FROM KENTUCKY TO CRAVATH TO CHASE

Posted on January 27, 2011 by thebellyofthebeast

Six months ago, I wrote about a new development at Cravath. (https://thebellyofthebeast.wordpress.com/2010/06/03/a-better-alternative-or-a-leap-from-the-frying-pan/) The Wall Street Journal reported that the firm was allowing lawyers in their 30s and 40s to “make a name for themselves” by taking the lead on client deals. Tradition dictated deference to elders in such matters, but Cravath’s lock-step system meant that “older attorneys didn’t mind because the pay they received didn’t get cut” as younger attorneys gained a higher profile. (http://online.wsj.com/article/SB10001424052748703630304575270472434024454.html)

“‘We’re more aggressive than we used to be,’ said 41-year-old Cravath partner James Woolery. ‘This is not your grandfather’s Cravath.’ He said the new approach means more ‘hustling for loose balls’ than in the past.”

When the article appeared, I wondered if Cravath’s experiment would backfire, leading young partners to consolidate clients, billings, and power for personal gain — even, perhaps. chafing at Cravath’s vaunted lock-step system. After all, financially motivated defections now pervade big law.

Alternatively, I speculated that allowing eager lawyers to run with client batons could be a win-win situation. If they remained loyal, the upstarts could grow the entire pie in true partner-like fashion.

I missed the obvious: Some rising young partners at Cravath didn’t want to be lawyers anymore. Woolery himself is now leaving to co-head JP Morgan Chase’s North American mergers and acquisitions. ((http://dealbook.nytimes.com/2011/01/20/cravaths-woolery-to-join-jpmorgan-as-senior-deal-maker/)

“I’ve had a business management focus, even at Cravath, and this opportunity allows me to expand that,” Wollery told the Times. He said the move would allow him to build on skills that he’d been honing, including business development.

Business development?

He elaborated for the Am Law Daily:

“Woolery points to his experience running Cravath’s business development group as the driving factor behind his decision to move to J.P. Morgan. In the five years that he has led the group, it has evolved from a pitch book operation to a more substantial research and development group consisting of 30 professionals — corporate and litigation attorneys, and analysts.

“‘Doing that work was what led me to wanting to do this job [at J.P. Morgan].'” (http://amlawdaily.typepad.com/amlawdaily/2011/01/woolery.html)

From the University of Kentucky College of Law to Cravath partner, he now moves to a position that doesn’t even require a law degree. Maybe there’s more behind Woolery’s move — more money, more challenges — who knows? But a successful young lawyer in search of more clients found a client in search of him, albeit not for his skills as an attorney.

Big firm lawyers are increasingly assuming non-attorney corporate positions. (http://amlawdaily.typepad.com/amlawdaily/2010/12/lawyers-ceos.html) It’s additional proof of the profession’s transformation to a business: Many large law firms have developed cultures that make them training grounds for corporate leaders. Fully corporatized lawyers don’t even need an MBA to advance. (Woolery doesn’t have one.)

As an educator of students tracking themselves toward the law, I wonder how rising legal stars now leaving the profession altogether would answer these questions:

ON LAW SCHOOL

Why did you attend law school in the first place? Like many others, did you view it as the last bastion of a liberal arts major who couldn’t decide what to do next? Did you regard it as a circuitous path to a corporate career? If so, wouldn’t getting an MBA have been more efficient?

ON THEIR JOBS

Did your legal work and resulting career match your expectations? If not, in what ways — good and bad?

ON LIFE

Have you enjoyed a satisfying career? Have changes in you, your firm, or the profession played a role in your departure from the profession? It’s not just about money, is it?

Most big law attorneys say they’re too busy billing hours to consider these questions at all, much less on a regular basis. It reminds me of Yogi Berra’s response to his wife’s complaints as they got lost while he drove to Cooperstown for his Hall of Fame induction ceremony.

“I know we’re lost,” he finally admitted, “but we’re making good time!”

Yogi arrived at his desired destination. Too many lawyers never think about theirs — and then wonder why they’re dissatisfied professionally.

CULTURE SHOCK

Posted on January 21, 2011 by thebellyofthebeast

On December 30, K&L Gates Chairman Peter Kalis sent an email that recently reached the legal blogosphere. Bluntly, he reminded fellow partners to get their outstanding client bills paid before the firm’s fiscal year-end. Above the Law reproduced it [complete with typos purportedly from the original]:

“Let me be clear about a couple of things. First, partners and administrators at this law firm are expected to run through the tape at midnight on December 31. Many of you came from different cultures. I don’t care about your prior acculturation. We didn’t conscript you into service at this law firm. You came volunatrily [sic]. What we are you are as well.

“And that brings me to my second point. We are a US-based global law firm. US law firms operate on a cash basis of accounting. Our fees must be collected by midnight within the fiscal year in which they are due. You don’t get to opt out of this feasture [sic] because it doesn’t appeal to you. Again, I couldn’t care less whether it appeals to you. It is who we are and therefore it is who you are. Get us paid by tomrrow [sic].” (http://abovethelaw.com/2011/01/the-two-faces-of-kl-gates/)

The message demonstrates three things — from the predictably banal to the inadvertently profound.

First, although the tone is a bit harsh, the substantive content doesn’t surprise any big law partner. Most lawyers aren’t particularly good businessmen. Reminding them that aging invoices require follow-up isn’t evil or wrong; it’s necessary. No attorney enjoys nagging clients about an overdue receivable. Presumably, the December 30 message was just the final step in a sustained year-end drive asking partners to complete a task that they’d otherwise avoid (as I did).

Second, email is perilous. Speedy communication can be great, but it’s fraught with danger. In less than a minute, you can address, type, and send a message to an entire group (and eventually reach many more blog readers). If you don’t take the time to proofread for typos, much less reflect on how others might later analyze your statements, no one will stop you from hitting the send button. Once released, the words assume a life of their own and context disappears. Every trial lawyer who has sought to explain away a client’s unflattering email message understands the problem. Surprisingly, some of those same lawyers fail to apply the lesson to their own writings. Next time, Kalis will probably prepare a script and deliver his thoughts via voicemail.

The third point has nothing to do with substance — that is, chiding partners to get client bills paid. Rather, the message acknowledges an unintended consequence of the prevailing big law business model: It has produced unprecedented lateral partner mobility that, in turn, erodes distinctive firm cultures. Two sentences make the point:

“Many of you came from different cultures. I don’t care about your prior acculturation.”

Six months ago, I praised Kalis for encouraging prospective associates to put interviewing partners on the spot when he urged: “[Recruits] should ask searching questions. How practice has changed over the years and how you deal with the changing demands. And how hard it is to reconcile your life at work with the rest of your life…I don’t believe lawyers should bow to icons. I want them to look me in the eye and ask tough questions.” (http://thecareerist.typepad.com/thecareerist/2010/06/kl-gates-likes-them-sassy.html; https://thebellyofthebeast.wordpress.com/2010/07/09/summer-associates-take-note-inadvertent-revelations/)

Although they probably won’t pose them, recruits now have more tough questions for him and other big law attorneys: As partners lateral into equity partnerships, what does the culture of the receiving firms become? Does it coalesce around the common denominator of maximizing current-year profits? Or is there room for other, non-monetary values that have traditionally defined the profession? If it’s the latter, how does the firm encourage them?

The answers matter because Kalis’s email emphasizes (twice): “What we are you are as well.”

I don’t know about K&L Gates, but what passes for culture in too many big firms is his message’s final exhortation: “Get us paid by tomrrow [sic].”

EXPLAINING BAD BEHAVIOR

Posted on December 2, 2010 by thebellyofthebeast

I’ve never met Steven Pesner, who lit up the legal blogosphere with his now infamous e-mail to Akin Gump’s New York office litigation billers and their secretaries. (http://abovethelaw.com/2010/11/akin-gump-partner-pens-email-fantasy-about-firing-delinquent-time-keepers/) Some say he’s typical of big law partners; others argue hopefully that he is an exception. Someone else can tackle that survey. I’m interested in what the episode reveals about the prevailing large firm business model that put him in a position to disseminate the words that now define him.

First, his fundamental point applies to almost all large firms: Get your time in because the billable hour remains big law’s cornerstone. People working for Pesner undoubtedly log lots of them; they lead to revenue — an essential prerequisite to his internal power. That’s not unique.

Second, the model has many problems, only one of which he targets: Tardy time submission. Some attorneys wait a week — or even a month — before trying to “reconstruct” their billable activities. That allows them to believe that doing their best to remember earlier tasks isn’t lying. Insofar as Pesner sought to deter creative writing at week’s or month’s end, he was protecting clients and his firm. Of course, that doesn’t justify his rhetoric. Nothing can. But his topic reveals one of many flaws infecting the billable hour regime.

Third, economic self-interest looms large. His message went exclusively to all New York litigation personnel — a point commentators have ignored. Pesner’s departmental billings may well frame a larger internal debate: His NY litigation group’s near-term economic standing. He might have been preparing to defend his memo’s recipients against annual intra- and interoffice warfare with corporate, restructuring, and transactional group leaders. Most large firm equity partners eat what they kill, along with what they successfully claim to have killed. In many firms, allocating profits often starts geographically by office practice group before proceeding to rainmakers who then decide the fate of individuals within each group.

Fourth, Pesner’s valid points morphed into a tirade that reveals pervasive equity partner hubris, especially among big law managers: He believes his own press releases.

“9. For those of you who think you are exempt from doing time sheets on a daily basis, I’d suggest that you reevaluate your importance and get ready to prove that (a) you are busier than I am on legal work, (b) you are busier than I am on client development work, (c) you are busier than I am on firm work and (d) [Redacted] and I do not have better things to do with our time than beg you to be responsible.”

The word “I” appears five times. That’s how some senior partners orient their world — around themselves. Few, if any, others compare favorably to their own idealized self-images. Their constant refrain is “today’s young people just don’t want to work as hard as I did.” But as associates, none had the challenge of a BlackBerry keeping them on-call 24/7. In fact, they didn’t even have annual minimum billable hours requirements. Their hypocrisy is stunning.

Finally, he acknowledges the life-or-death power that all senior partners wield over subordinates’ careers:

“10. Candidly, I’d put every future material violator’s name in a hat, randomly pick out a name, and publicly fire the person on the spot—to demonstrate that time sheet compliance is serious business. And incidentally, it is my understanding that the job market is not so good right now in case you did not know.”

The immediate issue was time submissions, but the underlying attitude infects working relationships throughout big law. Pesner was unique in his candor, but not in his views. Few dare to challenge such a partner in a position to make or break careers. Pesner’s threatening finale leaves no doubt in that respect:

“11. Also, please remember that I have a long and excellent memory.

If you have any questions, think long and hard before asking them—this simply is not very complicated.”

Sometimes a few words from one man are worth a thousand pictures of what too many others in his profession have become.

COCKROACHES, MEDICINE, AND THE BILLABLE HOUR

Posted on November 29, 2010 by thebellyofthebeast

Cockroaches should take lessons from the billable hour. Detractors notwithstanding, it has survived every economic downturn of the last 30 years including, apparently, this one. Although a recent ALM survey noted that almost 75% of client payments in 2009 were pursuant to “alternative fee arrangements,” almost 80% of those were simply discounts from attorneys’ hourly rates. (http://amlawdaily.typepad.com/amlawdaily/2010/10/billing.html)

Here’s the real problem: Whenever the regime eventually crumbles, the worst aspects of the billable hours culture will persist. Take fixed fee caps, for example. Even if they benefit some clients financially — a big “if” that’s a separate discussion — they create a Hobson’s choice for associates.

On one side is the pressure not to log all time. Keeping matters within internal budgets makes billing partners look good in their year-end reviews.

On the other side stands the billable hour as the definitive metric for measuring individual productivity. They might be working on fixed fee matters, but attorneys must still account for their time. Large firm minimum hours requirements aren’t going away.

What happens when externally fixed fees meet internal billable hours cultures? Ask your doctor.

Do you sometimes get the impression that your family physician is rushing through an appointment? That’s because the doctor is responding rationally to something called the relative value unit (RVU) — medicine’s equivalent to the billable hour.

In 1964, the AMA created reimbursement codes for the newly enacted Medicare program. Fifteen years later, a Harvard School of Public Health economist began investigating ways to compare the seemingly incomparable: the time and effort associated with doctors’ diverse tasks. The typical economist’s study sought to develop relative values for measuring productivity across a range of different activities — from well-child checkups to brain surgery.

The academic exercise remained theoretical until 1985 when Medicare expanded the inquiry: Might such a scale be used to control costs associated with spiraling “reasonable, customary and prevailing fee-for-services” payment schedules? In 1992, Congress linked the relative value unit system to the Medicare codes used for reimbursing more than 7,000 different physician tasks. Private health insurers soon adopted RVUs for reimbursement, too.

Physicians now generate RVUs to earn a living, but time becomes a critical limiting factor. For example, whether a family physician spends 10 or 30 minutes on a routine office visit, Medicare and insurance companies set physician reimbursement at the activity’s predetermined RVU value (0.7). That gets multiplied by the uniform RVU rate (about $40/RVU) for a total of $28. (The final bill exceeds $28 because practice expense and malpractice RVU-factors get added.)

Specialists’ tasks have greater RVU values than general practitioners.’ Compared to a 15-minute routine visit worth 0.7 RVU, a 30-minute colonoscopy is worth several times that. Such differences relate to physician training, skills, mental effort, judgment, stress, and other aspects of the work. But cynics note that specialists have dominated Medicare’s RVU schedule advisory boards.

Behavior has followed incentive structures:

— RVU-driven compensation differences have created shortages of family physicians.

— Specialists mean well, but they tend to view patients myopically through the prism of their expertise, rather than as entire beings. Piecemeal medicine results.

— The system encourages pills, procedures, and tests. Prescription drugs promise quick fixes that move patients out of their doctors’ offices sooner. Procedures generate high RVU values; tests requiring expensive equipment likewise reap generous reimbursement.

Meanwhile, doctors must meet minimum annual RVUs, sometimes pursuant to explicit contractual requirements. That should sound familiar to any big law associate.

As physicians ceded control of hospitals to lay managers, RVUs became a key tool by which the MBA mentality of misguided metrics overtook that profession. Don’t take my word for it. Ask your doctor — if he’ll give you the time.

What would happen if clients and the courts that approve fee petitions started “fee-capping” lawyers the way Medicare and insurance companies have sliced into doctors’ incomes since 1992? Probably unintended consequences no less dramatic than those still surprising the medical profession. Many haven’t been pretty.

Here’s the real kicker: Unlike the legal profession, most physicians have always liked their jobs.

“LIES, DAMN LIES, AND STATISTICS”

Posted on November 16, 2010 by thebellyofthebeast

ALM editor-in-chief Aric Press penned a provocative article about Indiana Law Professor Bill Henderson’s for-profit venture on recruiting, retention, and promotion. (http://amlawdaily.typepad.com/amlawdaily/2010/11/pressconventionalwisdom.html) The WSJ law blog and ABA Journal covered it, too. (http://blogs.wsj.com/law/2010/11/15/on-law-firms-and-hiring-is-a-new-paradigm-on-the-way/) Henderson is analyzing why some attorneys succeed in Biglaw and others don’t.

Does anyone else find his project vaguely unsettling?

At first, I thought of the venerable computer programming maxim, “garbage in, garbage out.” That’s because he’s asking Am Law 200 partners to identify values and traits they want in their lawyers — and he’s assuming they’ll tell him the truth. But will they admit to seeking bright, ambitious associates wearing blinders in pursuit of elusive equity partnerships typically awarded to fewer than 10% of large firm entering classes? Or that such low “success” rates inhere in the predominant Biglaw business model that requires attrition and limits equity entrants to preserve staggering profits?

Then I considered Mark Twain’s reflections on the three kinds of falsehoods: “Lies, damn lies, and statistics.” It came to mind because Henderson’s researchers “pour over the resumes and evaluations of associates and partners trying to identify characteristics shared by those who have become ‘franchise players’ and those who haven’t.” Here’s what those resumes and evaluations won’t reveal: the internal politics driving decisions.

Most Biglaw equity partners are talented, but equally deserving candidates fail to advance for reasons unrelated to their abilities. Rather, as the business model incentivizes senior partners to hoard billings that justify personal economic positions, those at the top wield power that makes or breaks young careers — and everybody knows it. Doing a superior job is important, but working for the “right” people is outcome determinative. Merit sometimes loses out to idiosyncrasy that is impervious to Henderson’s data collection methods.

But perhaps the biggest problem with Henderson’s plan is it’s goal: identifying factors correlating with individual success. Does the magic formula include “a few years in the military, a few years in the job force, or a few years as a law review editor?”

If managers warm to Henderson’s conclusions (after paying his company to develop them), they’ll leap from correlation to causation, develop checklists of supposed characteristics common to superstars like themselves, and hire accordingly. Law schools pandering to the Biglaw sliver of the profession (it’s less than 15% of all attorneys) could take such criteria even more seriously. Before long, prospective students will incorporate the acquisition of “success” credentials into their life plans.

The difficulty is that today’s Biglaw partners already favor like-minded proteges. That inhibits diversity as typically measured — gender, race, ethnicity, sexual orientation, and the like — along with equally important diversity of views and a willingness to entertain them. Even today, concerned insiders are reluctant to voice dissent from Biglaw’s prevailing raison d’etre — maximizing short-term profits at the expense competing professional values and longer-term institutional vitality. Won’t meaningful diversity — of backgrounds, life experiences, and resulting attitudes about professional mission — suffer as groupthink makes firms even more insular? Meanwhile, trying to improve overall “success” rates is a futile goal; they won’t budge until the leveraged pyramid disappears.

I don’t fault Henderson, who bypassed Biglaw practice for academia after his 2001 graduation. But Press’s warning is important: “To some extent, it doesn’t matter what Henderson and Co. discover. What matters is that the inquiries have begun…If we’ve learned anything from the last decade, it’s that we can’t predict the consequences of new information beyond acknowledging its power to disrupt.”

Consider two unfortunate examples. The flawed methodology behind U.S. News’ law school rankings hasn’t deterred most students from blindly choosing the highest-rated one that accepts them. (Exorbitant tuition and limited job prospects may be changing that.) Likewise, Biglaw’s transformation from a collegial profession to a short-term bottom-line business accelerated after publication of average partner profits at the nation’s largest firms (then the Am Law 50), beginning in 1985; I just published a legal thriller describing that phenomenon. (http://www.amazon.com/Partnership-Novel-Steven-J-Harper/dp/0984369104)

The most important things that happened to me — in Biglaw and in life — were fortuitous. No statistical model could have predicted them. Still, I hope Henderson’s study answers an important question: Would his likely-to-succeed factors have led any firm to hire me?

ACCELERATING IN THE WRONG DIRECTION

Posted on November 5, 2010 by thebellyofthebeast

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

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

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

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

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

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

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

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

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

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

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

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

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

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

THEY’RE NOT ENTITLED TO ME

Posted on October 22, 2010 by thebellyofthebeast

At a recent debate, New York’s U. S. Senate candidate Joseph J. DioGuardi repeated his charge that Democratic incumbent Kirsten E. Gillibrand spent her early professional career at a prestigious New York City law firm (Davis, Polk & Wardwell) where she represented the world’s largest cigarette company. Gillibrand countered that DioGuardi cast pro-tobacco votes as a congressman. She also explained that, as a young lawyer, she had no choice in her assigned cases. (http://www.nytimes.com/2010/10/16/nyregion/16debate.html)

Gillibrand’s response was intriguing for two reasons. First, she fought tobacco taint with tobacco taint, rather than citing the foundational principle of our adversary system: However distasteful it sometimes seems, everyone is entitled to representation. Second, her law firm supposedly had a policy that allowed attorneys to decline work for its tobacco client. (http://www.nytimes.com/2009/04/10/opinion/10observer.html). If she didn’t avail herself of the firm’s policy, what does that mean?

Maybe nothing. Although she didn’t mention the principle that everyone deserves a lawyer, it still applies. That’s why even Liz Cheney’s most conservative colleagues with law degrees lambasted her for publicly listing current Department of Justice attorneys who represented Gitmo detainees pro bono — as if there was something wrong with providing a defense to those individuals.

To be sure, Cheney has the personal freedom to decline such representations. My former law school professor, Alan Dershowitz, defended notorious criminal defendants, but as he told my fellow classmates more than 30 years ago, “Everyone has a right to representation, but no one has a right to me.”

Every lawyer has that power to exercise a final veto. If used, someone else will certainly take up the cause. But Gillbrand’s defensive response concerning her tobacco client suggests at least a retrospective queasiness with her earlier work. If the firm gave her the right to say no, what’s the significance of her failure to do so?

Every young associate in a big firm could answer that question. Regardless of a firms’s official position, practical considerations define the limits of an associate’s willingness to say no.

Large clients’ biggest and often unpopular problems have become central to Biglaw profits. The prevailing law firm business model has reduced the number of available equity partnership slots and concentrated internal power in the relatively few who control clients and billings. For an associate, it’s only natural that a firm’s official “freedom to choose” policy would sometimes yield to the pressures accompanying a request from a senior partner who can single-handedly make or break a subordinate’s career. Partners themselves sometimes confront analogous difficulties when clients push uncomfortably close to the outer edges of what their lawyers deem permissible.

Some consequences are subtle. The resulting erosion of individual attorney autonomy has probably contributed to growing career dissatisfaction, especially in large firms where unhappiness is greatest. In today’s tight labor markets, young lawyers desperately need their jobs to repay enormous student debt and sustain themselves. Few would risk unemployment to assuage their consciences or to avoid an abusive superior. In fact, most don’t allow such rebellious thoughts to enter their heads, but maybe they should.

One of my adult children recently encountered a high school classmate who is now working in a big firm after graduating from a top law school. While contemplating the many challenges confronting the next generation, consider that young lawyer’s lament and career plan:

“I’m working too hard for clients I don’t like pursuing I causes I can’t stand and making the world worse. But I have to do it long enough to repay student loans and get experience that I can use to do something worthwhile with my law degree.”

It may not be that simple. Those wrestling with situations that burden them with genuine moral havoc — whatever its nature or origins — might be well advised to extricate themselves sooner rather than later. Life’s decisions tend to be cumulative and the consequences of earlier choices that seem inconsequential at the time can endure far beyond their originally anticipated life expectancies. Just ask Kirsten Gillibrand.

WHO REMEMBERS FINLEY KUMBLE?

Posted on October 14, 2010 by thebellyofthebeast

“I just don’t see the need to cram two firms with around a thousand lawyers [each] together. It made no sense,” one Akin partner reportedly told the National Law Journal shortly after the collapse of Akin-Orrick merger talks.

The number of law firm mergers in 2010 is down from recent years, but look at the headliners: Sonnenschein – Denton; Hogan & Hartson – Lovells; Reed Smith – Thompson & Knight; Orrick and anyone. An earlier consolidation wave produced K&L Gates, DLA Piper, Bingham McCutcheon and others.

How much of this activity proceeds from the simplistic premise that bigger is always better?

When I was a young partner in my large firm, Finley Kumble became a disaster that struck fear in the hearts of big firm expansionists. During the early 1980s, Finley rocked the legal world as it signed up high-profile figures and raided other firms’ superstars, some of whom earned the then-staggering sum of $1 million annually. From only 8 lawyers in 1968, Finley became the nation’s second largest firm by 1985.

It promoted itself as a national powerhouse run on principles of meritocracy. The more business a lawyer generated, the more money he or she took home. Money was the glue that held the partnership together. Does that sound familiar?

But Finley grew too fast, assuming debt for office expansions and promising outsized paychecks to big name lateral hires. As revenue dollars dwindled, the firm disintegrated. With more than 650 attorneys at the time of its dissolution in 1987, it was still one of the nation’s largest firms.

The ghost of Finley Kumble haunted Biglaw leaders for years. Some saw its end as confirming that even large, diverse firms possessed their own identities. Mixing cultures through aggressive recruitment of name players with portable practices was a mistake. Others concluded that senior attorneys and their egos couldn’t survive as a single cohesive unit if their sole point of intersecting common purpose was greed. Still others saw the failure as an inevitable consequence of unrestrained growth. Finley proved that there was a limit on the size that any healthy large law firm could attain. No one knew the outside boundary with certainty, but crossing it was fatal.

What did today’s Biglaw managers learn from the lessons of Finley Kumble’s demise? Probably very little. After all, lawyers excel at distinguishing away precedent that undermines their preferred positions.

In that respect, modern proponents of growth through merger and high-profile lateral acquisitions can point to many differences between Finley and today’s firms. For example, the use of MBA-type metrics that focus on short-term profits at the expense of non-monetary values is now pervasive throughout Biglaw. In that respect, the earlier potential for cultural clashes has diminished as current year equity partner profits have become the universal coin of the realm. Likewise, lateral movement at all levels — especially among rainmakers who were Finley Kumble’s signature recruits — has become commonplace. Indeed, the legal world has become more hospitable to Finley’s central mission and modus operandi.

It would be interesting to hear from former Finley attorneys on the question of how today’s large firms differ from what their old firm once was. Perhaps Finley was just ahead of its time. Or perhaps some major players in Biglaw law are about to see their times change. Or maybe the large firm segment of the profession is proceeding toward the same countdown that big accounting firms have already experienced: From Big 8 to Big 6 to Big 5 to Big 4 — and the race is on to be one of those few.

Here’s the key question: Who benefits in the long run from the rise of mega-firms? Management consultants embrace strategic fits producing scale economies that supposedly benefit clients and equity partners. Perhaps they are correct. But who considers whether hidden costs include undermining community, exacerbating attorney dissatisfaction, or imperiling broader professional values?

Personally, I enjoyed the time when I recognized most of my equity partners at the firm’s annual meetings. Who is willing to develop or consider a metric by which to measure that?

KEEP FEEDING PROFITS THE BEAST. WHAT COULD GO WRONG?

Posted on October 7, 2010 by thebellyofthebeast

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

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

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

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

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

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

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

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

Now what?

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

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

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

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

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

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

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

SOME DOCTORS THINK THEY’RE GOD; SOME LAWYERS THINK THEY’RE DOCTORS

Posted on September 27, 2010 by thebellyofthebeast

The medical analogy seemed familiar:

“When somebody comes to the emergency room and is on the operating table hemorrhaging, you don’t ask if [he] can pay the surgeon. You save the patient.” (http://www.nytimes.com/2010/09/02/business/02commission.html)

Lehman Brothers’ prominent bankruptcy lawyer was echoing the position of his client, former chairman Richard Fuld, a trader who rose from mail clerk to CEO. In his congressional testimony a few weeks ago, Fuld’s dominant theme was that others caused his company’s collapse. As untoward events overwhelmed the entire financial system, Lehman didn’t receive the favored treatment that saved AIG, facilitated JP Morgan Chase’s acquisition of Bear Stearns, allowed Goldman Sachs and Morgan Stanley to become classified as bank holding companies, and eventually enacted a $700 billion TARP program to buttress things.

The argument that the federal government should have stepped in to help seemed like an odd position for any ardent Wall Street capitalist, but he had a point. Back in September 2008, I wondered whether Treasury Secretary Paulson’s enthusiasm to allow the market’s creative destruction waned just a bit as Goldman Sachs, the firm Paulson had led before joining the Bush Administration, seemed to careen along the same catastrophic path as Lehman’s.

Still, omitted from Fuld’s analysis was his own mindset. In a single sentence at the end of his prepared remarks, he acknowledged “some poorly timed business decisions and investments, but we addressed those mistakes…” (http://www.fcic.gov/hearings/pdfs/2010-0901-Fuld.pdf ). He gave little attention to his own attitudes that created the institutional culture described in the Lehman Bankruptcy Examiner’s Report (authored by former U.S. attorney Anton Valukas):

“In 2006, Lehman made the deliberate decision to embark upon an aggressive growth strategy, to take on significantly greater risk, and to substantially increase leverage on its capital. In 2007, as the sub‐prime residential mortgage business progressed from problem to crisis, Lehman was slow to recognize the developing storm and its spillover effect upon commercial real estate and other business lines. Rather than pull back, Lehman made the conscious decision to “double down,” hoping to profit from a counter‐cyclical strategy. As it did so, Lehman significantly and repeatedly exceeded its own internal risk limits and controls.”

Presumably, the Lehman lawyer’s “saving the patient” point was that taxpayer-funded loans to the company in September 2008 would have allowed time for more orderly asset sales and, perhaps, avoided bankruptcy altogether.

Maybe he and Fuld are right, but the Fed’s lawyer saw things differently:

“If the Federal Reserve had lent money to Lehman, this hearing and all other hearings would only have been about how we wasted taxpayers’ money.”

I was less interested in who’s right than in the medical analogy, which seemed familiar. Then I remembered that, in a different context, the same lawyer said this in May:

“If you had cancer and you were going into an operation, while you were lying on the table, would you look at the surgeon and say, ‘I’d like a 10 percent discount’? This is not a public, charitable event.” (http://www.nytimes.com/2010/05/02/business/02workout.html?pagewanted=1&_r=1&hpw)

Back then, this attorney was commenting on requests from Kenneth Feinberg (court-appointed monitor in the Lehman bankruptcy) and Brady Williamson (examiner in the GM bankruptcy) for discounts in his Biglaw legal fees that reportedly ranged from $500/hour for first-year associates to more than $1,000/hour for some senior partners.

His concluding line — “this is not a public, charitable event” — was interesting. Bristling at the scutiny that Biglaw’s hourly rates had generated, he must have known that his firm had already billed $16 million in GM bankruptcy fees. Wasn’t “public” taxpayer money involved in GM’s dissolution?

The problem — universal throughout Biglaw — is this senior lawyer’s attitude of entitlement. (According to Am Law‘s 2010 list, his firm’s average equity partner profits exceeded $2.3 million in 2009.) The irony is the frequency with which partners make that complaint about younger lawyers: “They act like they’re entitled…they aren’t willing to work hard, like I did…they think they’re special.” I’ll bet such critics never thought that these traits merely qualified the upstarts to inherit their Biglaw thrones.

At the end of the day, I don’t know whether federal loans would have saved Lehman, but I’m sure of this: I hope I’m never on a operating table while a Biglaw attorney possessing such hubris holds the scalpel or the tourniquet.

BIGLAW’S GLASS IS 44% FULL

Posted on September 23, 2010 by thebellyofthebeast

Give credit where it’s due: Not all big firms are bad, and even those many might consider the most problematic aren’t problems for everybody in them. After all, the ABA’s most recent survey reported that 44% of lawyers in big firms (defined as having more than 100 lawyers — which means it’s not limited to Biglaw) were satisfied with their careers. Sure, that’s a failing grade in every course I’ve ever taken or taught, but it’s a base upon which to build. So what accounts for such attorneys and what can be done to increase their ranks?

Some are satisfied because they thrive in the predominant Biglaw business model. The myopic focus on metrics — billings, billable hours, and associate/partner leverage to maximize short-term equity partner profits — doesn’t seem misguided to them. Rather, it feels natural, maybe even necessary. When I was in law school, most of these personality types were in business schools. Now they’re everywhere.

Another group works at firms that have resisted adopting this MBA mentality; the beneficial results permeate their cultures. I spoke recently with a friend who’s the chairman of a big firm that hasn’t wrapped itself in the false security of numbers. Instead of metrics, he still requires senior partners to render subjective judgments about attorney quality in determining compensation and promotion. Of course, objective data matter, but they’re not dispositive.

That’s how most firms once operated. They’re reluctant to admit it now, but just about everybody running a big firm today owed early success to someone else. Typically, it was a mentor who recognized untapped potential and was willing to spend time and effort developing it. Rather than self-contained books of business, young attorneys had supporters whose principal aim was to identify and nurture first-rate minds that would eventually produce first-rate lawyering. Whatever wealth followed was a by-product of talent that attracted clients, not the exclusive goal of a short-term profits equation.

My friend’s firm doesn’t lead the Am Law 100 in any rankings, but it has done reasonably well in associate satisfaction surveys and equity partners are averaging over $1 million yearly. If polled, he and many in his firm would be among Biglaw’s satisfied attorneys. They serve interesting clients on challenging matters.

That takes me to a third point. Even firms adhering slavishly to the misguided metrics model have something valuable to offer their lawyers besides money. When I started at my former firm over 30 years ago, partners recruiting me warned that some tasks would be boring, even menial, but others would be exhilarating. Biglaw clients typically have problems at the law’s cutting edge. It was true then; it’s true now — although the balance has tipped more toward boring and menial, especially for younger attorneys.

Still, this begins to resolve an apparent paradox: The ABA survey reporting high levels of dissatisfaction — with big firms faring the worst — also found that seven out of ten attorneys generally regarded their jobs as intellectually challenging.

So whether a lawyer is at a firm like the one my friend leads, in a different environment where the MBA mentality of misguided metrics rules, or somewhere in between, a viable path to career satisfaction remains possible throughout Biglaw. In the end, it’s is no different from other aspects of life: We are products of decisions that define who and what we are.

That’s leads to a final observation. Sooner than it realizes (or prefers), the current generation of large firm managers will find itself replaced with a younger group of leaders who will impose their own vision. How will the ascendants respond to the choices that will define them, their institutions, and the 15% of the bar comprising the NLJ 250 that exerts a disproportionate influence over the profession?

My friend put the issue squarely:

“I’ve been able to resist the dominant trend toward what you correctly call misguided metrics. The challenge is whether those of us sharing that view will be able to pass that ethic along to the next generation. I don’t know the answer to that question. But you agree, don’t you, that it’s a great profession?”

Yes, I do.

He’s still the best — and smartest — lawyer I know.

ARE THE U.S. NEWS RANKINGS BIGLAW’S BLACK SWAN?

Posted on September 17, 2010 by thebellyofthebeast

An earlier post considered Nassim Nicholas Taleb’s bestseller, The Black Swan. (https://thebellyofthebeast.wordpress.com/2010/09/06/biglaw-and-the-black-swan/ ). Taleb describes the folly of relying on supposedly proven models of the past to anticipate the smooth continuation of existing trends. Such myopic thinking ignores the wholly unexpected Black Swans that actually shape history. The essence of the Black Swan is its serendipity, coupled with its power. It can be good or bad, but it’s always transformative. September 11 was a Black Swan, as were Microsoft and Facebook.

If you accept Taleb’s theory, I think Am Law introduced Biglaw to a Black Swan in 1985 with its profits per equity partner rankings. They encouraged internal behavior that, over time, dramatically changed most large firms’ cultures. Today, accepting conventional wisdom means following managers (few of whom are leaders — a crucial distinction for Taleb) who focus on supposedly proven metrics: billings, billable hours, and associate/partner leverage ratios. Free markets dictate decisions; important things that don’t impact the current year’s bottom-line drop out of key calculations; equity partner profits trees grow to the sky.

But wait! The U.S. News evaluations seem to ignore this crucial Am Law metric. They utilize client and attorney surveys assessing lawyer quality, not firms’ bottom-line profits. In seeking to attain or retain the highest available practice group rating (Tier 1), will firms teach to this new test that the criteria appear to use?

Not so fast. Even as U.S. News released the rankings, big firms began setting the goalposts for the new competition. Because U.S. News departed from its typical numerical approach in favor of tiers for practice groups, Sidley Austin and K&L Gates each claimed the overall #1 position based on their total Tier 1 rankings.

If I’m right, the new rankings will simply accelerate an embedded trend toward lateral recruiting at the highest levels. (http://amlawdaily.typepad.com/amlawdaily/2010/09/lateral-uptick.html) Big firms will compete even more ferociously for top partners to fill particular U.S. News practice group holes — and they’ll jettison incumbents to make room. How will high-powered partners decide where to plant themselves? They’ll take their books of business and follow the money. The definitive Am Law metric — average equity partner profits — will remain inviolate. Too many Biglaw partnerships will continue their devolution into collections of attorneys whose principal bond is financial.

So there’s no Black Swan here — just another log on the bonfire that is already consuming much of the profession.

But these developments favor the emergence of a Black Swan that I identified in my earlier post. Australia now has publicly traded law firms. Attorneys in Great Britain have begun preparing to follow that lead when the Legal Services Act becomes effective next year. (http://www.law.com/jsp/law/international/LawArticleIntl.jsp?id=1202463691626)

Biglaw’s ongoing transformation to a species of Big Business could culminate in non-lawyer shareholders and boards. What will stop them? Equity partners who have been hired to buttress a firm’s claim to Tier 1 status in the U.S. News rankings? As relative newcomers, their allegiance to their new firms will be more tenuous. The idea of preserving whatever remains of a unique professional culture will seem antiquated, particularly with the big bucks for their shares of an initial public offering (IPO) dangling before them.

It sure looks to me like the same country that introduced the first black swan to the New World is now exporting something far more ominous for the legal profession.

ABOUT THOSE BIGLAW ASSOCIATE SATISFACTION SURVEYS….

Posted on September 9, 2010 by thebellyofthebeast

The 2010 American Lawyer survey reports the lowest overall level of associate satisfaction since 2004.

The firms faring poorly will take comfort in standard disclaimers: response rates are low and negatively biased; survey questions are flawed; the poll captures attitudes from a generation of young attorneys who feel entitled. We all know the list. Lawyers specialize in explaining away bad facts and sometimes the critique is valid.

But before lower-ranked firms throw these results into a sea of self-serving rationalizations, they should consider the criteria by which others did quite well: relations with partners and other associates, interest in and satisfaction level of the work, training and guidance, policy on billable hours, management openness about firm strategies and partnership chances, the firm’s attitude toward pro bono work, compensation and benefits, and the respondents’ inclination to stay at their firms for at least two more years.

Now correlate each factor to the metrics that dominate today’s Biglaw business models — billings, billable hours, and associate/partner leverage ratios, all of which produce equity partner profits. For too many, the relationship is inverse. The absence of a metric by which firms hold partners accountable for associate satisfaction means that it gets ignored.

What’s the solution? Pay them more money? They won’t object, but according to a recent survey published in the Proceedings of the National Academy of Sciences, additional income beyond $75,000 a year doesn’t increase happiness. (http://www.pnas.org/content/early/2010/08/27/1011492107.full.pdf+html?sid=61f259ad-92a2-470f-b218-23537d8e2972)

How about just telling them to suck it up and push through to a better day? Doesn’t time cure all ills? Another NAS study suggests that our sense of global well-being is U-shaped. We start at a high point around age 18, move down until 50, and take a major upward turn until 85. (http://www.pnas.org/content/107/22/9985.abstract?sid=61f259ad-92a2-470f-b218-23537d8e2972) This comes from a 2008 telephone survey asking 340,000 people how they felt on the day the researchers called them. No attempt was made to control for health, employment, marital status, or anything else. It’s just a cross-sectional slice of the population at a moment in time. In short, draw conclusions at your peril.

Still, it’s interesting to compare these results with recent evidence about the happiness life-cycle of many Biglaw attorneys.

There no need for melodrama or hyperbole. Many lawyers of all ages have fulfilling careers and lead satisfying lives. Generalizations are always treacherous. Within and among firms, there are always exceptions to whatever is typical or predominant.

But the big picture can be informative. In the ABA’s 2007 survey of the profession, about 60% of attorneys in practice fewer than 5 years said they would recommend a legal career to a young person. That’s not exactly a ringing endorsement; however, it’s better than more senior attorneys’ views. For those practicing more than 10 years, it dropped to 40%.

Of course, “more than 10 years” covers lawyers from 35 to 90. So it’s difficult to know if the data support a U-shaped theory. They lend some credence to the notion that there’s a steep slide for people in their 20s, 30s, and 40s. But is there an uptick when attorneys hit the mid-century mark? That’s not clear — and it seems like a long wait.

It’s not all bad news. In the ABA survey, 84% found the practice of law to be intellectually stimulating. When I’ve invited lawyers of different ages and stages of their careers to make guest appearances in my undergraduate course on the profession, Biglaw attorneys spoke enthusiastically about tackling cutting-edge legal problems. Then they heard this question:

“What has been your happiest time as a lawyer?”

Here are some answers:

A 20-something senior associate: “Certainly not now. My life is not my own. I’m billing long hours in the hope of becoming a partner. Then I’ll gain more autonomy and control.”

A 30-something non-equity partner: “Life was easier when I was an associate. But I work hard now because I think things will get better if I make equity partner. Of course, that’s a big ‘if”.”

A 40-something equity partner: “I never realized how good I had it as an associate. Now I feel pressure to bring in clients so I can justify my equity compensation; that process never ends. You think that becoming an equity partner means you’ve crossed some finish line, but that’s when the race really begins.”

A 50-something equity partner: “I don’t know what I’ll do when I’m not a partner in my firm anymore. I haven’t had time to think about what’s next for me. Now, when I consider that prospect, the future becomes a source of anxiety.”

I don’t know to what extent these attorneys’ comments represent their respective demographic groups in Biglaw or elsewhere. But it’s no surprise to me that surveys consistently find practicing lawyers to be among the least satisfied workers and that attorneys in large firms today have the most difficulty finding the upward leg of the U-shaped happiness curve, assuming it’s out there.

The Biglaw business model has provided some of its attorneys with a lot more money than their predecessors. Career satisfaction that contributes to overall happiness?

That’s more complicated.

ALONG CAME LAW FIRM MANAGEMENT CONSULTANTS

Posted on August 27, 2010 by thebellyofthebeast

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

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

Particularly in large firms, nobility has yielded to business school-type metrics that focus on short-term profits-per-partner. The resulting impact on the internal fabric of such firms is depicted in my legal thriller, The Partnership (http://www.amazon.com/Partnership-Novel-Steven-J-Harper/dp/0984369104/ref=sr_1_1?ie=UTF8&s=books&qid=1273000077&sr=1-1) But other collateral damage includes the decline of mentoring that produced great lawyers in my baby boomer generation. (See my article, “Where Have All The Mentors Gone?” – http://amlawdaily.typepad.com/amlawdaily/2010/07/harpermentors.html).

Among the reactions to my mentoring observations was this:

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

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

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

“In our view, one of the serious misuses of metrics in the past few years has been the overreliance on profits per equity partner as the defining index of a firm’s value and quality.” (http://www.hildebrandt.com/2010ClientAdvisory)

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

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

When the 1990-1991 recession rattled a much smaller version of what is now called biglaw, the National Law Journal’s annual survey of the largest 250 firms in 1991 quoted Bradford Hildebrandt, who 16 years earlier had founded the company bearing his name:

“In most firms, current management has never operated within a recession and didn’t know how to deal with it…” (“The NLJ 250: Annual Survey of the Nation’s Largest Law Firms — Overview — The Boom Abates,” The National Law Journal, September 30, 1991 (Vol. 14, No. 4))

So who could save us from ourselves? As they watched profits slide, worried law firm leaders turned to Hildebrandt and other experts who could assist in bringing business school principles and MBA-type metrics to their big firms. By 1996, Mr. Hildebrandt himself had diagnosed the situation and offered his remedy in that year’s NLJ 250 issue:

“The real problem of the 1980s was the lax admissions standards of associates of all firms to partnership. The way to fix that now is to make it harder to become a partner. The associate track is longer and more difficult, and you have a very big movement to two-tiered structured partnership.” (“The NLJ 250 Annual Survey of the Nation’s Largest Law Firms: A Special Supplement — More Lawyers Than Ever In 250 Largest Firms,” The National Law Journal, September 30, 1996 (Vol. 19, No. 5))

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

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

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

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

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

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

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

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

How comforting.

OUTSOURCING: THE BEGINNING OF A NEW AND IMPROVED BIGLAW BUSINESS MODEL?

Posted on August 16, 2010 by thebellyofthebeast

If you’re a new law school graduate looking for work, or an equity partner seeking to profit this year (and maybe next) from the leverage that high-priced associates add to your firm’s bottom line, outsourcing sounds like a bad idea. But for those concerned about the long-run psychological well-being of the profession, the implications are more ambiguous.

It’s not novel. Throughout corporate America, outsourcing has been an important profit-maximizing technique for a long time. Lawyers have made a lot of money assisting clients in the development and implementation of such strategies. The resulting loss of American jobs has been sold as a necessary price paid to remain competitive in the world economy.

Such cost-minimization makes sense where protocols can assure a quality finished product. But when lead turns up in the paint on children’s toys from China, well….

Now, as the NY Times recently reported, outsourcing has pushed its nose into the biglaw tent. (http://www.nytimes.com/2010/08/05/business/global/05legal.html) If the trend continues, what is the fate of the dominant large law firm business model that relies on associate/partner leverage as the source of equity partner wealth? (See my earlier article, “Send The Elevator Back Down” at http://amlawdaily.typepad.com/amlawdaily/2010/07/harper3071410.html)

Its days may be numbered but, then again, its days may be numbered with or without outsourcing.

As the Times article notes, outsourcing is particularly advantageous for mundane legal tasks — due diligence on corporate deals and document review for major litigation matters. What client can resist paying “one-third to one-tenth” of a big firm’s hourly rates for such work?

The challenge will be to find the limits and assure quality output. Due diligence seems unimportant until a major potential liability gets overlooked. Document review is dull, but large lawsuits have turned on an internal memo buried in a gigantic collection; a discerning eye made all the difference.

Still, it seems likely that clients will gravitate toward firms that can offer lower rates for outsourced attorneys performing necessary but non-critical work. It is equally clear that clients will continue to “pay a lot of money” to lawyers with special experience and expertise — “world-class thought leaders and the best litigators and regulatory lawyers around the world,” as one corporate leader put it in the Times.

With these trends, new law school graduates will face shrinking labor markets, especially at entry level positions in big firms. But for the fortunate few who get jobs, their work could get better as outsourced labor performs some of the menial tasks that now account for most young associates’ billable hours.

Meanwhile, senior attorneys will have new incentives to mentor proteges so they become their firms’ next generation of “world-class thought leaders.” (See my earlier article, “Where Have All The Mentors Gone?” at http://amlawdaily.typepad.com/amlawdaily/2010/07/harpermentors.html)

What will all of this mean for equity partner profits? The big firm leaders who do the right things — strict quality control of outsourced work coupled with a serious investment in the development of inside talent — will thirve as their firms deleverage. Unfortunately, others intent on maximizing short-term dollars by prolonging the lives of their leveraged business enterprises will do okay, too — at least for a while. But such a myopic focus runs enormous long-term risks for the affected institutions.

And here’s a wild card: Small and mid-sized firms with talented senior attorneys may find that these new pools of outsourced talent enable them to compete with the mega firms. Size may no longer be everything. In fact, it may not be anything at all.

If I’m correct, the resulting transformation will slow biglaw’s growth rate and, perhaps, shrink that segment of the profession. But instead of the mind-numbing tasks that are the bane of any young attorney’s biglaw existence, associates will find themselves doing work that more closely resembles what they thought being a lawyer meant when they first decided to attend law school. If that happened — and reality began to resemble expectations — lawyers as a group could become more satisfied with their jobs. The unthinkable might even happen: a slow reversal in the tide of recent surveys that consistently rank attorneys near the bottom of all occupations in career fulfillment.

Such a scenario would be an ironic turn of events. The extraordinary wealth that clients now confer on those running today’s highly leveraged big firms could be providing the impetus to upend the profession and force the emergence of a new business model in which leverage no longer mattered.

Of course, everything could careen wildly in a different direction –toward further corporatization of law firms as non-attorneys provide private investment capital, become shareholders, and complete the MBA takeover of the profession. That movement is clearly afoot in Great Britain. (See http://www.abanet.org/legaled/committees/Standards%20Review%20documents/AnthonyDavis.pdf) Once senior partners become accountable to non-attorney boards of directors, the individual autonomy that once defined being a lawyer will have disappeared.

But it doesn’t cost any more to be optimistic, does it?

MIRED IN METRICS? HAVE SOME MORE!

Posted on August 5, 2010 by thebellyofthebeast

Once a bad situation spins out of control, is there any way to corral it? When all else fails, try making things worse.

The ABA recently released its report detailing just a few of the ways that U.S. News law school rankings have been counterproductive for prospective lawyers and the profession — from driving up the costs of legal education to driving down the importance of diversity. (http://www.abanet.org/legaled/nosearch/Council2010/OpenSession2010/F.USNewsFinal%20Report.pdf)

As U.S.News now develops law firm rankings, the report concludes with an ominous warning:

“Once a single rankings system comes to dominate a particular field, it is very difficuly to displace, difficult to change and dangerous to underestimate the importance of its methodology to any school or firm that operates in the field. This, we believe, is the most important lesson from the law school experience for those law firms who may be ranked by U.S. News in the future.”

In other words, rankings sometimes function as any so-called definitive metric: They displace reasoned judgment. Independent thought becomes unnecessary because the methodology behind the metric dictates decision-makers’ actions.

Since 1985, many big firms have become living examples of the phenomenon. That year, The American Lawyer published its first-ever Am Law 50 list of the nation’s largest firms. Most firm leaders now teach to the Am Law test, annually seeking to maximize revenues and average profits per equity partner. The resulting culture of billings, billable hours, and associate/partner leverage ratios begins to explain why surveys report that large firm lawyers lead the profession in career dissatisfaction.(http://www.abajournal.com/magazine/article/pulse_of_the_legal_profession/print/) Without a metric for it, attorney well-being — and the factors contributing to it — drop out of the equation.

Courtesy of U.S. News, large firms now stand on the threshhold of more metrics. Will they make working environments of firms that have succcumbed to the profits-per-partner criterion worse?

It depends, but more of yet another bad thing — rankings — could produce something good — forcing individuals to sift through contradictory data, think for themselves, and make a real decision. But that can happen only if U.S. News produces a list of “best law firms” that bears little resemblance to the rank ordering of the Am Law 100 in average equity partner profits. Such contradictory data would confuse newly minted attorneys and force them to develop their own criteria for decision.

The American Lawyer itself provides a useful example of the possibilities. Eight years ago, it began publishing the Am Law “A-List,” which has gained limited traction as a moderating influence on the Am Law average profits-per-equity-partner metric that otherwise dominates decision-making at most big firms. The A-List’s additional considerations bear on the quality of a young lawyer’s life — associate satisfaction, diversity, and pro bono activities. The myopic focus on short-term dollars still dominates decisions in most big firms, but the A-List has joined the conversation.

What methodology will U.S. News employ in evaluating law firms? If it follows the approach of its law school ranking counterparts, many firms will game the system, just as some law schools have. (See my earlier article, “THE U.S. NEWS RANKINGS ARE OUT!” (https://thebellyofthebeast.wordpress.com/2010/04/16/the-us-news-rankings-are-out/)) But misguided and manipulatable metrics aren’t inevitable.

Talent is essential for any successful firm, large or small. Other qualities — collegiality, mentoring, community, high morale accompanying a shared sense of professional purpose — make a workplace special. Can the U.S. News find ways to measure those qualities?

That’s the challenge. But I fear that students won’t bother focusing on the U.S. News methodology or its flaws. More likely, whatever rankings emerge from the process will provide — as they have for so many deliberating the choice of a law school — an easy final answer.

Ceding such control over life’s direction to others is rarely a good idea. There is no substitute for personal involvement in deciding the things that matter most. That means asking recruiters tough questions, scrutinizing the lives of a firm’s senior associates and partners, and finding role models who are living a life that a new attorney envisions for her- or himself.

In the end, the current large firm business model and its self-imposed associate/partner leverage ratios will continue to render success — defined as promotion to equity partnership — an elusive dream for most who seek it. For those who become dissatisfied with their jobs, time passes slowly. So everyone joining a big firm — even a person intending to remain only for the years required to repay student loans — has ample incentive to get that first big decision after law school correct.

So why would intelligent young attorneys let U.S. News’ self-proclaimed experts make it with something as silly as a ranking? Probably for the same reasons that they relied on U.S. News to make their law school decisions for them three years earlier.

Someday, maybe there will be a U.S. News formula for choosing a spouse. Then won’t life be simple?

“SILENT GRIEF” – “DEADLY SERIOUS” FOLLOW-UP

Posted on July 30, 2010 by thebellyofthebeast

Two especially useful comments to “DEADLY SERIOUS” — retitled in “SILENT GRIEF” in the Am Law Daily version posted Friday — illustrate why I continue this blog.

One came from “Recovering Attorney,” who wrote:

“There are some resources devoted to attorneys who need assistance. For law students, the Dave Nee Foundation promotes suicide prevention and education http://www.daveneefoundation.com/. The Lawyers With Depression website also has many helpful articles and robust discussions http://lawyerswithdepression.com/. Check out the many links at both sites.”

A longer comment came from “Former Big Law Partner.” It can be viewed in its entirety by clicking on the right side of The Belly’s home page, but here’s an excerpt:

“For starters, we have to recognize that the personalities of most of us who make the cut and are hired as associates at BigLaw firms are, by nature, extremely competitive and accustomed to success…I think that we need to recognize that we tend to have personalities that make us particularly susceptible to the kinds of excesses that occur at BigLaw firms when there are not other mechanisms in place, either in our personal lives or at the firms themselves, that can help us to draw back and retain a proper perspective on our professional lives.

“Second, I agree that the overriding profit motive of nearly all law firms, not just BigLaw, is driving lawyers to desperation…Without question, I believe that it is the motive not just to make a comfortable living, but to be wealthy, that is robbing our profession of its soul.

“Third, the law schools know that there will not be job offers for all of the graduating law students, many of whom will be saddled with tremendous debt when they graduate, but nevertheless, the schools gladly take incoming students’ tuition money. Many of those students have so much debt that, if they are lucky enough to get a job (because of the glut of lawyers churned out by the law schools), they have little choice but to remain in that job as long as they can to pay down their loans, which causes many to be trapped in situations where they are unhappy…

Finally, I think that society has changed in ways that have removed many of the safety nets that might have, at an earlier time, prevented some of us from reaching such depths of despair over our jobs…[O]ur shared political or civic community has eroded to a substantial degree and, I think, exacerbates the sense of alienation and depression that we sometimes can feel.

I went through a very difficult time as I rose through the ranks of a BigLaw firm and struggled with many of these tensions…I was lucky to have moved to a different situation at the time that I did, when there were such opportunities. Unfortunately, many of those don’t exist given the current state of the economy and glut of lawyers.

And that is the real crux of the matter with attorney suicides, as I see it: It is when people see no alternatives and have given up any hope that they take such a drastic and tragic action. I hope that structural changes in law firms and law schools can be made that will give lawyers real alternatives. In the meantime, I think that all we can do is what you are doing in your college seminar and here: bringing these issues into the light and trying to raise the consciousness of current and prospective lawyers to these dangers.”

Thanks for these thoughtful contributions.

WHERE HAVE ALL THE MENTORS GONE?

Posted on July 19, 2010 by thebellyofthebeast

Many biglaw leaders should take heed.

In last weekend’s edition of the Wall Street Journal, columnist Peggy Noonan lamented the loss of what she called “adult supervision.” (http://www.peggynoonan.com/article.php?article=531)

Commemorating the 50th annivesary of To Kill A Mockingbird, she recalls the “wise and grounded Atticus Finch, who understands the world and pursues justice anyway, and who can be relied upon.”

She then rattles off a list of world leaders whom she regards as young — President Obama is 48; British Prime Minister Cameron is 43; Canadian Prime Minister Stephen Harper (no relation) is 51. Noonan says they could benefit from the presence of wise advisers like the venerable Finch.

Of course, there’s an obvious problem with her analysis: Finch himself was about the age of the “young men” she now finds in need of wise older counsel. So she misses an essential point: Wisdom is neither the exclusive province of the old nor the assured destination of advancing age.

But Noonan states an important truth when she views the modern world and observes that “there’s kind of an emerging mentoring gap going on in America right now.” She sees it in “a generalized absence of the wise old politician/lawyer/leader/editor who helps the young along, who teaches them the ropes and ways and traditions of a craft.”

That is undoubtedly true for much of biglaw. Why?

There are exceptions within and among firms, but this development flows directly from the MBA-mentality that now dominates most large law firms. It forces leaders and everyone else to focus on short-term metrics — individual billings, billable hours, associate-partner leverage ratios.

The resulting behavior is predictable. Each individual’s drive to attain and preserve position in accordance with such metrics leaves little room (or time) for the personalized mentoring that turns good young lawyers into better older ones. There’s no metric for measuring the future contribution that mentoring makes to the current year’s average profits-per-equity-partner.

For firms adhering to the pervasive biglaw model, the absence of a mentoring metric makes all the difference. In Hildebrandt Baker Robbins’s 2010 Client Advisory to the legal profession, one of the pioneering consultants responsible for the proliferation of biglaw’s misguided metrics aimed at short-term profit-maximizing concludes, “There is a management adage that ‘what gets measured gets done.'” (http://www.hildebrandt.com/2010ClientAdvisory)

I would add this corollary: Throughout biglaw in particular and the world generally, that which lacks a metric gets ignored.

Unfortunately, some of those things are important.

SUMMER ASSOCIATES TAKE NOTE: INADVERTENT REVELATIONS

Posted on July 9, 2010 by thebellyofthebeast

Today’s pop-quiz:

Question #1: What do the following statements have in common?

“Indiscretion happens with alcohol, but people understand that. You usually have to knock a partner out cold for it to be a career-ending event.”

AND

“Two years ago, we had lunch with an interviewee who insisted on ordering top-shelf liquor. It was bad judgment.”

Answer: Both remarks came from hiring partners at different Am Law 100 firms as they recently offered tips to students and summer associates hoping to land full-time job offers.

Here’s the odd part: the interviewer posed only general questions — whether there were any “golden rules for summer associates” and whether any candidates “bombed” because of a faux pas. But the first and only responses related to alcohol etiquette.

That’s revealing and a bit strange. Alcohol abuse is a widespread challenge for the profession. So how do we square either partner’s remark with that growing epidemic? The first treats it as a joke; the second, well…

Let’s pause for a moment on the second. This partner’s condemnation of an interviewee who ordered “top-shelf liquor” at a recruiting lunch made me wonder: What did he order for himself — and, even more tellingly, what does he usually drink? According to the 2010 Am Law 100 listing, his firm’s average equity partner profits totaled $1.27 million last year. I’ll bet the student’s lunch companion didn’t consume much Ripple.

Question #2: What do the following two statements about summer associates have in common?

“I’m not sure that a very significant number of associates even want to be partners.”

AND

“By going to a smaller number [of summer associates] this year, we had the luxury of getting people who are really enthusiastic about being [at our firm].”

Answer: The comments came from the same person during the same interview. He’s a hiring partner at another Am Law 100 firm. After graduating from Harvard Law School in 1995, he took an increasingly common path to biglaw partnership: a judicial clerkship followed by several years as an assistant U. S. Attorney. He didn’t join the firm for which he now serves as gatekeeper until 2004. So after lateraling into his position of power six years ago, he’s already so familiar with the firm’s culture that he now decides who among new graduates gets a job there. That alone is interesting, isn’t it?

Even more fascinating, he’s evidently recruiting split-personality associates — those who “are really enthusiastic about being at the firm,” but don’t “want to be partners.”

Huh? When does the enthusiasm wear off? Do they have wealth-related allergies? (His firm’s 2010 Am Law listing reports average proftis per equity partner exceeding $2 million.)

I know what you’re thinking about such contradictory characterizations of those receiving offers: “A foolish consistency is the hobgoblin of little minds.” (Ralph Waldo Emerson, Self-Reliance)

Question #3: Were these partners coerced into their bizarre comments? If so, we all know how unreliable that information can be.

Answer: Regrettably, no. The remarks came in voluntary interviews that each gave in May and June to the The Careerist, an American Lawyer blog. I suspect that all three regarded the media attention as personal and professional promotional opportunities.

Bonus Question: Is all of biglaw this bizarre?

Answer: No. Here’s a counterpoint: “[Recruits] should ask searching questions. How practice has changed over the years and how you deal with the changing demands. And how hard it is to reconcile your life at work with the rest of your life…I don’t believe lawyers should bow to icons. I want them to look me in the eye and ask tough questions.”

Now that’s more like it.

So here’s a suggestion to all of you summer associates out there who thought getting a job offer was the tough part: Pay close attention to the senior attorneys who will become your mentors if you sign on. Listen to them more carefully than some listen to themselves.

FOR BIGLAW SUMMER ASSOCIATES ONLY…

Posted on June 13, 2010 by thebellyofthebeast

You’re thrilled, and understandably so.

In an impossible job market, you came up a winner. The summer associate offer rate for all firms dropped to its lowest level since NALP started gathering such statistics 17 years ago. But you worked hard, got good grades, and listened to tips from hiring partners describing what they wanted in a new lawyer.

You scored big. In compensation, it’s a summer job like none you’ve ever had. Your most pressing concern is whether there will be a repeat of last year’s dip in the full-time job offer rate for summer associates — 69% compared to 90% in 2008. So now you’re heeding advice that ranges from proper attitude to correct attire. At least there is some encouraging summer associate etiquette news. According to one biglaw hiring partner, “indiscretion happens with alcohol, but people understand that. You usually have to knock a partner out cold for it to be a career-ending event.” Whew! That’s a relief.

Anticipating a favorable next step, you hope that your full-time job offer at the end of the summer is real. You don’t want to wind up like the more than 60% who planned to start their careers at large law firms immediately upon graduation this year, only to be deferred into 2011 and 2012. You can’t bear to think about some of your predecessors who received offers of full-time employment after their successful 2008 and 2009 summers, only to see them revoked outright a few months later.

You’re focused on making sure the firm likes you. There’s no time to consider other things — including whether you like the firm.

Here’s a suggestion: think about those other things now, even if only briefly.

At a recent Cubs game, I was talking with a fellow biglaw refugee. He’d practiced in a large law firm — not mine — for more than 25 years before retiring two years ago.

“What questions should today’s biglaw summer associates ask?” I began.

“It depends on what they want,” he suggested. “They probably fall into one of two categories. The first group consists of those wanting good training, needing a decent salary to pay off their student loans, and planning to do something else when that debt is gone. A second group wants to make a career at a big firm; they think they’re in for the long haul.”

“OK, so what should someone in the first group investigate?”

“That’s easy,” my friend responded. “Mentoring. How is the training? Will they have opportunities to develop skills that make them better lawyers?”

“How about the second group — the ones who think they want a large law firm career?”

“For them, it boils down to a simple question: who among the equity partners has a life that they’d want? If they can’t identify such a person, that’s a big problem. If they can, then they have to dig deeper.”

“Such as,” I pressed.

“Such as, how did the senior attorney do it? Is he or she an oddity? Did the partner succeed under a biglaw model that no longer exists? Most large firms don’t resemble what you and I joined 30 years ago. Your new book says it all.”

“And to get at that issue,” I added, “they should search for answers to these questions:

1. Excluding laterals, how many new equity partners did the firm make this year?

2. How many years did it take them to get there?

3. What was the size of their original associate class?

4. What happened to everyone else?

If the chances of capturing the brass ring are about the same as winning the lottery, at least they know the ground rules. The answers will reveal the culture and working environment of the place.”

“Yep,” he said. “And whether it’s conducive to a happy life. Your new book covers that one, too.”

But some aspects of life seem destined to remain unsatisfying; an hour later, the Cubs lost — again.

A BETTER ALTERNATIVE OR A LEAP FROM THE FRYING PAN?

Posted on June 3, 2010 by thebellyofthebeast

Thirty years ago, New York was a scary place for me — mostly because I’d never been there. Midwestern curiousity led me to interview with Cravath, Swaine & Moore’s on-campus representative.

I’d heard that its road to success was the toughest. Rumors circulated that it hired twenty new attorneys for every one or two it might promote to equity partner eight or more years later. Not surprisingly, most of my fellow Harvard students regarded Cravath as the quintessential competitive sweatshop — a characteristic that many of my peers actually found attractive.

Not me. I went elsewhere because, in those good old days, there was an elsewhere to go. Cravath is probably not much different from what it was back then. It’s just that most of the biglaw world has followed its example. As other top-50 firms tightened equity partner admission requirements, Cravath just kept doing what it had always done.

Why did firms emulate Cravath? Law student lore made it the best by some undisclosed criteria. In retrospect, I think money had a role. Even back in 1980, it was one of a very few firms where advancement to equity partner meant wealth that was immense, at least for a lawyer.

According to the first ever listing of the Am Law 50 in 1985, Cravath ranked 2nd in profits per partner with $635,000. For those behind it, the descent was steep: the #10 firm was under $400,000; #30 was $255,000; #50 was $170,000.

Cravath blazed a trail to riches that now accompany those who reach biglaw’s summit: average equity partner profits for the entire Am Law 100 exceeded $1.26 million last year.

But Cravath remains different. Most of biglaw moved to two-tier partnerships and eat-what-you-kill systems where a few key metrics — billings, billable hours, and leverage ratios — now determine individual equity partner compensation. Cravath’s single-tier model has reportedly remained lock-step: admission to its partnership means fixed financial rewards over an entire career without regard to individual books of business.

I don’t know if Cravath’s lawyers as a group are any happier than attorneys in other big firms. But the firm is now courting its Generation X’ers. According to the Wall Street Journal, partners in their late-30s and early-40s have “taken a more pro-active approach, building new relationships and handling much of the work that historically would have been taken on by partners in their 50s.” (WSJ, May 28, 2010, C3)

Referring to Cravath’s deferential culture in which young partners traditionally forwarded big deals to older colleagues, the article notes that senior partners have nurtured the new environment that gives younger lawyers earlier name recognition.

Why has it worked so far?

“The older attorneys didn’t mind, partly because the pay they received didn’t get cut as a result,” the Journal observes.

In other words, lock-step allows elders to step out of the spotlight without hits to their pocketbooks.

In the current biglaw world, Cravath’s experiment is risky. Will young partners remain loyal or use their newly gained client power to pursue financial self-interest elsewhere? Will Cravath be forced to modify or abandon lock-step so that it can retain young partners controlling clients and billings?

I don’t know. Equally significant, I suspect those most directly affected by what the article characterizes as a “sea change at one of the best-known and most conservative of white-shoe law firms” don’t know, either.

And what does it mean for new associates trying to understand how this affects the firm’s culture and their own career prospects?

Ah, the things I didn’t think to consider when I was a second-year law student looking for a job about which I knew almost nothing.

Fortunately, students are wiser now, right?

IT’S NOT JUST ME

Posted on May 25, 2010 by thebellyofthebeast

They acknowledge it’s a tough sell.

The co-chairman of a large, well-respected law firm has teamed with the former senior vice president and general counsel of General Electric to write an article that appeared in the May issue of The American Lawyer. The title says it all: “Noblesse Oblige: Firms must teach the younger generation what it means to be a true professional.” (http://www.law.harvard.edu/programs/plp/pdf/Noblesse_Oblige.pdf)

Here’s the first paragraph.

“Law firms have been moving from loosely managed associations of professionals to disciplined business organizations for more than a generation. This shift has caused an erosion of professional values (lawyers’ traditional commitment to enhancing society) and has increased the focus on economic return (firms’ relentless quest for escalating profits per partner).”

So how did that happen? Why doesn’t the younger generation already know what it means to be a true professional? Who have been their role models?

Better not to ask. Like me, the authors are members of the baby boomer generation that, as a group, bears responsiblity for a culture that some of us hope younger attorneys can change. In other words, do as we now say, not as too many of us did and still do.

Their suggestions start with the toughest job of all: persuading firm partners to move away from “inward-looking economics (more hours, more leverage, more profits, regardless of value)….”

For example, consider the concept of “productivity” — a bill of goods that self-styled legal consultants have sold to willing biglaw buyers for the past two decades. Increasing productivity has become a nice way of saying: “Get your billable hours up.” In the Great Recession, it has translated into layoffs so that survivors worked harder.

The authors’ approach would revolutionize most firms’ fundamental cultures. The resulting benefits would flow to partners, associates, the unrepresented, and the community.

But it all begins with a willingness to jettison the business school mentality of misguided metrics that has made profits per partner biglaw’s pervasive measuring stick — in substantial part because it has made most biglaw equity partners wealthy beyond their wildest law school dreams.

How will equity partners respond to the news that they’ll have to earn less now for the promise of longer-term non-economic gains to the profession and, I dare say, to their own improved psychological well-being?

Sophocles wrote in Antigone, “No one loves the messenger who brings bad news.”

Shakespeare’s formulations — subsequently condensed to “don’t kill the messenger” — were likewise on point: “Though it be honest, it is never good to bring bad news” (Antony and Cleopatra) and “Yet the first bringer of unwelcome news Hath but a losing office.” (Henry IV, Part 2.)

And when it comes to a willingness to hear unpleasant news about average equity partner profits, those of us familiar with the profession know too well the pervasive presence of biglaw’s equivalents to Alice in Wonderland’s Queen of Hearts:

“Off with their heads!”

EARLY RETURNS

Posted on May 19, 2010 by thebellyofthebeast

No, the title of this post doesn’t refer to Tuesday’s primary election results in a handful of states, although they confirm what I’ve thought for a while. Voters are anti-incumbent, not just anti-Democratic or anti-Obama. That’s one reason Rand Paul trounced Mitch McConnell’s guy in Kentucky. But this is not a space for ideological diatribe or political spin.

Rather, today’s caption refers to personal referenda of sorts.

First, the Belly’s audience is growing.

The American Lawyer is now running some of my posts. On May 10, Am Law Daily published “The MBA Mentality Rethinks Itself?” (http://amlawdaily.typepad.com/amlawdaily/2010/05/harper1.html) I’m grateful to editors willing to air a controversial voice.

Second — and speaking of controversy — my new legal thriller, The Partnership, (http://www.amazon.com/Partnership-Novel-Steven-J-Harper/dp/0984369104/ref=sr_1_1?ie=UTF8&s=books&qid=1273000077&sr=1-1), is selling well and generating strong reactions.

Big firm attorneys have offered these responses:

“Great read…It’s a very fair and accurate representation of large law firms. This is how we operate.”

“I enjoyed reading your novel — and was reminded how things changed over the years…and hardly for the better.”

“Great stuff…highly enjoyable.”

In contrast, non-lawyers have said:

“Now I have a more informed concept of ‘billable hours.’ Wow!”

“Your book has disturbed me. Greatly. Do lawyers really behave this way?”

Quite a juxtaposition, isn’t it? Lay persons become shocked and outraged at attorney attitudes that most lawyers themselves take for granted.

“How can we change people, so they look at things differently — without a myopic view that maximizes short-term profits at the expense of other things that matter?” the last commentator asked.

Here’s what I told him:

1. You can’t. The trends that trouble you are too imbedded; the resulting financial rewards flowing to the few are too great. Perhaps more significantly, the things that disturb you most — including undue reliance on misguided short-term metrics — aren’t unique to the legal profession. Big firm lawyers use billings, billable hours, leverage ratios, and profits per equity partner. Ask journalists, doctors, college professors, and others to describe the metrics by which they’re held accountable. Then ask them if they regard themselves as members of a profession or participants in a business enterprise.

2. Sometimes you can hold up a mirror to a person who then doesn’t like the image that appears. A book can try to do that, but it’s hard to dislodge internal rationalizations that justify a lifetime of unfortunate behavior.

3. Real hope resides with the next generation. Our kids and grandchildren will have to decide that they want things to be different. That’s what we baby boomers did, only to discover that different didn’t always mean better.

Unfortunately, without mentors and models of success that can compete with the MBA-mentality of misguided metrics now dominating too many big law firms and other once-noble professions, our progeny face a daunting task.

Now you understand the twin thoughts appearing immediately following The Partnership‘s inside title page:

“Sunlight is the best disinfectant” and “Forewarned is forearmed.”

“SEND THE ELEVATOR BACK DOWN…”

Posted on May 17, 2010 by thebellyofthebeast

Kevin Spacey regards late actor Jack Lemmon as a key influence in his life. He often quotes Lemmon’s famous remark:

“If you’re lucky enough to have done well, then it’s your responsibility to send the elevator back down.”

I thought about those comments as I read this year’s Am Law 100 listings and then took another look at last year’s. Rather than sending the elevator back down, most biglaw leaders seem to be pulling the ladder up.

A year ago, the editors of American Lawyer observed that since 1999, the number of non-equity partners in Am Law 100 firms increased threefold. But the equity ranks rose by only one-third. For context, that was a decade when demand for all legal services surged and large firms in particular experienced explosive growth in revenues, headcount, and profitability.

In other words, there was more room everywhere — except at the top, apparently.

The May 2010 issue of American Lawyer noted that as gross revenues for the Am Law 100 fell, average equity partner profits for the group actually increased to over $1.26 million. How did that happen?

Answer: A multi-pronged attack.

First, firms increased productivity — which is another way of saying that some associates lost their jobs so the survivors could bill more hours. Remember Black Thursday in mid-February 2009 — a second St. Valentine’s Day massacre?

Second, they reduced staff, slashed summer programs, deferred or withdrew previous offers to new hires, and cut other expenses.

Finally and less publicly, some firms quietly moved equity partners to income status while putting the brakes on new entrants to the equity ranks. As a result, the number of non-equity partners rose again in 2009. That bulge in the biglaw python now comprises almost 40% of all Am Law 100 law firm partners.

Where will they go?

Maybe someday the biglaw benefactors bankrolling the National Association for Law Placement (NALP) will allow that organization systematically to gather tracking data that will tell us, just as it does for associates. You might think that all of the free market proselytizers in large firms would embrace more transparency on a topic of such central importance to law students trying to make career decisions.

Think again. NALP tried, but the organization ceased collection efforts in December 2009 because firms balked at providing it. In April, a prominent group of judges, professors, and attorneys wrote a letter criticizing NALP’s capitulation. In response, its executive director offered assurances that the board would consider the issue on April 26.

Now what?

25 YEARS…

Posted on May 12, 2010 by thebellyofthebeast

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

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

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

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

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

“The numbers don’t lie.”

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

“What are your billable hours?”

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

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

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

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

“I’m just trying to run a business.”

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

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

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

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

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

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

Don’t pretend that you don’t know –

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

SECOND AND THIRD THOUGHTS?

Posted on May 10, 2010 by thebellyofthebeast

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

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

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

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

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

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

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

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

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

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

What’s the new goal?

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

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

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

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

Thanks so much for all of your help.

GOLDMAN SACHS — AN INITIAL OBSERVATION

Posted on April 24, 2010 by thebellyofthebeast

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

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

At first, his enthusiasm was infectious:

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

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

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

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

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

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

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

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

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

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

WILL ANYONE NOTICE ON APRIL 27?

Posted on April 21, 2010 by thebellyofthebeast

When is a partner not a partner?

One of biglaw’s profitability secrets relates to what “partner” means. In increasingly common two-tier partnerships, only equity partners have an ownership interest that translates into the stunning average incomes reported in the Am Law 100. (In 2008, the average was $1.26 million.) The distinction should interest students who seek biglaw jobs and want to know what any particular firm is really like.

So where can they learn the truth? Every law student knows about the NALP Foundation. It’s the only organization that collects comprehensive personnel information directly from major U.S. law firms. It publishes much of it in a Directory that is every student’s bible of prospective employers. But data on firms’ non-equity/equity partner distribution is conspicuously absent from NALP’s reports, as is any attempt to track non-equity partners’ careers.

In December 2009, NALP decided NOT to collect data distinguishing equity from non-equity partners. When disappointed law students heard the news, NALP responded that it would begin compiling such information. It then backtracked because law firms balked.

Hmmmm…..

On April 6, a prominent group of 75 attorneys, judges, and legal scholars protested NALP’s decision on the grounds that tracking non-equity partners was important to assessing a firm’s true gender and racial diversity. Of course, they’re correct.

But there’s another reason to provide students with this information. According to Am Law, between 1999 and 2008, the nation’s 100 biggest firms increased their non-equity partner ranks threefold, but the number of equity partners grew by only one-third. What is the fate of most big firm non-equity partners? Don’t ask; don’t tell.

Could that be the real story behind NALP’s reluctance to cross so many of its biglaw board members, advisors, and benefactors?

NALP said it would reconsider the issue at its April 26 meeting. Will anyone notice? Will anyone care?

For students who understand the issue well enough to do the research, American Lawyer lends a hand. Although it doesn’t have diversity information, the annual Am Law 100 issue publishes overall breakdowns of the largest firms’ equity/non-equity partners. So why not let NALP take the next step? What happened to all of those biglaw free market enthusiasts who usually argue that complete, easily available information facilitates better decisions? What could be more relevant than a firm’s answer to a fundamental question: who are your real partners and whither goest the vast cadre of attorneys who survive the associate gauntlet only fail in their efforts to overcome the final hurdle into the ownership ranks?

PUZZLE PIECES – Part 12

Posted on April 20, 2010 by thebellyofthebeast

[Concluding the imaginary cross-examination of a real senior partner profiled in the April 2010 issue of ABA Journal (http://www.abajournal.com/magazine/article/not_done_yet) — and connecting the final dots to the ongoing associate compensation squeeze-plays…]

Q: “Adversity tests leadership, doesn’t it?”

Partner: “I agree.”

Q: “And 2009 was a tough year, wasn’t it?”

Partner: “It was a difficult time for many people.”

Q: “For many people — but not for your firm’s equity partners, right?”

Partner: “Wrong. Our revenues were down and the decisions we made to let people go were agonizing.”

Q: “But not so agonizing that they slowed your mission to keep billable hours up and average equity partner profits at $2 million a year, correct?”

Partner: “Some things can’t be measured in dollars.”

Q: “True. But Am Law reported recently that your firm’s 2009 average equity partner profits were just under $2 million, right?”

Partner: “That’s the report.”

Q: “If we return to your earlier comments about free market capitalism, who has borne the owner’s risk to your firm in the current economic downturn, Dechert’s equity partners who on average saw their incomes drop from $2.35 to $2 million a year, or the salaried workers — associates, non-equity partners, and staff — who lost their jobs in 2009?”

Partner: “We shared the pain. But we’re no different from other large, successful law firms. Someone running another big firm made the point three years ago: We have to keep our stock price high.” http://www.mlaglobal.com/articles/JCashmanMayerBrownCutsTrib.pdf; http://blogs.wsj.com/law/2007/03/02/more-on-the-mayer-brown-departures/tab/article/

Q: “When you say other large, successful firms, are you referring to the ones that, according to a NY Times April 1 article (http://dealbook.blogs.nytimes.com/2010/04/01/at-law-firms-reconsidering-the-model-for-associates-pay/), are now developing ways to cut associate salaries?”

Partner: “I can’t speak to what other firms are doing.”

Q: “That article wasn’t an April Fool’s Day joke, was it? Underlying all of those efforts is the mission to preserve equity partners’ seven-figure incomes, isn’t it?”

Partner: “If you say so.”

Q: “And now many people like you — aging senior partners who’ve become accustomed to making millions — don’t know what to do next with your lives, do you?”

Partner: “Speaking for myself, time has crept up on me.”

Q: “You were so focused on pulling up the ladder as a way to protect what you had that you forgot to plan your own exit strategy, didn’t you?”

Partner: No answer.

Q: “Justice can be ironic, can’t it? You don’t have to answer that. No further questions at this time.”

PUZZLE PIECES – Part 11

Posted on April 19, 2010 by thebellyofthebeast

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

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

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

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

Partner: “Sure.”

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

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

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

Partner: “What’s your point?”

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

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

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The Belly of the Beast

Steven J. Harper, Esq.

Tag Archives: law partners

FROM KENTUCKY TO CRAVATH TO CHASE

CULTURE SHOCK

EXPLAINING BAD BEHAVIOR

COCKROACHES, MEDICINE, AND THE BILLABLE HOUR

“LIES, DAMN LIES, AND STATISTICS”

ACCELERATING IN THE WRONG DIRECTION

THEY’RE NOT ENTITLED TO ME

WHO REMEMBERS FINLEY KUMBLE?

KEEP FEEDING PROFITS THE BEAST. WHAT COULD GO WRONG?

SOME DOCTORS THINK THEY’RE GOD; SOME LAWYERS THINK THEY’RE DOCTORS

BIGLAW’S GLASS IS 44% FULL

ARE THE U.S. NEWS RANKINGS BIGLAW’S BLACK SWAN?

ABOUT THOSE BIGLAW ASSOCIATE SATISFACTION SURVEYS….

ALONG CAME LAW FIRM MANAGEMENT CONSULTANTS

OUTSOURCING: THE BEGINNING OF A NEW AND IMPROVED BIGLAW BUSINESS MODEL?

MIRED IN METRICS? HAVE SOME MORE!

“SILENT GRIEF” – “DEADLY SERIOUS” FOLLOW-UP

WHERE HAVE ALL THE MENTORS GONE?

SUMMER ASSOCIATES TAKE NOTE: INADVERTENT REVELATIONS

FOR BIGLAW SUMMER ASSOCIATES ONLY…

A BETTER ALTERNATIVE OR A LEAP FROM THE FRYING PAN?

IT’S NOT JUST ME

EARLY RETURNS

“SEND THE ELEVATOR BACK DOWN…”

25 YEARS…

SECOND AND THIRD THOUGHTS?

GOLDMAN SACHS — AN INITIAL OBSERVATION

WILL ANYONE NOTICE ON APRIL 27?

PUZZLE PIECES – Part 12

PUZZLE PIECES – Part 11

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