers said they needed to make adjustments.

We all know which way those “adjustments” will go: in the direction of fewer equity partners. With respect to staffing categories that managing partners expect to experience the biggest decrease over the next five years, the largest plurality chose equity partners. Additionally, more than 90 percent of law firm managers said they had “unprofitable partners.” Seventy percent said that such subpar performers were at risk for de-equitization or removal.

Finally, if you’re wondering about the hourly rate regime and whether law firms can deal with any other system, consider this: When asked to compare alternative fee arrangements (AFAs) to hourly rate matters, 12 percent of firm leaders said AFAs were more profitable, 23 percent said they were less profitable, and 65 percent had no clue. How’s that for a leadership confidence builder?

Perhaps some of these managing partners have a subconscious awareness of their shortcomings. When asked to list the top three areas where their firms have a competitive advantage, only 14 percent chose “strong firm leadership.” Unfortunately, it seems clear that even that dismal number is too high.

IS IT REALLY MORE COMPLEX THAN GREED?

Posted on July 10, 2012 by thebellyofthebeast

Revisionism is already obfuscating the story of Dewey & LeBoeuf’s demise. If facts get lost, the profession’s leaders will learn precious little from an important tragedy.

For example, the day after Dewey & LeBoeuf filed its bankruptcy petition, Clifford Winston and Robert W. Crandall, two non-lawyer fellows at the Brookings Institution, wrote an op-ed piece for The Wall Street Journal offering this analysis: “Dewey’s collapse has been attributed to the firm being highly leveraged and unable to attract investment from businesses outside the legal profession.”

Attributed by whom? They don’t say. Anyone paying attention knows that outside investors bought $150 million in Dewey bonds. But apparently for commentators whose agenda includes proving that overregulation is the cause of everyone’s problems — including the legal profession’s — there’s no reason to let facts get in the way.

Another miss

On the same day that the Winston & Crandall article appeared, a less egregious but equally mistaken assessment came from Indiana University Maurer School of Law Professor William Henderson in the Am Law Daily: “More Complex than Greed.” Bill and I agree on many things. I consider him a friend and an important voice in a troubled profession. But I think his analysis of Dewey & LeBoeuf’s failure misses the mark.

Henderson suggests, “One storyline that will attract many followers is that large law firm lawyers, long viewed as the profession’s elite class, have lost their way, betraying their professional ideals in the pursuit of money and glory. This narrative reinforces that lawyer-joke mentality that lawyers just need to become better people. That narrative is wrong.”

What’s wrong with it? In my view, not much, as “House of Cards” in the July/August issue of The American Lawyer now makes painfully clear.

What happened?

Rather than the greed that pervades “House of Cards,” Henderson suggests that Dewey & LeBoeuf reveals the failure of law firms to innovate in response to growing threats from new business models, such as Axiom and Novus Law. Innovation is an important issue and Henderson is right to push it. But as the story of Dewey’s failure unfolds, the inability to innovate in the ways that Henderson suggests — using technology and cheaper labor to achieve efficiencies and cost savings — won’t emerge as the leading culprit.

Rather, greed and the betrayal of professional ideals lie at the heart of what is destabilizing many big law firms. In that respect, most current leaders have changed the model from what it was 25 years ago. Am Law 100 firms’ average partner profits soared from $325,000 in 1987 to $1.4 million in 2011. Behind that stunning increase are leadership choices, some of which eroded partnership values. As a result, many big firms have become more fragile. If greed doesn’t explain the following pervasive trends, what does?

— Short-term metrics — billings, billlable hours, leverage — drive partner compensation decisions in most big firms. Values that can’t be measured — collegiality, community, sense of shared purpose — get ignored. When a K-1 becomes the glue that holds partnerships together, disintegration comes rapidly with a financial setback.

— Yawning gaps in the highest-to-lowest equity partner compensation. Twenty-five years ago at non-lockstep firms, the typical spread was 4-to-1 or 5-to-1; now it often exceeds 10-to-1 and is growing. That happens because people at the top decide that “more” is better (for them). Among other things, the concomitant loss of the equity partner “middle class” reduces the accountability of senior leaders.

— Leverage has more than doubled since 1985 and the ranks of non-equity partners have swelled. That happens when people in charge pull up the ladder.

— Lateral hiring and merger frenzy is rampant. One reason is that many law firm leaders have decided that bigger is better. The fact that “everybody else is doing it” reinforces errant behavior. Growth also allows managers to rationalize their bigger paychecks on the grounds that they’re presiding over larger institutions.

Throughout it all, associate satisfaction languishes at historic lows. No one surveys partners systematically, but plenty of them are unhappy, too. Unfortunately, such metrics that don’t connect directly to the short-term bottom line often get ignored.

Innovation won’t solve the problem

A few successful, stable law firms have shunned the now prevailing big law model. They innovate as needed, but far more important has been their ability to create a culture in which some short-term profit gives way to the profession’s long-term values. What is now missing from most big law firms was once pervasive: a long-run institutional vision and the willingness to implement it. Too often, greed gets in the way.

With all due respect to Messrs. Winston, Crandall and Henderson, sometimes the simplest explanation may also be the correct one.

DEWEY’S L. CHARLES LANDGRAF: THE PLIGHT OF THE LOYAL COMPANY MAN

Posted on June 18, 2012 by thebellyofthebeast

This is the last — for now — in a series profiling Dewey & LeBoeuf’s former leaders, especially its final four-man office of the chairman. L. Charles Landgraf (Rice University, B.A., 1975; New York University, J.D. 1978) had been a long-time partner at LeBoeuf Lamb when it merged with Dewey Ballantine in October 2007.

In the 1990s, when LeBoeuf Lamb needed someone to bolster its London presence, Landgraf went. When the firm established a Moscow office, he helped. When duty called to the Washington, D.C. office that he was heading in 2012, Charley landed in Dewey & LeBoeuf’s four-man office of the chairman. It quickly became a thankless job.

A partner’s predicament

According to a Wall Street Journal interview, Landgraf helped out after the firm had failed to meet profit targets for several years. Unable to pay everything owed to guaranteed compensation partners, he and Jeffrey Kessler “spearheaded” a plan (according to Martin Bienenstock in that interview). It would have paid off partners who had taken IOUs from the firm by dedicating six percent of partnership earnings from 2014 to 2020.

Always candid, Landgraf said recently that the plan was necessary because “the firm had a lot of built-up tension about the fact that we had a compensation schedule last year that exceeded the actual earnings, and that had been true for a couple of years.” “Built-up tension” is a delicate description of the plight facing a firm that organizes itself around so-called stars whose loyalty extends no deeper than their guaranteed incomes.

Go along to get along?

My hunch is that the plan to deal with this problem wasn’t Landgraf’s idea. He wasn’t among those listed in the “Senior Management” section of the firm’s 2010 private placement memorandum. Nor was he mentioned in April 2012 when Dewey & LeBoeuf identified for Thomson Reuters seven key players essential to the firm’s survival.

He may fit the profile of many big law partners who have spent years — even decades — in the same firm and retain a deep loyalty to something that has actually disappeared from their institutions, namely, a true partnership and all that it entails. Perhaps they defer too willingly to others who are supposed to be smarter, more knowledgeable and/or have superior judgment. But when things get rough, they step up and do what they can to salvage the situation.

Undue deference revealed

From that perspective, Landgraf’s interview for The Wall Street Journal on Saturday, May 12, 2012 was revealing. A day earlier, Dewey & LeBoeuf’s resident bankruptcy expert Martin Bienenstock had announced that he was leaving the firm. By the time the interview appeared, he was already on Proskauer Rose’s attorney roster.

But during The Wall Street Journal interview, Landgraf — who was then the only remaining member of the original Gang of Four comprising the office of the chairman — let his former partner do all of the talking for a firm that was no longer Bienenstock’s. In printed form, the interview transcript fills seven pages. Landgraf’s words barely consume a half-page.

Bienenstock credited Landgraf and Kessler for the plan that committed future partner earnings to pay guaranteed partner IOUs from prior years. Landgraf said that the lateral contracts were “something we’re looking at. Whether all the contracts were the subject of full discussion or simply known as a technique that was used…is still being reviewed.”

His next line suggested that others at the firm may have been a bit too persuasive in selling him a bad idea: “But the technique of using guarantees of all forms, especially in the recruitment of laterals and retention of key business users, is pretty widespread throughout the industry.”

For limited periods involving laterals? Maybe. For four- or six-year deals involving legacy partners? I don’t think so. For 100 members of a 300-partner firm? Not for something that should call itself a partnership.

Two days after that interview appeared, Landgraf was gone, too. As hundreds of remaining Dewey & LeBoeuf lawyers and staff around the world wondered what might come next, one gets the sense that he was trying to be a good partner to the end.

I don’t know if a final caution applies to Landgraf, but it’s an appropriate note on which to conclude this series: a team player serves neither himself nor his institution when he defers to others as they move the team in the wrong direction. It’s time to empower dissenting voices with Aric Press’s “Partner Protection Plan.”

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The Belly of the Beast

Steven J. Harper, Esq.

Tag Archives: law partners

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DEWEY’S L. CHARLES LANDGRAF: THE PLIGHT OF THE LOYAL COMPANY MAN

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