DEWEY’S RICHARD SHUTRAN — RUNNING THE NUMBERS

Posted on June 7, 2012 by thebellyofthebeast

This is the fourth of a five-part series profiling Dewey & LeBoeuf’s former leaders. Richard Shutran (Trinity College, B.A., 1974; New York University, J.D., 1978) joined Dewey Ballantine in 1986 and rose to co-chair of the firm’s Corporate Department and Chairman of its Global Finance Practice Group. He left his position on Dewey’s Executive Committee in 2010, but in 2012 became a member of the four-man office of the chairman tasked to save the firm.

The Dewey & LeBoeuf website described Shutran’s transactional practice as “counseling…with respect to leveraged finance and project finance matters, mergers and acquisitions, and restructurings and reorganizations….” That makes him a numbers guy, someone especially well-suited to the challenges facing his firm when it asked him to return to leadership as one of the Gang of Four.

The 2010 bond issuance

Dewey’s 2010 private placement memorandum included Shutran’s biography in its “Senior Management” section. At the time, Bloomberg news reported on the $125 million bond offering for which Shutran said that the bonds’ interest rates were more favorable than the firm’s bank loans. That was true.

As partners were checking out two years later, the Daily Journal reported that Dewey was renegotiating those bank loans: “Richard Shutran, co-chair of Dewey’s corporate department, described the negotiations as standard.” At that point, perhaps they were.

Another “bond” issuance

Meanwhile, the firm was pursuing what fellow Gang of Four member Martin Bienenstock described as “a plan to deal with the shortage of payments to some partners.” In particular, those with guaranteed compensation deals had taken IOUs during earlier years when profits had fallen short of targets. The “plan” was to dedicate six percent of the firm’s income for six or seven years to pay them off, starting in 2014.

In addition to ongoing bank debt, the first wave of 2010 bond payments came due in 2013 and would continue through 2023. Now another debt repayment plan — to a special class of so-called partners — would take another chunk of future partnership earnings from 2014 to 2020.

Funny numbers

At about the same time, Shutran moved to the center of another controversy – also not of his making – relating to his firm’s financial health. He assured a Bloomberg reporter that the departure of Dewey’s elite insurance group “had no impact on our firm’s profitability. That group was break-even at best.” But he also said the firm had earned about $250 million in profits for 2011. The American Lawyer didn’t think that number jibed with what Dewey had provided for the magazine’s annual rankings.

On March 21, 2012, The Wall Street Journal reported The American Lawyer’s retroactive revisions to Dewey & LeBeouf revenue and profits numbers for 2010 and 2011 — by a lot. For example, Dewey’s 2011 average partner profits dropped from $1.8 million to $1.04 million. Shutran suggested methodological differences were to blame:

“‘They’re just not comparable numbers,’ Mr. Shutran said. ‘That’s something people like to pick on.’ Robin Sparkman, the editor-in-chief of the American Lawyer, said Dewey & LeBoeuf’s numbers were given to them by the firm’s management.”

About that bank loan

On April 11, 2012, Dewey identified seven key players essential to the firm’s survival. Shutran wasn’t among them, but he responded to questions about whether the wave of partner defections had triggered bank loan covenants: “It has not had any effect under (the) agreements,” he said. There’s no reason to doubt him.

But the real problem by then wasn’t the bank loans. It was the accumulated amounts owed for annual distributions to partners in excess of the firm’s net income. As Bruce MacEwen’s analysis suggests, whether it’s called mortgaging the future or something worse, the result is the same.

Something went terribly awry at Dewey & LeBoeuf, but here’s the scary part: among big law firms, some of the things that created Dewey’s predicament aren’t unique.

DEWEY’S JEFFREY KESSLER: STARS IN THEIR EYES

Posted on June 1, 2012 by thebellyofthebeast

This is the third in a series profiling Dewey & LeBoeuf’s former leaders. Apparently, Jeffrey Kessler (Columbia University, B.A., 1975; Columbia Law School, J.D., 1977) has become a prisoner of his celebrity clients’ mentality. A prominent sports lawyer, he analogizes big-name attorneys to top athletes: “The value for the stars has gone up, while the value of service partners has gone down.”

Kessler was a long-time partner at Weil, Gotshal & Manges before joining Dewey Ballantine in 2003. After the firm’s 2007 merger with LeBoeuf Lamb, he became chairman of the Global Litigation Department, co-chairman of the Sports Litigation Practice Group and a member of the Executive and Leadership Committees. Long before he became a member of the Gang of Four in Dewey & LeBoeuf’s office of the chairman, he was a powerhouse in the firm.

Blinded by their own light

Some attorneys have difficulty resisting the urge to absorb the ambitions and ethos of their clients. Many corporate transactional attorneys have long been investment banker and venture capital wannabees, at least when it comes to the money they’d like to make.

Of course, not all corporate practitioners are myopic thinkers. Kessler proves that narrow vision isn’t limited to transactional attorneys. But the rise of such attitudes to the top of many large law firms has occurred simultaneously with the profession’s devolution to models aimed at maximizing short-term profits and growth.

Kessler was a vocal proponent of the Dewey & LeBoeuf star system that produced staggering spreads between people like him — reportedly earning $5.5 million a year — and the service partners, some of whom made about five percent of that. It was the “barbell” system: top partners on one side; everybody else on the other.

In such a regime, there’s no shared sacrifice. What kind of partnership issues IOUs to star partners when the firm doesn’t make its target profits? Something that isn’t a partnership at all.

Lost in their own press releases

Kessler regularly finds himself in the presence of celebrity athletes. That can be a challenging environment. But once you start believing your own press releases, the result can be the plan that he and fellow Dewey & LeBoeuf partner Charles Landgraf “spearheaded” (according to fellow Gang of Four member Martin Bienenstock).

To deal with outstanding IOUs to Dewey partners whose guaranteed compensation couldn’t be paid when the firm underperformed for the year, Kessler helped to mortgage its future: for “a six- or seven-year period, starting in 2014, [a]bout six percent of the firm’s income would be put away to pay for this….”

It’s a remarkable notion. Partners didn’t get all of their previously guaranteed earnings because the firm didn’t do well enough to pay it. But rather than rethink the entire house of cards, it morphed into a scheme whereby future partnership earnings — for six or seven years — would satisfy the shortfall. Never mind that there was no way to know who would be among the firm’s partners in those future years. The money had to be promised away because the stars had to be paid.

Sense of entitlement

Kessler gives voice to the pervasive big law firm attitude that without stars there is no firm. It’s certainly true that every firm has to attract business and that some lawyers are more adept at that task than others. But Kessler’s approach produced yawning income gaps at Dewey. Similar attitudes have contributed to exploding inequality afflicting many equity partnerships. For insight into the resulting destabilization, read the recent article by Edwin Reeser and Patrick McKenna. “Spread Too Thin.”

But does Kessler really think that he and a handful of his fellow former Dewey partners are the first-ever generation of attorney stars? Twenty-five years ago when average partner profits for the Am Law 100 were $325,000 a year, did his mentors at Weil Gotshal earn twenty times more than some of their partners — or anything close in absolute dollars to what Kessler thinks he’s worth today? Does he believe that there are no stars at firms such as Skadden Arps, Simpson Thacher or other firms that have retained top-to-bottom spreads of 5-to-1 or less?

Beyond his prominence in the profession, Kessler is shaping tomorrow’s legal minds as a Lecturer-in-Law at Columbia. For anyone who cares about the future, that’s worth pondering.

DEWEY’S MARTIN BIENENSTOCK: PARTNERSHIP, PROFESSIONALISM AND WHAT TO TELL THE KIDS

Posted on May 24, 2012 by thebellyofthebeast

This is the second in a series profiling Dewey & LeBoeuf’s former leaders. Martin Bienenstock (University of Pennsylvania, B.S., Wharton School, 1974; University of Michigan, J.D., 1977) was heralded as “one of the most innovative, creative restructuring attorneys in the country” when the Dewey & LeBoeuf spin machine put him at the center of an April 21, 2012 article in The New York Times. He seemed to be the perfect candidate to save his firm.

One item that probably impressed NY Times’ readers was his presence on the Harvard Law School faculty. That credential showed up on the firm’s Private Placement Memorandum for its 2010 bond offering, too. According to the school’s website, he taught the Corporate Reorganization course during the spring term 2012.

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Apart from imparting substantive knowledge, he — like any educator — is also a role model for students. In that respect, what have future attorneys been learning from Bienenstock?

What does partnership mean?

Every law student learns the basic concepts: partners owe each other fiduciary duties; they share risk, gains and losses; they’re accountable to all other partners. But theoretical partnership principles played out much differently in Bienenstock’s firm after he joined Dewey & LeBoeuf and its Executive Committee in November 2007.

— Multi-year compensation guarantees went to some partners, including Bienenstock, but their pay didn’t depend on performance. Some partners say they were unaware of the scope and magnitude of such deals until an October 2011 partner meeting.

— Partner income spreads reportedly grew to more than twenty-to-one. In “Spread Too Thin,” Patrick McKenna and Edwin Reeser describe the destabilizing effects of that ubiquitous big law trend.

— A 2010 bond issuance obligated future partners to payments of at least $125 million, starting in 2013 and continuing to 2023.

— Top partners, including Bienenstock, thought they were making great sacrifices when the firm missed its income targets in 2011: they “capped” themselves at $2.5 million and took firm IOU’s to make up annual shortfalls from their guaranteed amounts. Continuing strategies that mortgaged the future, Dewey & LeBoeuf planned to dedicate six percent of its income from 2014 to 2020 to repay those IOUs.

— Questions have surfaced about the accuracy and sufficiency of the firm’s financial disclosures to fellow partners and third parties.

What does professionalism mean?

After Steven H. Davis left his management position, the Dewey & LeBoeuf spin machine put Bienenstock center stage as the go-to person who could work a miracle. Maybe it would be a “prepack” – a prepackaged bankruptcy that would allow the firm to shed some debts and become more attractive to a merger partner.

Maybe it would be a traditional merger.

Maybe, maybe, maybe.

One thing Bienenstock made clear throughout: “There are no plans to file bankruptcy. And anyone who says differently doesn’t know what they’re talking about.”

Ten days later, he and members of his bankruptcy group were on their way to Proskauer Rose.

Parsing Bienenstock’s statement about a bankruptcy filing is akin to dissecting President Clinton’s response to questions about his sexual encounters with a White House intern: “It depends on what the meaning of is, is.”

What does leadership mean?

Did Beinenstock have an actual plan for the firm’s survival or did chaos better serve the economic interests of a few top partners? Was he personally committed for the long haul or arranging his own exit? Was anyone really in charge?

Those questions went unanswered as speculation and uncertainty swamped the firm: One-third of the firm’s partners gone by the end of April? A memo invites others to build their own lifeboats, but attorneys and staff should keep working diligently for clients? Use personal credit cards for client copying charges? No mailroom? No IT? Why do senior partners keep asking for empty packing boxes?

Leadership is needed most in times of crisis. As Dewey & LeBoeuf’s Office of the Chairman went from four to three to two to one to none, leadership was nowhere to be found.

Accepting responsibility

When asked who or what was to blame for Dewey’s demise, Bienenstock demurred: “[N]o one saw the new world coming.”

Except plenty of other people did.

Were any of the summer or permanent associates whom Dewey stiffed Bienenstock’s former students at Harvard? If so, their real life experiences of the past three months taught them more about partnership, professionalism and leadership in some big firms than Bienenstock or anyone else could have communicated in years of classes. The question now is whether Bienenstock will be on Harvard’s faculty list next year.

DEWEY’S MORTON PIERCE: ACCEPTING RESPONSIBILITY

Posted on May 20, 2012 by thebellyofthebeast

This is the first in a series profiling Dewey & LeBoeuf’s former leaders. Morton Pierce (Yale University, B.A., 1970; University of Pennsylvania, J.D., 1974) is an appropriate place to begin because on May 3, 2012, he told The Wall Street Journal that he hadn’t been actively involved in Dewey’s management for years and had stepped down from the firm’s Executive Committee in 2010.

Pierce is widely acclaimed as one of the country’s top mergers and acquisitions attorneys. He was chairman of Dewey Ballantine when its attempt to merge with Orrick, Herrington & Sutcliffe failed in 2007.

A partnership within a partnership

Pierce was a principal architect of Dewey Ballantine’s merger with LeBoeuf Lamb. Based on Bruce MacEwen’s analysis of the financial data, Dewey got the better end of that deal. As for Pierce himself, The Wall Street Journal reports that he “had negotiated a pay package that guaranteed him $6 million a year for six years, according to a person with direct knowledge of the arrangement.” The subject of my next post, Martin Bienenstock, said that there were many such deals to lock up talent for at least four years after the merger.

Early in 2010 — the year Pierce says he left the firm’s Executive Committee — Dewey mortgaged its future with a $125 million bond offering (repayment due from 2013 to 2023). In 2011, the sixty-two-year-old Pierce negotiated a new deal for himself. The Journal continues: “[H]e secured a new, eight-year contract that would pay him $8 million for several years and wind down to $6 million in later years, that person said.”

Dewey’s next gambit: IOUs to the oxymoronic group — guaranteed compensation partners — when the firm didn’t earn enough current income to pay them in full. Committing future profits to make up for prior periods of missed earnings is, at best, a dubious strategy. At worst, it transforms a partnership into something that looks like a Ponzi scheme. It’s difficult to envision an attorney recommending the idea to a client.

A firm leader?

Pierce’s effort to distance himself from management is interesting. He’s featured prominently as part of the firm’s “Executive Office” in the 2010 Private Placement Memorandum for its bonds. Two years later, an April 11 2012 article identified Pierce as “one of seven key lawyers” who determined Dewey’s fate.

Until the day he left in May 2012, the firm’s website still introduced his biographical page as follows: “Morton Pierce is a Vice Chair of Dewey & LeBoeuf and co-chair of the Mergers and Acquisitions Practice Group. He is also a member of the firm’s global Executive Committee.”

Not my job

From a self-proclaimed distance, Pierce described Dewey’s leaders in the third person. When asked about an April 2012 meeting at which senior partners supposedly recommitted themselves to the firm and its survival, Pierce’s only comment was: “There was a meeting and I was there.”

Three weeks later, he told the Journal, “I think the executive committee did the best job that they could under the circumstances.” That article continued, “Mr. Pierce didn’t assign blame for the firm’s current situation.”

Pierce told the NY Times, “I am sorry about what happened” — as if some external event or rogue actor was responsible.

The nature of leadership

Even so, Pierce kept his sense of gallows humor while packing up for White & Case. Describing how he’d like to merge all of the wonderful firms that had expressed interest in taking him as Dewey imploded, he told The Wall Street Journal on May 3: “Although looking at the Dewey & LeBoeuf merger, maybe mergers aren’t such a good idea.”

I suspect that most of the 2,000 Dewey lawyers and staffers who once worked at the firm don’t think Pierce has much of a future in comedy. He didn’t mention his other non-joke: that his resignation letter reportedly claimed that the firm owed him $61 million.

If the Dewey spin machine and website description were accurate, Pierce remained at the center of power until the moment he resigned from the firm. If, as he claims, he wasn’t involved in management after 2010, that’s worse. The notion that someone of Pierce’s professional stature would remain on the sidelines as his firm pursued misguided strategies and then would watch it spin into oblivion is stunning.

Senior partners in big firms often complain about young lawyers’ unwillingness to take responsibility for mistakes and their consequences. Perhaps some of the profession’s so-called leaders could set a better example.

DEWEY: PROFILES IN SOMETHING

Posted on May 15, 2012 by thebellyofthebeast

Some key players in the Dewey & LeBoeuf debacle are also among the profession’s leaders; that makes them role models. Some teach at law schools; that means they’re shaping tomorrow’s attorneys, too. But how do they look and sound without the Dewey spin machine?

Some readers might worry that spotlighting them erodes civility. But civility goes to the nature of discourse; it can never mean turning a blind eye to terrible things that a few powerful people do to innocent victims. Sadly, the personalities and trends that unraveled Dewey aren’t unique to it.

As to former chairman Steven H. Davis, David Lat’s analysis at Above the Law and Peter Lattman’s report at the NY Times are sufficient; there’s no reason to pile on. Rather, I’ll look at the “Gang of Four” plus one: the men comprising the four-man office of the chairman who replaced Davis as the firm came unglued, and Morton Pierce. Here’s a preview.

Morton Pierce was chairman of Dewey Ballantine when merger discussions with Orrick, Herrington & Sutcliffe failed and LeBoeuf, Lamb, Greene & McRae entered the picture. After spearheading the deal with Davis, Pierce locked in a multi-year $6 million annual contract that he reportedly enhanced in the fall of 2011. In his May 3 resignation later, he reportedly claimed that the firm owed him $61 million.

As he spoke with The Wall Street Journal while packing boxes for White & Case, Pierce said that he hadn’t been actively involved in firm management since 2010. But the Dewey & LeBoeuf website said otherwise: “Morton Pierce is a Vice Chair of Dewey & LeBoeuf and co-chair of the Mergers and Acquisitions Practice Group. He is also a member of the firm’s global Executive Committee.” [UPDATE: Two days after this May 15 post, Pierce’s page on the Dewey & LeBoeuf website finally disappeared. Such are the perils of losing an IT department too early in the unraveling process.] My post on Pierce will be titled “Accepting Responsibility.”

Martin Bienenstock, one of the Gang of Four, was an early big name hire for the newly formed Dewey & LeBoeuf. In November 2007, he left Weil, Gotshal & Manges after 30 years there. He got a guaranteed compensation deal and sat on the Executive Committee as his new firm careened toward disaster. As Dewey & LeBoeuf’s end neared, he maintained a consistent position throughout: “There are no plans to file bankruptcy. And anyone who says differently doesn’t know what they’re talking about.”

No one asked if he had a realistic plan for the firm’s survival. Ten days later, he and members of his bankruptcy group were on the way to Proskauer Rose. The title of my upcoming post on Pierce could work for Bienenstock, too. But because he teaches at Harvard Law School, I’m going to call it “Partnership, Professionalism, and What To Tell the Kids.”

Jeffrey Kessler, another of the Gang of Four, was also a lateral hire from Weil, Gotshal & Manges. He joined Dewey Ballantine in 2003. As a member of Dewey & LeBoeuf’s Executive Committee, he became a vocal proponent of the firm’s star system that gave top producers multi-year, multimillion-dollar contracts — one of which was his.

A sports law expert, Kessler analogized big-name attorneys to top athletes: “The value for the stars has gone up, while the value of service partners has gone down.” The title of my post on Kessler will be “Stars In Their Eyes.”

Richard Shutran, the third of the Gang of Four, was a Dewey Ballantine partner before the 2007 merger. He became co-chair of Dewey & LeBoeuf’s Corporate Department and Chairman of its Global Finance Practice Group. At the time of the firm’s $125 million bond offering in 2010, he told Bloomberg News that the bonds’ interest rates were more favorable than those from the firm’s bank. In March 2012, he said Dewey was in routine negotiations with lenders over its credit line. He also dismissed The American Lawyer’s retroactive revision of Dewey’s 2010 and 2011 financial performance numbers as much ado about nothing. My post on Shutran will be “Running the Numbers.”

L. Charles Landgraf, the last of the four, began his career at LeBoeuf Lamb 34 years ago. I don’t know him (or any of the others), but my hunch is that Charley (as people call him) is a decent guy. My post on him will be called “The Plight of the Loyal Company Man.”

In future installments, we’ll take a closer look at each of them. Sometimes it won’t be pretty, but neither is what some of them personify about the profession’s evolution.

SPINNING DEWEY’S HEROES

Posted on April 25, 2012 by thebellyofthebeast

Dewey & LeBoeuf’s latest designated savior is Martin J. Bienenstock. The NY Times says that he faces “perhaps the most challenging assignment of his career: the restructuring of his own law firm.”

According to the Times, his challenges include bank negotiations to restructure Dewey’s outstanding loans, consideration of reorganization options, and avoiding liquidation. Given the complex array of fiduciary duties accompanying such a job description — as a partner to his fellow partners while also acting as counsel to the partnership as a whole without favoring any individual partner or group of partners — it’s a daunting task.

Last month’s star was Steven H. Davis, whose assurances during an interview for Fortune magazine produced an article titled “Dewey & LeBoeuf: Partner exodus is no big deal.” Right — Dewey started the year with 300 partners; 30 were gone by the time of Davis’s interview; 40 more have left since then. Among his least prescient remarks: “If the direction we’re taking the firm in was somehow disapproved of, then the reality is that there ought to be a change in management. But I don’t sense that.”

The more things change…

Less than a week later, a five-man executive committee replaced Davis. One member of the new “office of the chairman” is Bienenstock. It’s ironic because he exemplifies Dewey’s business strategies that may have worked well in his case, but less so in others’, namely, lateral hiring and compensation guarantees. Prior to joining Dewey & Leboeuf in November 2007 (a month after the merger creating it), he’d spent 30 years at Weil, Gotshal & Manges. While he sat on Dewey’s management committee that Davis chaired, his new firm became one of the top-10 in 2011 lateral partner hiring.

According to The Lawyer, Bienenstock was reportedly among those who recently agreed to cap personal earnings at $2.5 million. That’s a start, but the article also said that some partners’ deferred income took the form of promissory notes due in 2014. It’s interesting that a firm already on a $125 million hook for something that law firms rarely do — offering bonds that begin to come due in April 2013 — would add even more short-term debt to its balance sheet. Add it to the list of unexpected complications that accompany partnership compensation guarantees.

The real Dewey heroes

This rotating focus on a handful of lawyers at the top obfuscates the importance of everyone else. Rainmakers come and go — and their seven-figure incomes survive. Bienenstock is an example. So are the many former Dewey management committee members who have already left, including John Altorelli, whose parting words showed little compassion for his former partners, associates, paralegals and staff. Even top partners who managed firms that went bust seem to land on their feet. After Howrey failed, its former vice chairman, Henry Bunsow, got a reported multi-million guaranteed compensation deal at Dewey in January 2011. Welcome to the lateral partner bubble.

Lost in the headlines about the stars are the worker bees with limited options and real fears. An Above the Law post from a seasoned Dewey paralegal captures the angst:

“I know these facts do not necessarily make for sexy headlines but I do ask that you report on the following. While some laugh and play their lyre as the city of Rome burns, it will be well over one thousand staff members who will also be gainfully unemployed.”

Add the nearly one thousand Dewey lawyers who have been watching quietly at the unfolding public relations nightmare since Davis’s bizarre interview. As Dewey’s publicity machine pumps out celebrity saviors of the moment, each has drawn more unwanted attention to the firm’s plight than the last. Martin Bienenstock’s appearance in the Times along with the proffered “pre-packaged bankruptcy” option is the latest example.

If Dewey survives the current crisis, Bienenstock’s suddenly magical touch won’t be the reason. Rather, it will survive because an entire law firm — partners, associates and staff — kept noses to the grindstone. The real heroes didn’t go looking for more media coverage of a troubled situation.

Perhaps Dewey’s leaders thought that better press could solve the firm’s crisis. But that approach reverses the relationship between public relations and crisis management, which is simple: manage a crisis properly and the resulting story will write itself.

Here’s the obvious corollary: manage the firm properly and there is no crisis to manage.

EXPLAINING ABA INTRANSIGENCE

Posted on March 27, 2012 by thebellyofthebeast

Who are these people?

Recently, the ABA’s Council of the Section of Legal Education and Admission to the Bar rejected an important recommendation of its Special Standards Review Committee. The proposed rule would have required law school-specific disclosure of salary information. No dice, said the Council.

It raises a question that no one seems willing to ask: Who are these Council people, anyway?

Perhaps the Council’s composition is relevant to understanding why it vetoed its own committee’s effort to promote greater candor. In approving a host of other transparency initiatives that have been far too long in coming, the Council stopped short of requiring what might be the most important disclosure of all:

If a student manages to get a job upon graduation, what are the chances that it will pay well enough to cover educational loans, rent, food, and the bare necessities of life?

I don’t know how individual members voted, but their affiliations are interesting. The current chair is dean of the New England School of Law, which has a perennial place in the U.S. News & World Report unranked nether regions. (Regular readers know my disdain for the U.S. News rankings that have transformed deans into contortionists as they pander to its flawed methodology. But as an overall indicator of general quality groups rather than specific ordinal placement, they confirm what most people believe to be true anyway.)

Consider the other academics on the Council. The Chair-elect is also a dean — Washington University School of Law (23rd on the U.S. News list). The Council’s Secretary was dean at the University of Montana School of Law (#145 ). Others deans and former deans on the Council hail from Hamline University Law School (unranked), North Carolina Central University School of Law (unranked), University of Kansas School of Law (#89), University of Miami School of Law (#69), Boston University School of Law (#26). Another member is an associate dean — University of Minnesota Law School (#19). The remaining academic Council members teach at Drexel University (#119) and Georgetown (#13).

Several other Council members who are not full-time professors have teaching affiliations with, for example, Cleveland-Marshall Law School (#135), University of Utah (#47), and Arizona State University (#26, tied with BU and Indiana University).

Each institution has its share of outstanding faculty and graduates; that’s not the point. But if these or most other schools had to disclose their recent graduates’ detailed salary information, would it make any of them look better to prospective students? Not likely.

The “appearance of impropriety” is an important ethical concept in the legal profession. Any dean or former dean on the Council who voted in favor of salary disclosure should say so. Those who don’t should live with the guilt by association that will accompany adverse inferences drawn from their silence.

Here’s the current Chairman’s spin on the situation: “There should be no doubt that the section is fully committed to clarity and accuracy of law school placement data. Current and prospective students will now have more timely access to detailed information that will help them make important decisions.”

Unless, of course, the information that students seek relates to the incomes they’ll earn after forking over $100,000-plus in tuition and incurring debt that they can’t discharge in bankruptcy.

Also from the ABA statement:

“The Council specifically declined to require the collection and publication of salary data because fewer than 45% of law graduates contacted by their law schools report their salaries. The Council felt strongly that the current collection of such data is unreliable and produces distorted information.”

If a forty-five percent response rate is sufficiently low to throw out data as unreliable because it produces distorted information, what does that say about U.S. News‘ survey used to calculate almost one-seventh of every law school’s 2013 ranking? The response rate for its “assessment by lawyers/judges” component was twelve percent.

I know, I know: “A foolish consistency is the hobgoblin of little minds.” (Emerson, R.W.,”Self-Reliance,” First Essays, 1841)

THE ULTIMATE LATERAL HIRE

Posted on January 25, 2012 by thebellyofthebeast

Among 2011’s “Lateral Partner All-Stars,” Tony Angel’s symbolic importance seems unrivaled. As I write, I don’t know who will make The American Lawyer‘s annual February list. But when Angel became DLA Piper’s leader, his new firm became the definitive poster child for big law’s transformation. Celebrate at your peril.

Whither goest thou?

DLA Piper resulted from the combination of several large firms comprised of once-independent enterprises: DLA’s three U.K. components were Dibb Lupton Broomhead, Alsop Stevens, and Wilkinson Kimbers; Piper Rudnick’s predecessors included Baltimore-based Piper & Marbury, Chicago-based Rudnick & Wolfe, and San Diego-based Gray, Cary, Ware & Freidenrich.

According to its website, DLA Piper grew from 2700 lawyers in January 2005 to 4200 today. The attorneys it added during that period would comprise one of the 20 largest firms in the world — eclipsing Kirkland & Ellis, Weil Gotshal & Manges, and Gibson, Dunn & Crutcher.

But is it really a law firm? K&L Gates chairman Peter Kalis makes the telling point that, as a verein, it may be more like a confederation of different firms that share a common name, but not profit pools. Still, adding 1500 attorneys in six years makes any observer wonder about DLA Piper’s global partner conferences. The 2010 meeting took place in Orlando, Florida, home of Disney World. There’s a metaphor in there someplace.

Ascertaining shared values and visions

According to Am Law Daily, the whirlwind courtship between Angel and DLA Piper began with a May 2011 breakfast meeting that included Frank Burch and others on the leadership team. The idea of naming him global co-chair gained momentum as Angel lined up partner support from the firm’s 76 offices. On November 7, he got the top spot. How?

“He’s got great values and he believes in what we’re trying to do and he shares our view of what’s going on in the world,” said Burch, who now shares DLA Piper’s global chair with Tony Angel. “So, we didn’t hesitate for a second and worry about the fact that the guy was not in the firm.”

Didn’t hesitate for a second? Didn’t worry about the fact that the guy was not in the firm? Why not? When Burch said that Angel has “great values,” “believes in what we’re trying to do,” and “shares our view,” what did he mean?

DLA Piper’s press release offered a hint:

“Tony will work with the senior leadership on the refinement and execution of DLA Piper’s global strategy with a principal focus on improving financial performance and developing capability in key markets.”

Translation: Get bigger and make surviving equity partners richer.

Consultant Peter Zeughauser said that Angel is a hot property: “It’s hard to get a guy that talented. There just aren’t that many people out there who have done what he has done.”

Zeughauser was referring to Angel’s management of Linklaters from 1998 to 2007. When he left, it had a global presence and average partner profits of $2.4 million. Although DLA Piper’s 2010 average partner profits exceeded $1 million in 2010, Angel’s job is to take them even higher.

Ignored in the financial shorthand are questions no one asks:

— Most big firms prospered wildly during big law’s go-go years. Does the person at the top deserve all the credit? The partners who bring in clients, orchestrate deals, and win trials don’t think so.

— Conversely, according to Am Law‘s Global 100, by 2010 Linklater’s 2010 average profits per partner slipped to $1.8 million. Does anyone think that happened because Angel left three years earlier? Not likely.

— What gets sacrificed in the myopic quest for growth and short-term profits? That’s becoming clearer: things that aren’t easily quantified, including a sense of community and a culture that mentors home-grown talent from which a firm’s future leaders can emerge.

Rather than consider the heresy implicit in such questions, the spin zone focuses on what legal headhunter Jack Zaremski called a “brave move” that “might very well pay off.”

Pay off, indeed. In the latest Am Law Mid-level Associates Survey, DLA Piper ranked 99th out of 126 firms. In reviewing their shared values and vision, did Angel and his new DLA Piper partners discuss the rewards that might come with addressing the firm’s attorney morale problems?

Probably not. After all, Linklaters ranked 108th.

UNFORTUNATE COMMENT AWARD

Posted on January 10, 2012 by thebellyofthebeast

Today’s “Unfortunate Comment Award” winner is ABA President William (“Bill”) Robinson III, who thinks he has found those responsible for the glut of unemployed, debt-ridden young lawyers: the lawyers themselves.

“It’s inconceivable to me that someone with a college education, or a graduate-level education, would not know before deciding to go to law school that the economy has declined over the last several years and that the job market out there is not as opportune as it might have been five, six, seven, eight years ago,” he told Reuters during a January 4 interview.

Which year we talkin’ ’bout, Willis?

Recent graduates made the decision to attend law school in the mid-2000s, when the economy was booming. Even most students now in their third year decided to apply by spring 2008 — before the crash — when they registered for the LSAT. Some of those current 3-Ls were undergraduates in the first-ever offering of a course on the legal profession that I still teach at Northwestern. What were they thinking? I’ll tell you.

I’ve written that colleges and law schools still make little effort to bridge a pervasive expectations-reality gap. Anyone investigating law schools in early 2008 saw slick promotional materials that reinforced the pervasive media image of a glamorous legal career.

Jobs? No problem. Prospective students read that for all recent graduates of all law schools, the overall average employment rate was 93 percent. They had no reason to assume that schools self-reported misleading statistics to the ABA, NALP, and the all-powerful U.S. News ranking machine.

But unlike most of their law school-bound peers, my students scrutinized the flawed U.S. News approach. Among other things, they discovered that employment rates based on the ABA’s annual law school questionnaire were cruel jokes. That questionnaire allowed deans to report graduates as employed, even if they were flipping burgers or working for faculty members as temporary research assistants.

Law school websites followed that lead because the U.S. News rankings methodology penalized greater transparency and candor. In his Reuters interview, Robinson suggested that problematic employment statistics afflicted “no more than four” out of 200 accredited institutions, but he’s just plain wrong. Like their prospective students, most deans still obsess over U.S. News rankings as essential elements of their business models.

The beat goes on

With the ABA’s assistance, such law school deception continues today. Only last month — December 2011 — did the Section on Legal Education and Admission to the Bar finally approve changes in collecting and publishing law graduate placement data: Full- or part-time jobs? Bar passage required? Law school-funded? Some might consider that information relevant to a prospective law student trying to make an informed decision. Until this year, the ABA didn’t. The U.S. News rankings guru, Robert Morse, deferred to the ABA.

The ABA is accelerating the new reporting process so that “the placement data for the class of 2011 will be published during the summer of 2012, not the summer of 2013.” That’s right, even now, a pre-law student looking at ABA-sanctioned employment information won’t find the whole ugly truth. (Notable exceptions include the University of Chicago and Yale.) Consequently, any law school still looks like a decent investment of time and money, but as Professor William Henderson and Rachel Zahorsky note in the January 2012 issue of the ABA Journal, it often isn’t.

Students haven’t been blind to the economy. But bragging about 90+ percent employment rates didn’t (and doesn’t) deter prospective lawyers. Quite the contrary. Law school has long been the last bastion of the liberal arts major who can’t decide what’s next. The promise of a near-certain job in tough times makes that default solution more appealing.

Even the relatively few undergraduates (including the undergraduates in my class) paying close attention to big firm layoffs in 2009 were hopeful. They thought that by the time they came out of law school, the economy and the market for attorneys would improve. So did many smart, informed people. Youthful optimism isn’t a sin.

Which takes me to ABA President Robinson’s most telling comment in the Reuters interview: “We’re not talking about kids who are making these decisions.”

Perhaps we’re not talking about his 20-something offspring, but they’re somebody’s kids. The ABA and most law school deans owed them a better shake than they’ve received.

It’s ironic and unfortunate: one of the most visible spokesmen in a noble profession blames the victims.

TROUBLE IN TEXAS

Posted on January 4, 2012 by thebellyofthebeast

Last month, University of Texas President Bill Powers asked his law school dean, Larry Sager, to resign early — months ahead of his originally planned departure at the end of the academic year. According to the Texas Tribune, Sager’s relationship with the faculty “had become so strained that he was no longer able to serve effectively.” One source of discord was faculty compensation.

The story became more interesting with news that the law school’s foundation — a private non-profit group run by alums and distinguished attorneys — had given Sager a $500,000 “forgivable loan” in 2009. It got juicier when Powers said, “I don’t remember ever being told about the loan to Dean Sager, and that’s the sort of thing I would remember.”

He said — he said

Sager counters with his “clear memory” that Powers knew about the loan, but then distances himself from the foundation’s action: “Whatever else is true about the loan, the decision was made by the president of the foundation, the executive committee of the foundation and the trustees of the foundation as a whole. I would not and could not have dictated this outcome.”

So who determines compensation at the University of Texas School of Law?

The Texas Tribune notes that one of the foundation’s top donor-trustees, Steve Susman (an outstanding attorney) explained the foundation’s laudable purpose:

“If the law school is going to remain just a state law school supported by state money, I think it’s going to drop to being a very mediocre law school. The reason this law school has always been a great law school is because it has always gone to its alumni and said, ‘We need you in it.’”

But that defense is irrelevant to the current controversy. Many colleges and universities have alumni organizations that raise money. Sometimes they solicit for particular causes or programs. No problem. But the UT foundation’s funds apparently became part of a dean’s compensation package and the university’s president claims not to know how or why.

Who’s in charge?

In a lengthy letter to the faculty (downloadable at the Texas Tribune article link), Sager explains that, after becoming dean in 2006, he tried to raise UT’s stature by luring talent from other schools while resisting raids on UT’s. Without naming the foundation, he says that “loan arrangements have come from monies that have been raised and expressly endowed for academic excellence.” He also notes that he “raised the bulk of these funds – which total more than $10 million — for exactly the purpose of recruiting and retaining faculty.”

From there, things get curioser and curioser. Sager’s letter describes university-wide austerity budgets that constrained law school salaries. Meanwhile, according to the school’s response to an Open Records Request, the $500,000 Sager received in May 2009 was by far the biggest of 22 loans made between May 15, 2006 and September 15, 2011. His letter doesn’t mention it.

President Powers says he didn’t know anything about Sager’s loan. Sager says that Powers knew and the loan was recognition for a job well-done, but his reward was a “foundation decision.”

It’s a Texas-sized mess. From the Texas Tribune:

“The day after Sager’s resignation, UT Chancellor Francisco Cigarroa issued a statement calling for a review of how funds flow to the Law School from the Foundation, how these decisions are made,’ in order to ‘enhance processes, procedures and controls for those transactions in the future.’ Cigarroa said the review’s findings would help establish ‘clear and transparent guidelines’ for all UT institutions and affiliated foundations.”

Before rejoicing at this hint of leadership from above, read on:

“A spokesman for the UT System said that while the chancellor has no direct authority over faculty compensation at the law school, he wants to make sure everything is being done in an appropriate fashion.” Atop the UT System sits a Board of Regents, which the governor appoints and the state senate confirms.

All of this leads to two questions: First, who decides whether things are “being done in an appropriate fashion” and, second, who’s responsible for changing things that aren’t?

After Penn State, university trustees and regents everywhere should be pondering those questions. The answers are important — and they’re in the mirror.

THE ARROGANCE OF OVERCONFIDENCE

Posted on November 8, 2011 by thebellyofthebeast

Most of us hate admitting our mistakes, especially errors in judgment. Lawyers make lots of judgments, which is why they should pay special attention to two recent and seemingly unrelated NY Times articles.

In the October 23 NYT Magazine, psychologist and economics Nobel laureate Daniel Kahneman describes an early encounter with his own character flaw that led him to research its universality. Assigned to observe a team-buidling exercise, he was so sure of his predictions about the participants’ future prospects that he disregarded incontrovertible data proving him wrong — again, and again, and again.

In subsequent experiments, he discovered that he wasn’t alone. A similar arrogance of overconfidence explains why, for example, individual investors insist on picking their own stocks year after year, notwithstanding the overwhelming evidence that their portfolios are worse for it.

In the same Sunday edition of the Times, philosopher Robert P. Crease discusses the two different measurement systems. One relates to traditional notions: how much something weighs or how far a person runs. Representatives from 55 nations met recently to finalize state-of-the-art definitions for basic units of such measurements — the meter, the second, the kilogram, and so forth.

The second system is less susceptible to quantification. Crease notes: “Aristotle…called the truly moral person a ‘measure,’ because our encounters with such a person show us our shortcomings.” Ignoring this second type in favor of numerical assessments gets us into trouble, individually and as a society. Examples include equating intelligence to a single number, such as I.Q. or brain size, or evaluating students (and their teachers) solely by reference to standardized test scores.

Lessons for lawyers — and everyone else

Now consider the intersection of these two phenomena — the arrogance of overconfidence and the reliance on numbers alone to measure value. For example, in recent years, a single metric — partner profits — has come to dominate every internal law firm conversation about attorney worth. Billings, billable hours, and leverage ratios have become the criteria by which most big law leaders judge themselves, fellow partners, their associates, and competitors. They teach to the same test — the one that produces annual Am Law rankings.

The arrogance of overconfidence exacerbates these tendencies. It’s one thing to press onward, as Kahneman concludes most of us do, in the face data proving that we’re moving in the wrong direction. Imagine how bad things can get when a measurement technique appears to validate what are really errors.

I’m not an anarchist. (I offer my advanced degree in economics as modest support.) But the relatively recent notion that there is only one set of law firm measures for defining success — revenues, short-term profits, leverage — has become a plague on our profession. Of course, we’re not alone. According to the Times, during the academic year 2005-2006, one-quarter of the advanced degrees awarded in the United States were MBAs. Business school-type metrics are ubiquitous and, regrettably, often viewed as outcome determinative.

But lawyers know better than to get lost in them, or once upon a time they did. The metrics that most big firm leaders now worship were irrelevant to them as students two or three decades ago. Like today’s undergraduates, they were pursuing a noble calling. Few went to law school seeking a job where their principal missions would be maximizing client billings and this year’s partner profits.

Will the profession’s leaders in the next generation make room for the other kind of measure — the one Aristotle had in mind — that informs the quality of a person’s life, not merely it’s quantitative output? Might they consider the possibility that focusing on short-term metrics imposes long-run costs that aren’t easily measured numerically but are far more profound?

Reviewing the damage that their predecessors’ failures in that regard have inflicted — as measured imprecisely by unsettling levels of career dissatisfaction, substance abuse, depression, and worse — should motivate them to try.

Meanwhile, they’ll have to contend with wealthy senior partners telling them to keep their hours up — a directive that those partners themselves never heard. Good luck to all of us.

LAW SCHOOL NON-LEADERSHIP

Posted on August 23, 2011 by thebellyofthebeast

Disenchanted alumni have filed two more class actions against their law schools. In addition to Thomas Jefferson School of Law, Thomas M. Cooley Law School and New York Law School are now defending their former students’ fraud claims. NYLS said the claims were without merit and would defend against them in court. Cooley, the largest law school in the country, is pursuing a more aggressive strategy that earns it this closer look.

Cooley was founded in 1972 by now-retired Michigan Supreme Court Chief Justice Thomas E. Brennan. In 1996, dissatisfied with the subjectivity of U.S. News rankings methodology that, coincidentally, placed Cooley in its unranked lower tiers, Brennan began publishing his own recompilation of the ABA’s data. The latest edition appears on the school’s website. In it, Cooley’s overall ranking is #2. Harvard is #1; Yale is #10; Stanford is #30; and the University of Chicago is #41. (Exploring the different subjective judgments that underlie Brennan’s alternative system must await another day.)

Cooley’s 2010 graduate employment rate was 78.8% — 181st out of 193 accredited law schools on Justice Brennan’s latest list. The question that has morphed into litigation is what that rate means.

Kurzon Strauss LLP represents the plaintiffs in both of the latest suits. According to the Wall Street Journal, Cooley recently sued that firm “for propagating purportedly defamatory ads on the websites Cragislist and Facebook about the school. The postings were part of the law firm’s investigation into how law schools report employment statistics, according to firm partner Jesse Strauss.” Cooley also filed a separate defamation suit against four anonymous bloggers.

But escalation can amplify unwanted publicity; publicity creates the potential for visible missteps. Based on the Journal‘s report, I think Cooley made one:

“Jim Thelen, Cooley’s general counsel, said that if any of the plaintiffs or their attorneys has issue with how law schools report employment numbers, then they ought to take it up with the American Bar Association, which helps set criteria for collecting data, or even the Department of Education — but not with individual law schools. ‘These are nothing other than attempts to bring public attention to this issue,’ Mr. Thelen said.”

Actually, this is a double misstep, proving that sometimes the best comment is none at all. First, using the answers that Cooley and every other school provide to the ABA’s annual law school questionnaire may be today’s catchy sound bite, but it’s tomorrow’s dubious long-term strategy. The ABA doesn’t cash students’ tuition checks; their law schools do. Telling the world that unemployed graduates should take their concerns about the quality of post-graduation employment data elsewhere should send an unsettling message to any pre-law student who is listening.

Second, many litigants seek publicity; calling them out isn’t a defense — or particularly attractive. Attorneys tend to forget that lay audiences quickly develop a “The lady doth protest too much, methinks” reaction to lawyers’ public relations efforts. In fact, a non-lawyer who hears Thelen’s remarks could well wonder, “Well, why are they trying to bring public attention to the issue? Is there a problem?”

The underlying concern — assessing the quality of graduate employment rate data — isn’t unique to Cooley. Deans who understand the serious flaws in the ABA-required reporting methodology should have exposed them long ago, just as the NY Times finally did earlier this year. That most awaited the ABA’s recent directive on this topic evidences a pervasive failure of leadership. The ABA’s annual questionnaire has never prevented any school from doing more to inform prospective students, such as telling them who among their reportedly employed graduates have full-time jobs or positions requiring a legal degree.

Then again, lawyers and former judges run law schools. Sure, disgruntled students who incur enormous educational debt to get their degrees may claim to have been misled. But the defenses will always be many and the odds against certifying consumer fraud claims will forever be daunting. Beat the class and the case usually goes away.

On the other hand, if Dr. King was right that “the arc of the moral universe is long but it bends toward justice,” some law schools may discover that their public comments ring hollow and their short-term victories are pyrrhic.

A NEW METRIC: THE MISERY INDEX

Posted on April 6, 2011 by thebellyofthebeast

Let’s call it what it is.

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

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

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

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

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

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

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

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

50% > 2,000 = 50 AMI points

40% > 2,100 = 40

25% > 2,200 = 25

10% > 2,300 = 10

None > 2,400

AMI: 125

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

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

90% > 2,000 = 90 points

75% > 2,100 = 75

60% > 2,200 = 60

45% > 2,300 = 45

30% > 2,400 = 30

15% > 2,500 = 15

None > 2,600

AMI: 315

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

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

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

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

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

HOWREY’S LESSONS — PART II

Posted on March 13, 2011 by thebellyofthebeast

I wasn’t going to write another article about Howrey. But then I read chairman Robert Ruyak’s explanations for his firm’s collapse, together with columnist Peggy Noonan’s review of former Defense Secretary Donald Rumsfeld’s new book. The two men have more in common than the first two letters of their last names. Both are at the center of dramatically unfortunate episodes that occurred on their respective watches. Both look for villains and miss the bigger picture.

Former Reagan speechwriter and conservative columnist Noonan opens her review with this: “I found myself flinging his book against the wall in hopes I would break its stupid little spine…You’d expect [Rumsfeld] to be reflective, to be self-questioning, and questioning of others, and to grapple with the ruin…He heard all the conversations. He was in on the decisions. You’d expect him to explain the overall, overarching strategic thinking that guided them. Since those decisions are in the process of turning out badly,…you’d expect him to critique and correct certain mindsets so that [others] will learn.” He doesn’t.

Those words also describe Ruyak’s unsatisfying explanations for Howrey’s failure:

1. European offices:

“The real problem we ran into in Europe was conflicts of interest…It’s a different analysis in Europe. But we had to apply the U.S. standards across Europe. That made it difficult to grow because we had to forgo a lot of cases…”

Analysis of potential conflicts issues should have anchored any business plan that began with London (2001) and continued with high-powered lateral acquisitions in Brussels (2002), Amsterdam (2003), Paris (2005), Munich (2007), and Madrid (2008). By July 2008, Howrey was Managing Intellectual Property‘s “Top U.S. Firm in Europe” with more than 100 lawyers there and plans for more.

More importantly, firms survive conflicts-related departures. But here, 26 European lawyers (12 partners, 14 associates) in October 2010 supposedly set off a chain reaction that crushed an otherwise healthy, 550-attorney firm that, only a decade earlier, had no European presence.

2. Document discovery vendors.

“We created a whole portion of the firm to handle [document discovery] efficiently – using staff attorneys and sometimes temporary people, computer systems and facilities.” Along came some companies that were “offering to do this work less expensively at a lower price.”

But in May 2009, Ruyak had attributed part of Howrey’s Am Law 100-leading revenue surge to avoiding “areas that suffered significant downturns,” singling out for praise the firm’s five-year-old document review and electronic discovery center that added $47 million to the top line. So successful was the Falls Church operation that he was considering a second one on the West Coast. (The American Lawyer, May 2009, p.118)

Yet somehow, 75 staff attorneys and 100 temps accounting for 8% of Howrey’s $570 million gross in 2008 became a key contributor to the firm’s demise two years later.

3. Contingent and alternative fees

“Unlike corporations that operate on an accrual basis, it’s hard to adjust from a cash base on your business to an accrual base where you are deferring significant amounts of revenue into future time periods. Once you make that adjustment, I think it works. But the adjustment period is difficult.”

In other words, partners couldn’t tolerate the deferred gratification associated with contingency fee matters. But they loved the upside. In 2008, Howrey’s average partner profits jumped almost 30% — to $1.3 million. When PPP dropped to $850,000 in 2009, Ruyak said 2008 had been an aberration resulting from $35 million in contingency receipts. (The American Lawyer, May 2010, p. 101)

Perhaps inadvertently, he revealed the real culprit: a revolution of rising expectations among the already rich. Ruyak put it this way: “Partners at major law firms have very little tolerance for change.”

If he’s referring to firms that have lost cohesion and a shared purpose beyond a myopic focus on current profits exceeding the last year’s, he’s right. But that culture exists for a reason. Aggressive lateral growth produces partners who don’t know each other. Firm allegiances become tenuous; the institutions themselves become fragile.

Ruyak’s self-serving explanations avoid accepting personal responsibility, but that’s not their greatest fault. The bigger problem is that other law firm leaders will find false comfort in his litany; it encourages the view that Howrey’s challenges were unique. As I said before, they weren’t.

HOWREY’S LESSONS

Posted on February 18, 2011 by thebellyofthebeast

If Howrey LLP disappears, most big law leaders will make distinctions; they’ll focus on how their organizations are different from Howrey’s. More interesting are the similarities, especially the universal forces that might render others vulnerable to the highly respected firm’s current plight.

First is the speed with events can overtake seemingly secure institutions — and I’m not referring to the fall of Mubarak in Egypt. On May 19, 2008, the Legal Times hailed Howrey LLP’s chairman Robert Ruyak as one of the profession’s “Visionaries.” He deserved it. During the prior 30 years, his distinguished career enhanced Howrey’s reputation and the business of law in DC. But on February 1, 2011, he and Winston & Strawn’s managing partner Thomas Fitzgerald together urged Howrey partners to act quickly on Winston’s offers to hire about three-quarters of them. The big law world can rapidly take a dramatic and unexpected turn.

Second is the way unprecedented demand for big law services combined with the prevailing business model to create enormous financial paydays that became even larger as firms grew. When Ruyak became chairman in January 2000, Howrey ranked near the middle of the Am Law 100 in average profits per equity partner (PEP — $575,000). It had 325 attorneys (89 equity partners).

Ruyak’s strategy targeted growth in three core practice areas: antitrust, IP, and litigation. As the Legal Times observed, “To achieve that vision, Ruyak knew that the firm had to be bigger, so Howrey went on a merger spree.” It added Houston-based patent firm Arnold, White & Durkee, acquired the antitrust practice of Collier, Shannon, Rill & Scott, and established European offices in London, Amsterdam, Brussels, Paris, Munich, and Madrid.

By 2006, Howrey had 555 attorneys; its 127 equity partners averaged $1.2 million each. After profits dropped in 2007, they soared by almost 30% in 2008 — the biggest percentage revenue-per-lawyer gain in the Am Law 100. Howrey’s 2008 profits were $1.3 million per equity partner — an all-time high.

Third is the fragility that such financial prosperity created for the fabric of many law firm partnerships. When profits plunged 35% in 2009, Ruyak’s partial explanation was that 2008 had been aberrational. Large contingency receipts accounted for much of that year’s non-recurring spike. The firm was still “figuring out how to do [alternative fee arrangements] well.” (The American Lawyer, May 2010, p. 101)

Unfortunately, the revolution of rising expectations was underway; the short-term bottom-line mentality is an impatient and unforgiving two-edged sword. In 2000, Howrey had a clear identity and average equity partner profits of almost $600,000 — seemingly sufficient to keep partners satisfied and any firm stable. Certainly, that amount far exceeded any current big law equity partner’s wildest financial dreams when entering the profession. A decade later, disappointing projections that the firm might reach only 80-90% of its $940,000 PEP target (or $750,000 to $850,000) fed rumors and a perilous media downdraft.

Heller Ehrman proved that lateral hiring and law firm mergers risk sacrificing firm culture in ways that inflict unexpected damage. I don’t know if that has happened at Howrey, but when cash becomes king, partnership bonds remain only as tight as the glue that next year’s predicted equity partner profits provide, assuming those predictions are believed.

That leads to a final lesson: leadership requires credibility. Only two weeks before the remarkable joint message from Ruyak and Fitzgerald, Howrey spokespersons insisted that all was well: “The amount of costs taken out of the firm at all levels — which includes leases, partners, associates, and the like leaving the firm — have made the firm much more efficient,” vice-chairman Sean Boland said. “It’s done wonders for our cost structure, such that we’re going to see some major advantages in 2011. We’re very encouraged by the cost cutting that we’ve done.”

Likewise, one of its outside consultants said that the firm was “getting back to its strengths… What’s happening at Howrey is largely by design.” Maybe so. But from this distance, the parade of top partner departures and Ruyak’s involvement in Winston’s outstanding offers make the design appear curious, indeed.

In May 2008, the Legal Times, concluded with a senior partner’s observation that Howrey had become “a very exciting place to work.” I suspect that’s still true. As with most things legal, the definition is everything.

LOCATION, LOCATION, LOCATION?

Posted on February 14, 2011 by thebellyofthebeast

In “Greed Atop the Pyramids,” I observed that the internal spread between the top and the bottom within large firm equity partnerships has grown dramatically in recent years. No one feels sorry for those at the low end, but the compensation for many top partners has reached staggering heights. My title suggested an explanation.

K&L Gates Chairman Peter Kalis — whom I’ve never met — has offered another reason: It’s not greed; it’s geography. His photograph appeared with The Wall Street Journal article on Jamie Wareham, “The $5 Million Dollar Man.” According to the Journal, at K&L Gates “top partners earn up to nine times as much as other partners. Pay spreads widen as firms become more geographically diverse, operating in cities with varying costs of living, said Peter Kalis, chairman of K&L Gates. The firm’s pay spread rose from about 5-to-1 to as much as 9-to-1 in the past decade as it expanded. ‘Houses cost less in Pittsburgh than they do in London,’ Mr. Kalis said.”

Let’s consider that proposition. It’s certainly true that London is more expensive than New York, and New York is more expensive than Pittsburgh. It’s also true that some firms consider cost-of-living differences when setting compensation; some apply formulaic across-the-board geographical adjustments. But the issue involves the top of a widening range, not the relative cost of comparable talent across offices.

Here’s how to test the hypothesis that geography accounts for this relatively new phenomenon: Are all of a firm’s top equity partners located in the city of the firm’s most expensive office? I doubt it. Or try it from the other side: Are any of the biggest paydays going to partners working in less expensive cities? Almost certainly.

I don’t know how much Kalis makes, but he might even be a useful example. His K&L Gates website biography page shows a commendable involvement in a number of Pittsburgh-area civic organizations. In addition to his Pittsburgh office, the page also lists a New York phone number, but his only bar admission is Pennsylvania. He’s certainly not headquartered in the most expensive cities where K&L Gates has offices — Tokyo, Moscow, Hong Kong, Singapore, Beijing, London, or Paris. My hunch is that, as Chairman and Global Managing Partner, he’s not at the low end of his firm’s equity partner compensation range, either. So why the superficially appealing but ultimately unpersuasive “houses are cheaper in Pittsburgh” line to explain away a pervasive big law trend?

Perhaps it’s because reality is sometimes harsh and unflattering. Citing a former pay consultant for law firms, the Journal article noted, “A majority of big law firms have begun reducing the compensation level of 10% to 30% of their partners each year, partly to free up more money to award top producers.”

I don’t know if that has happened at K&L Gates, but other law firm management consultants have suggested that the need to attract and retain rainmakers in a volatile market has widened the top-to-bottom equity partner range in many firms:

“Before the recession, [the top-to-bottom equity partner compensation ratio] was typically five-to-one in many firms. Very often today, we’re seeing that spread at 10-to-1, even 12-to-1.”

Finally, the Journal article itself provides additional evidence that something other than geography is at work: “A small number of elite firms, such as Simpson Thacher & Bartlett LLP and Cravath, Swaine & Moore LLP, still hew to narrower compensation bands, ranging from 3-to-1 to 4-to-1, typically paying the most to those with the longest service….”

Cravath has a London office. Simpson Thacher has offices in Beijing, Hong Kong, London, Los Angeles, New York, Palo Alto, Sao Paolo, Tokyo, and Washington, DC. Yet they have avoided the surging top-to-bottom equity partnership pay gaps that Kalis attributes to geography.

To understand what has really happened recently inside big firms — and why — read The Partnership.

There is, indeed, greed atop the pyramids — even in Pittsburgh.

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].”

NUMBERS TELL A STORY

Posted on January 17, 2011 by thebellyofthebeast

When challenged to tell a story in as few words as possible, Ernest Hemingway replied with six: “For sale: Baby shoes — never worn.”

I’m not Hemingway, but in his spirit of brevity, I offer five phrases — totaling eight words — distilling a recent Wall Street Journal article, “Law Firms Hold Line In Setting Bonuses,” by Vanessa O’Connell and Nathan Koppel. It appeared on the Monday after Christmas, so you might have missed it.

***

HOURS UP: “Average hours billed by associates at the nation’s top 50 law firms by revenue rose by 7% in 2010.”

***

BONUSES FLAT: “At New York-based Milbank, Tweed, Hadley & McCoy LLP, where bonuses were only slightly above last year’s payouts, hours billed by associates were up about 6%.” [According to Above the Law, the firm’s 2010 bonuses ranged from $7,500 for first-year associates to $35,000 for those in the class of 2003. That’s a big drop from 2006, when first-year associates received “special year-end bonuses” of $30,000. Student-loan repayment requirements have not experienced a similar decline.]

***

MANAGERS RATIONALIZE: “‘The actual number of [billed] hours is still low compared to what it has historically been,’ [says Milbank’s Chairman Mel M. Immergut].”

***

PARTNERS WIN: “Revenue at Milbank Tweed will be up by about 3% on flat expenses, Mr. Immergut says, adding that profit per partner will be up by 8% to 10%, depending on year-end collections.” According to The American Lawyer, Milbank Tweed’s average profits per partner in 2009 were $2.230 million. How much is enough? The answer appears to be “More.”

MEASURING VALUES

Posted on January 3, 2011 by thebellyofthebeast

In a recent NY Times column, David Brooks wrote about the future of our nation, but one observation applies to big law:

“In a world of relative equals, the U.S. will have to learn to define itself not by its rank, but by its values. It will be important to have the right story to tell, the right purpose and the right aura. It will be more important to know who you are.” (http://www.nytimes.com/2010/12/14/opinion/14brooks.html?_r=1&ref=opinion)

Large law firms, too, have become a world of relative equals. That has been an unintended consequence of the transformation from a profession to a business. In pursuit of rank, too many managers rely on B-school-type metrics — billings, billable hours, leverage ratios — as definitive measures of worth. They use them as substitutes for independent judgments based on values that are less easily quantified.

Behavior follows incentives. Partners jockey for internal position and managers focus myopically on short-term profits. They believe that favorable Am Law rankings will distinguish them but, Brooks argues, similar thinking would be a mistake for our country over the long-run.

It’s equally true for big firms. High-paying clients assume that only the best and brightest lawyers will work on their matters. But to attract and retain those attorneys, even the self-described top firms will have to offer more than money. In that contest, values will separate the biggest winners from everyone else.

Of course, in the very short-term, top graduates respond to the urgency of school loan repayment schedules. But as the novelty of a steady paycheck fades, the superstars will yearn for something else. They’ll understand that a firm’s “make more money” mantra limits its vision. For most, it fails to offer long-term career satisfaction. Indeed, the prevailing model doesn’t even contemplate long-term careers for the vast majority of new hires.

The most ambitious and talented new graduates are already beginning to understand the game. As greater knowledge of what lies ahead empowers students to make better decisions, firms viewing their own missions merely as maximizing this year’s equity partner profits will lose the values contest for the next generation’s talent. It won’t happen this year or next, but it will happen.

What are the winning values? Here are some suggestions:

Resisting the deceptive simplicity of short-term metrics. Embracing efforts to shed light on a troubled business model. Requiring decency in all human interactions. Punishing bullies. Providing young lawyers with mentors, training, and opportunities because even the best internal programs are no substitutes for the real thing. (Pro bono programs can help as they advance other important values.) Creating a reality that matches more closely students’ prelaw expectations of what being a lawyer would mean.

Offering realistic prospects for long-term careers. Without tolerating mediocre performers, implementing decision-making processes that minimize the impacts of internal politics and clashing personalities in determining the fate of human beings. Providing meaningful and candid reviews while also jettisoning arbitrary barriers that the leveraged pyramid model imposes on equity partnership entry. Advancing all who deserve promotion.

Conquering the billable hour and its death-grip on associate compensation. Finding a way to measure attorney productivity that rewards those who complete a task efficiently — and penalizes those whose long hours produce big client billings based on diminishing (or negative) returns.

To secure their firms’ futures, thoughtful partners will accept modest reductions from the staggering personal incomes that they’ve enjoyed in recent years. Those willing to make the investment will reap great dividends. Large firms depend uniquely on the wisdom, judgment, and intelligence of their attorneys. The best new graduates will flock to firms cherishing values consistent with a satisfying career, even if it means less money (although in the long-run, it probably won’t).

As for the rest? Much of big law will continue pursuing the highest short-term dollar — wherever it is and whatever its cost to others, their institutions, or the profession. Such is the power of greed. But those who measure everything they value risk creating an unpleasant world in which they value only what they measure.

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.

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?

SOLVING THE BIGLAW MYSTERY OF GROWING CAREER DISSATISFACTION

Posted on September 30, 2010 by thebellyofthebeast

Clues that explain the growing ranks of dissatisfied Biglaw attorneys are everywhere — even on C-Span. I’d intended to watch the recently televised replay of a judicial conference panel discussion for a few minutes, but the ongoing train wreck captivated this onlooker for an hour. I wonder if I can get CLE credit?

Participants included a Biglaw managing partner, the general counsel of Fortune 100 company, and a professor at a top law school. The absence of a law firm management consultant was surprising; they’re ubiquitous.

There’s no reason to name the Biglaw partner or his firm because his views are mainstream — and reveal why attorney career dissatisfaction continues to increase more rapidly in large firms than elsewhere. Here’s a synopsis of his comments:

1. Law schools should turn out project managers. That’s what he and his clients really need because front line opportunities — such as trials for litigators — are disappearing.

2. In their first days at his firm, new associates learn about its finances: “They realize that our 35% profit margins are fragile. They understand the importance of billing their time. They know more about the firm’s finances than I did as a first-year partner.” He didn’t mention Am Law‘s most recent report that his firm’s average equity partner profits exceeded $1 million. Everyone avoided that elephant in the room.

3. When asked whether associates today felt greater work-related pressures, he was adamant: “No. People today are nostalgic for a time that never existed. As an associate, I worked hundreds of hours a week reviewing documents. Today’s associates don’t work any harder, just differently. They leave the office, have dinner with their families, help put the kids to bed, and then work from their home computers. So they actually have it better than I did.”

The client representative on the panel followed with a line that generated the day’s biggest laugh: “I’m wondering how you billed hundreds of hours a week when there are only 168 hours in a week. But then I realized that you were talking about the bill you sent the client!”

No one asked the Biglaw partner an obvious and unsettling question: His firm’s NALP directory reports an associate minimum requirement of 2,000 billable hours yearly. What was the requirement in the early 1970s, when he was an associate? (Answer: There wasn’t one. There also weren’t cellphones or BlackBerrys that tether today’s attorneys to their jobs — 24/7.)

The law professor responded that law schools can’t train project managers because they’re not business schools. Besides, the law requires something different from such vocational-type training. He could have added that fewer that 15% of all attorneys comprise the NLJ 250, thereby prompting the obvious follow-up: Why should law schools tailor curriculum to satisfy such a small segment of the profession anyway?

“With highly paid starting positions in big firms disappearing,” he concluded, “what am I supposed to tell incoming students they’ll be getting for the $150,000 required to obtain a law degree?” No one suggested the truth, however he saw it.

The general counsel disagreed with the Biglaw partner on a key point: “I don’t hire lawyers to be project managers. I want their best judgments and special skills.” The Biglaw partner replied that perhaps the GC didn’t really know what he wanted or needed.

The audience submitted written questions; the best came from a judge: “I didn’t go to law school to become rich. Why is everything so focused on the money? Is professionalism gone and, if so, how do we recover it?”

When such panels include attorneys willing to speak truth to power, we’ll hear honest answers to those inquiries. But who wants that?

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.

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.

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.

BABY BOOMERS STRIKE AGAIN

Posted on June 9, 2010 by thebellyofthebeast

Getting old is tough. But not nearly as tough as being young these days.

Recently, the National Law Journal reported that an Am Law top 20 firm adopted a new policy allowing partners two addtional years before they must “begin giving business to younger colleagues.” Instead of 65, they’ll now have to start that process at 67. (http://www.law.com/jsp/article.jsp?id=1202458271311)

Meanwhile, a prominent 63-year-old white-collar defense attorney left his big firm of 16 years to avoid its mandatory retirement age (65). He declined his old firm’s offer of a two-year exemption that would have given him until 67. (http://legaltimes.typepad.com/blt/2010/05/mark-tuohey-leaves-vinson-elkins-for-brown-rudnick-cites-retirement-policy.html)

And the June ABA Journal includes the following admonition from the organization’s president:

“In August 2007, the ABA adopted a policy rejecting mandatory age-based retirement policies. The recommendation urging this advance is worth considering and adoption by all legal employers.”

Yes, she’s a 60-something baby boomer in a big firm, too.

What’s going on? Forget lip-service paid to the old age-discrimination argument against forced departure of equity partners. That sword of Damocles has floated over the profession forever, yet somehow current big firm leaders replaced their predecessors.

So why the big outcry now? The current chorus reflects an unintended consequence of a flawed biglaw business model: resistance to intergenerational transition. But extending check-out time is a bad move for the firm that does it, the younger attorneys working there, and aging baby boomers unwilling to contemplate life after the law.

Aging rainmakers have books of business that make them indispensable to many large firms. Why? Throughout biglaw, simplistic metrics (billings, billable hours, and leverage) have determined individual partners’ annual compensation with an eye toward maximizing short-term average profits-per-partner that appear in Am Law‘s annual rankings.

It’s become bad long-term news for the firm. In such a culture, partners have every incentive to retain client responsibilities and none to mentor proteges or promote intergenerational transition. As they age, the old-timers hoard their marbles and threaten to take them elsewhere. Does that sound like a prescription for long-term institutional stability?

What about younger lawyers hoping to inherit clients? Many will find themselves in the position of the wealthy parents’ child awaiting a large bequest. By the time it comes, the kid will be in his 50s. Meanwhile, blockage wreaks havoc all the way down the food chain.

How about the aging attorneys themselves? Encouraging them to deny their own mortality isn’t helpful. Sorry, but once you’re over 65, you may be young at heart, but to the rest of the world, your colorists and/or your combovers aren’t persuasive.

Here’s the painful truth: we baby boomers are not that special. Think you’re indispensable? Put your hand in a pail of water, pull it out, and look at the size of the hole you leave. That’s how indispensable you are. Do you remember any of your own mentors fondly? Well, someday that’s what you’ll be to others — if you truly succeed in the ways that matter most.

Those who have followed this blog from the beginning know that its first series of posts, “PUZZLE PIECES — Parts 1 through 12” (now archived in “CONNECTING THE DOTS”), dramatizes the problem of aging partners who hang on too long. (https://thebellyofthebeast.wordpress.com/category/connecting-the-dots/) Special ciriticism goes to those who have also inculcated their firms with a business school mentality of misguided metrics. Such baby boomers are now positioning themselves to extract one final pound of flesh on the way to dotage.

Are these aging leaders who retain literal death grips on their billings positive role models for successors? If the firms themselves don’t survive them, it won’t matter, will it?

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!”

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.

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The Belly of the Beast

Steven J. Harper, Esq.

Tag Archives: Leadership

DEWEY’S RICHARD SHUTRAN — RUNNING THE NUMBERS

DEWEY’S JEFFREY KESSLER: STARS IN THEIR EYES

DEWEY’S MARTIN BIENENSTOCK: PARTNERSHIP, PROFESSIONALISM AND WHAT TO TELL THE KIDS

DEWEY’S MORTON PIERCE: ACCEPTING RESPONSIBILITY

DEWEY: PROFILES IN SOMETHING

SPINNING DEWEY’S HEROES

EXPLAINING ABA INTRANSIGENCE

THE ULTIMATE LATERAL HIRE

UNFORTUNATE COMMENT AWARD

TROUBLE IN TEXAS

THE ARROGANCE OF OVERCONFIDENCE

LAW SCHOOL NON-LEADERSHIP

A NEW METRIC: THE MISERY INDEX

HOWREY’S LESSONS — PART II

HOWREY’S LESSONS

LOCATION, LOCATION, LOCATION?

CULTURE SHOCK

NUMBERS TELL A STORY

MEASURING VALUES

EXPLAINING BAD BEHAVIOR

WHO REMEMBERS FINLEY KUMBLE?

SOLVING THE BIGLAW MYSTERY OF GROWING CAREER DISSATISFACTION

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

BIGLAW’S GLASS IS 44% FULL

ALONG CAME LAW FIRM MANAGEMENT CONSULTANTS

WHERE HAVE ALL THE MENTORS GONE?

BABY BOOMERS STRIKE AGAIN

A BETTER ALTERNATIVE OR A LEAP FROM THE FRYING PAN?

IT’S NOT JUST ME

GOLDMAN SACHS — AN INITIAL OBSERVATION

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