Paul L. Caron

Friday, May 20, 2016

Too Many Lawyers? Report Faults Firms For Resisting Layoffs

American Lawyer LogoAmerican Lawyer, Too Many Lawyers? Report Faults Firms for Resisting Layoffs:

Should law firm leaders be firing more lawyers? That seems to be the takeaway of a report released Wednesday by the legal consultancy Altman Weil.

Nearly 60 percent of the 356 law firm leaders surveyed for the report said that overcapacity is hurting their firm’s profitability. The problem is more pronounced among firms with 250 lawyers or more, with 75.6 percent of them citing overcapacity as a drag on profits, the report said.

Meanwhile, about 62 percent of law firm leaders said that demand for their services has not yet reached prerecession levels. While some firms are addressing the problem by trimming their ranks, many aren't doing enough, according to Newtown Square, Pennsylvania-based Altman Weil, which has been surveying law firms since 2008.

“The most obvious solution to the overcapacity problem is to cut underperformers,” the report said, adding that firms know this, but “in too many firms, personal, political and cultural obstacles are hindering pragmatic economic decisions.” ...

Seeger said that while the kinds of mass layoffs that accompanied the recession are now rarely in the headlines, that doesn’t mean firms aren’t trimming their ranks.

Nearly 73 percent of the firm leaders surveyed said that they are removing chronically underperforming lawyers from their firms, and 93 percent said that they were reducing compensation as a way of dealing with less productive lawyers. Those practices were even more common at law firms with 250 lawyers or more, the survey found.

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Oh, and incidentally your unprompted volunteering of the wage premium study as an (entirely irrelevant) retort to this article comes awfully close to self-doxxing. Just FYI.

Posted by: Unemployed Northeastern | May 24, 2016 1:46:21 PM

I say “Jump,” and my ‘random noun’ interlocutor interrupts his weekend to dutifully ask “how high?” As I said, funny stuff. But in brief:

- “[Law firm partners] might even know about their own law firms.” Oh, how magnanimous! I must be talking to the most knowledgeable person ever right here. How many decades have you spent managing law firms, pray tell, that you may cast such passive-aggressive scorn at the titans of our profession?

- And oh dear, you seem to think that labor economics have something to do with managing law firm staffing levels. How cute. It actually comes down to things like “Are our majors clients cudgeling us over billing rates?” “Have our major clients starting doing half of their traditionally farmed-out legal needs in-house?” “Has a rainmaker defected to another firm?” “Are my nonequity partners not busy and dragging down PPP?” The current wage premiums of the Class of 1997, if any, have squat to do with alleged overcapacity in law firms. Actually, overpaid (there’s that wage premium!) nonequity partners are discussed as a potentially serious PROBLEM for law firms. Your red herring argument is noted, though. Any other tricks?

- Re: consultants. Go read the latest Citi Private Bank, Altman Weil, or Thomson Reuters reports on the state of the legal profession. They aren’t positive. Far from it. And speaking of things that are not positive, I give you a failing grade for misrepresenting your own Citi link, which of course concludes that the 1Q numbers may be somewhat anomalous and law firms may or may not do better overall this year than last. But I guess that labor economics for you: disregard all information that runs contrary to your hoped-for thesis. Here’s the final paragraph of the actual Citi report – not a link to Above the Law (!) – in toto:

“The strong start to 2016 does come with some very positive signals—incremental inventory growth paired with improved collections, positively skewed dispersion, revenue growth outpacing expense growth—but it also benefits from comparison to the weakest quarter of the prior year. While there are growth opportunities in the market, continuing macroeconomic uncertainty and the looming U.S. election will be key factors. It’s possible that it will be increasingly challenging for the industry to continue to outperform 2015’s performance as the year progresses and, as we forecasted late last year, that the legal industry will see levels of performance that are similar to 2015’s.”

Which is in line with their predictions in the 2016 Citi Client Advisory.

Posted by: Unemployed Northeastern | May 22, 2016 10:22:11 PM

Meanwhile Citi and other reports say law firms are doing great.

"We're doing great, but we could be doing even better if we fired 20 percent of the works force and made everyone work 20 percent harder" isn't such a nice thing to say out loud.

So consultants will say it, for a fee, of course. This report is a pitch for consulting contracts.

Posted by: consultants | May 22, 2016 8:13:35 AM

Law firm partners know a lot about their own departments. They might even know about their own law firms. But that's an infinitesimally small fraction of the labor market for law graduates, and it doesn't take into account the alternatives and how much better off lawyers have it than almost everyone else.

Only broad data can provide that perspective--something labor economists use, and law firm partners don't.

Posted by: knowledge | May 22, 2016 8:09:09 AM

Many of those martyr law professors out there making the sacrifice of managing their own schedules and getting paid six figures instead of working at law firms are likely mistaken in thinking they could simply go back without bringing a substantial book of business with them (I highly doubt most have developed any potential paying clients while sitting in academia writing articles few read)...I'd love to see this tested.

Posted by: Anon | May 21, 2016 1:57:37 PM

I'd love to hear from some former first year associate-turned-law professors about how all of these career law firm partners are completely wrong about overcapacity and oversupply because reasons. Those comments always make me laugh.

Posted by: Unemployed Northeastern | May 21, 2016 8:20:12 AM

This is a very real phenomenon. A lot of AMLAW 500 partners are just glorified associates. They wait in the queue for work just like the entry levels. It is extremely hard to make partner now because firms are reluctant to expand this class of partners.

Posted by: JM | May 20, 2016 7:05:48 AM

I wonder who really is to blame for too many lawyers for the available work. Hint: they have access to unlimited student loans and no accountability for their decisions because "not for profit" and "education."

Posted by: Jojo | May 20, 2016 3:37:53 AM