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Monday, July 22, 2013

The New Republic: The Last Days of Big Law

TNRThe New Republic:  The Last Days of Big Law:

Of all the occupational golden ages to come and go in the twentieth century—for doctors, journalists, ad-men, autoworkers—none lasted longer, felt cushier, and was all in all more golden than the reign of the law partner.

There was the generous salary, the esteem of one’s neighbors, work that was more intellectual than purely commercial. Since clients of white-shoe firms typically knocked on their doors and stayed put for decades—one lawyer told me his ex-firm had a committee to decide which clients to accept—the partner rarely had to hustle for business. He could focus his energy on the legal pursuits that excited his analytical mind.

Above all, there was stability. The firms practiced a benevolent paternalism. They paid for partners to join lunch and dinner clubs and loaned them money to buy houses. When a lawyer had a drinking problem, the firm sent him off for treatment at its own expense. Layoffs were unheard of.

Perhaps more importantly, the security of the legal profession lodged itself inside our cultural imagination. For generations, the law functioned as a kind of psychological safety net for the ambitious and upwardly mobile. If you wanted to be a writer or an actor or a businessman, you could rest assured that law school would be there if your plans fell through. However much you’d maxed out your credit card, however late you were on your rent, you were never more than an admissions test and six semesters away from upper-middle-class respectability.

“Stable” is not the way anyone would describe a legal career today. In the past decade, twelve major firms with more than 1,000 partners between them have collapsed entirely. The surviving lawyers live in fear of suffering a similar fate, driving them to ever-more humiliating lengths to edge out rivals for business. “They were cold-calling,” says the lawyer whose firm once turned down no-name clients. And the competition isn’t just external. Partners routinely make pitches behind the backs of colleagues with ties to a client. They hoard work for themselves even when it requires the expertise of a fellow partner. They seize credit for business that younger colleagues bring in.

And then there are the indignities inflicted on new lawyers, known as associates. The odds are increasingly long that a recent law-school grad will find a job. Five years ago, during a recession, American law schools produced 43,600 graduates and 75 percent had positions as lawyers within nine months. Last year, the numbers were 46,500 and 64 percent. In addition to the emotional toll unemployment exacts, it is often financially ruinous. The average law student graduates $100,000 in debt. ...

There are currently between 150 and 250 firms in the United States that can claim membership in the club known as Big Law, the group of historically profitable firms that cater to the country’s largest corporations. The overwhelming majority of these still operate according to a business model that assumes, at least implicitly, that clients will insist upon the best legal talent instead of the best bargain for legal talent. That assumption has become rickety. Within the next decade or so, according to one common hypothesis, there will be at most 20 to 25 firms that can operate this way—the firms whose clients have so many billions of dollars riding on their legal work that they can truly spend without limit. The other 200 firms will have to reinvent themselves or disappear.

So far, the transition has not been smooth. In fact, the more you talk to partners and associates at major law firms these days, the more it feels like some grand psychological experiment involving rats in a cage with too few crumbs.

(Hat Tip: Above the Law.)

UpdateABA Journal, Above the Law (David Lat), Above the Law (Anonymous Partner).

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Comments

Fabulous article. I was most recently in a 150 attorney firm - not Mayer Brown, not in Chicago - and saw the same behaviors (eating each other's credits and clients, backstabbing, pushing out salaried attorneys, deequitizing partners, etc.). Law and the practice of law are one thing, dysfunctional law firm operations (high overhead, overinflated pay, refusal to acknowledge that the pool of client work isn't unlimited and that clients aren't so stupid that they'll pay for gross overbilling) are another. Firms need to change, and apparently are undergoing it whether they like it or not.

Posted by: MJ | Jul 23, 2013 6:31:33 AM

Every industry got crushed by the great recession. All industries, firms, governments, and corporations have gotten smarter about spending, have automated as much as possible, and have started examining every bill.

Old inefficiencies are being squeezed out, and the number of jobs left in the middle, even for lawyers, is rapidly diminishing with no end in sight. Software is now automating rote and advanced intellectual functions in the way machines automated farming and garment making in the industrial revolution. Work can be sourced over the wire, anywhere, anytime, at the "world" labor rate, not that of a few square blocks in Manhattan or Chicago or Miami. Those big city lawyers now compete with firms located in Kansas and New Delhi and Beijing.

Personally, in reading the TNR piece I was not overly sympathetic to the plight of the lawyers who were caught in their own devices. Frankly these lawyers have been well insulated from the pressures affecting workers everywhere. Many should have been smarter about their budgeting so that being laid off for a few months after pulling in a high six-figure salary for years wouldn't result in defaulting on the mortgage in a matter of months, as was noted in one example in the article. That means many of these lawyers are spending at a level they hope to achieve, instead of the one where they are at currently, putting intense pressure to make the next level or drown by their own devices. These intellectuals should be smarter than that, but instead build their own traps. Perhaps a basic personal finance course would be helpful in their studies before graduating.

The reality is that market economics will fix the weakening law economy by reducing pay rate of the lawyers in the field to a rate that more closely represents the value delivered. This in turn will make a law career a lot less attractive for students. Many students will not enroll in pricey second tier law schools knowing that the profession no longer pays off in the same ways as it did for their parents, and their chance of finding a job is 60% or less. Those mediocre law schools will close or reduce staff, and the resulting output of mediocre law graduates. Supply of lawyers will diminish, price pressure will be put on schools to reduce pricing to the same level as value delivered. This will result in a reduction of the amount of debt that the students who do graduate will incur, and the law economy will stabilize. Most top tier schools survive, and those students tend to have parents with deep pockets that make the student debt argument completely moot.

Some lawyers will still be multi-million dollar partners, but just like everything else, their supply will be limited as well. They will be richer than before, but fewer in numbers.

I'd say welcome to the future, but this trend hit the rest of the world in every other profession in the US five years ago, with a very few exceptions such as surgeons. So I guess I'd say welcome to the new normal.

Posted by: Allen Klosowski | Jul 26, 2013 3:17:55 PM