If You Are So Smart, Why Are You a Big-Firm Lawyer?

More cautionary news from the world Big Law. Dewey LeBoeuf–the mega-merger of venerable Dewey Ballentine and LeBoeuf Lamb–is in trouble:

Tens of millions of dollars in deferred compensation are owed to Dewey’s partners. Some have been told they are being paid a fraction of what they were promised. The firm is cutting 5 percent of its lawyers and 6 percent of its staff. Nineteen of its 300 partners have left Dewey since January, including heads of major practice areas. About a dozen more departures are expected.

Some of the blame goes to “financial missteps”–which is like saying heart stoppage was the cause of death. When was the last time a business failed because of wise financial decisions? The true problem is the profound change in the legal market, which

has yet to bounce back from a deep recession. Many of the lucrative practice areas that fueled growth during the market boom — securitizations, mergers and acquisitions and real estate — have failed to return to prefinancial crisis levels.

At the same time, expenses, which include the rising pay for young associates just out of law school, continue to accelerate. Further adding strain to firms’ finances are corporate clients who, operating in an uncertain environment, have become increasingly resistant to fee increases and are demanding discounts.

One recently published influential report on the state of the industry painted a grim picture.

“Since it is unlikely, based on overall economic conditions, that the demand for legal services will grow robustly for the foreseeable future, the legal industry will be forced to live with uncertainty for some time to come,” said the report, from Citi Private Bank and the Hildebrandt Institute.

Parse that second paragraph. “Rising pay for young associates just out of law school” and “corporate clients who . . . have become increasingly resistant to fee increases and are demanding discounts.” In other words, big law firms continue to pay big bucks to lure the highest-achieving law school graduates, while clients–those who pay the bills–demand discounts. One discount that the linked article does not mention is for hours billed by those high-paid young associates, who don’t actually know how to practice law. Some corporate clients refuse to pay anything for training young associates–they won’t allow them near their deals.  That’s an unsustainable business model, and partially explains the extraordinary attrition rate for those sought-after young associates:

Attrition of law firm associates has always been a blight on the profession. This attrition is financially painful as associates leave BigLaw in droves during their third or fourth years, at precisely the point when these associates become significant profit centers at the law firm. Attrition at these levels often reach the 60 – 80% level. The financial pain to law firms is compounded by the fact that law firms have by that point spent upwards of $500,000 to recruit and train each associate. In the current market, with clients by and large refusing to pay for the training of young associates, the financial burden to law firms caused by this attrition is further exacerbated.

Another explanation for associate attrition is inhospitable law-firm culture. Take a couple hundred Type-A young associates who are accustomed to thinking of themselves as the brightest bulbs in the chandelier, compensate them more than their objective worth (if they were worth what firms billed for their time clients wouldn’t refuse to pay for them), add mundane legal work–because in this climate that’s all that mid- and upper-level associates are willing to give them–and not even enough of that to keep everyone busy, require them to bill 2,000 hours a year, and shake vigorously. “Inhospitable” doesn’t begin to describe it.

And it’s not like young associates can honestly say if I can make it through this in a few years I’ll be skipping through fields of clover. A big firm lawyer without his or her own book of business will forever be feeding at someone else’s table.

At many large law firms, including Dewey, the compensation system has become a two-tiered structure where the highest-paid partners can make more than 12 times as much as the lowest-paid ones. On the high end are Dewey’s so-called rainmakers, the star partners who make millions of dollars a year executing corporate mergers and handling high-stakes business litigations. [The article mentions one partner with guaranteed annual income of $6 million.] On the low end are the majority of Dewey partners who are known as service partners. These lawyers are not responsible for client relationships. Instead, they handle more tedious legal tasks like drafting briefs and executing merger documents. They are paid at the bottom tier, about $450,000 a year . . .

$450k/year is top 1% money, but many lawyers realize the game isn’t worth the cost of the ticket. If they are smart or lucky they so realize before chaining themselves to a lifestyle that requires $450k/year. If not–misery loves company.

If Only Kaplan Had a Law-Practice Prep Course

Speaking yet again about obtaining practical benefits from one’s education . . . What They Don’t Teach Law Students: Lawyering in yesterday’s New York Times is required reading for anyone interested in law school, the state of the legal profession, teaching or the economics of higher education. That it reiterates the message of my partner’s op-ed piece cited in the previous post is just good luck. Some highlights:

Regarding the “historic” deterioration in the job market for lawyers:

The legal services market has shrunk for three consecutive years, according to the Bureau of Labor Statistics. Altogether, the top 250 firms — which hired 27 percent of graduates from the top 50 law schools last year — have lost nearly 10,000 jobs since 2008, according to an April survey by The National Law Journal.

NB: The top 50 law schools–which I assume means those rated such by U.S. News and World Report–placed 27 percent of last year’s graduates in the 250 largest U.S. law firms. This group includes the highest salaries. Some number of the remaining 73% of graduates opted for judicial clerkships, public sector jobs, or positions with NGO’s. Let’s say those three categories accounted for another 33% of graduates. The high end of their salaries may overlap the low end of the first group’s, but this second group’s mean salaries would be materially lower than the first group’s.  That leaves 40% of graduates. Some practice with small firms, some start solo practices, some join family businesses, some cry into their coffee over their decision to go to law school.  I’ve defined the second group’s size arbitrarily. It may be 40%; it may be 20%. Not every school sends 27% of its graduates to the top 250 firms. The breakdown of how many graduates go where would differ significantly from the top 10 and the bottom 10 of these 50 schools. The salary range will differ materially from the top 25 to the bottom 25 of the 250 firms. Some solo practitioners will earn more than fellow graduates who take established salaried positions. In other words, my assumptions are just guesses. My point, though, is not how many to include in each group but the distinctively different employment market for each. If you need to earn $100,000 year to meet your financial needs then you better wind up in upper portion of that 27%. If you did not finish in the top 10%, or 25%, or 40% of your undergraduate class, why will law school be different?

“[A]lmost all the cachet in legal academia goes to professors who produce law review articles, which gobbles up huge amounts of time and tuition money. The essential how-tos of daily practice are a subject that many in the faculty know nothing about — by design. One 2010 study of hiring at top-tier law schools since 2000 found that the median amount of practical experience was one year, and that nearly half of faculty members had never practiced law for a single day. If medical schools took the same approach, they’d be filled with professors who had never set foot in a hospital.”

Emphasis added. Editorial comment unnecessary. 

[T]here are few incentives for law professors to excel at teaching. It might earn them the admiration of students, but it won’t win them any professional goodies, like tenure, a higher salary, prestige or competing offers from better schools. For those, a professor must publish law review articles, the ticket to punch for any upwardly mobile scholar.

Amen, brother. This is not true only of law schools. My office whiteboard bears this quotation from a school administrator: “good teaching gets you nothing.” On a life scale it’s not nothing–you get the satisfaction of connecting with, inspiring, or changing the lives of specific students, thank you cards and Certificates of Appreciation, perhaps a box of Godiva chocolates–but institutionally you get nothing  more than a pat on the head and perhaps an extra bucket of oats.

BigLaw Clients Push Back

The BigLaw business model continues stumble, according to The Wall Street Journal in What’s a First-Year Lawyer Worth?:

Law firms often treat the first two years of an attorney’s career as a sort of apprenticeship, albeit a well-paid one: the yearly salaries at many of the nation’s largest law firms start at $160,000. Traditionally, law firms have recouped costs of young attorneys by giving them simple jobs—research, proofreading or culling important documents from boxes of paperwork—and passing the costs along to clients in the form of hours billed at $200 or $300 a pop.

But many companies are now refusing to pay those kinds of bills. According to a September survey for The Wall Street Journal by the Association of Corporate Counsel, a bar association for in-house lawyers, more than 20% of the 366 in-house legal departments that responded are refusing to pay for the work of first- or second-year attorneys, in at least some matters. Almost half of the companies, which have annual revenues ranging from $25 million or less to more than $4 billion, said they put those policies in place during the past two years, and the trend appears to be growing.

Increasingly, companies send their simple jobs to contract lawyers, independent contractors who are far less expensive than young associates.

One Gets Oats, the Other Gets Only Hay

At Well-Paying Law Firms, A Low Paid Corner reports on “in-sourcing,” the growing practice of big law firms hiring “career associates” or “permanent associates,” full-time non-partner-track lawyers staffing offices in places like Wheeling, West Virginia and Dayton, Ohio.  They do much of the same work as their partner-track colleagues, travel less, work more regular hours, and often earn less than half–the article mentions salaries of $60-$70k–than the $160k starting salary of a partner-track first-year associate.   Such positions make good economic sense for firms trying to control costs (“[e]veryone acknowledges that $160,000 is too much, but they don’t want to back down because that signals they’re just a midmarket firm . . . It’s a big game of chicken”), for clients demanding that firms reduce billing rates, and for lawyers looking to combine big-firm type work with family responsibilities.  They also contain the seeds of frustration and discontent:

[A] two-tier system threatens to breed resentments among workers in both tiers, given disparities in pay and workload expectations. And as these programs expand to more and more firms, they will eliminate many of the lucrative partner-track positions for which law students suffer so much debt.

In other words, there are trade-offs. It would be corrosive to work in such a position as a 3o-ish recent law graduate who thought he or she deserved a shot at partner. Being a donkey in a stable of show ponies can rankle if you focus too much on what you do not have and too little on what you do.  Thus sprach the non-tenure-track faculty.

Must-Reads for Prospective Law Students

Everyone interested in talking with me about attending law school should read this New York Times article–in addition to all of my posts about law school and legal careers:  Is Law School a Losing Game? It states

[A] generation of J.D.’s face the grimmest job market in decades. Since 2008, some 15,000 attorney and legal-staff jobs at large firms have vanished, according to a Northwestern Law study. Associates have been laid off, partners nudged out the door and recruitment programs have been scaled back or eliminated.  And with corporations scrutinizing their legal expenses as never before, more entry-level legal work is now outsourced to contract temporary employees, both in the United States and in countries like India. It’s common to hear lawyers fret about the sort of tectonic shift that crushed the domestic steel industry decades ago.

So why do law schools continue to thrive?  Creative, “Enron-type accounting standards.”  Law schools report 93% of recent grades are employed–which may technically be true, if one counts jobs as baristas and sales clerks.  Law schools include such jobs in their post-graduation employment statistics.  Similarly misleading, “[m]any schools, even those that have failed to break into the U.S. News top 40, state that the median starting salary of graduates in the private sector is $160,000.”  That’s bullshit, to be blunt.  It is just not true.  The article calls the figure “highly unlikely” noting that Harvard and Yale report the same median salary for their grads.  The National Association for Law Placement’s May 2010 employment report states the  correct figure for 2009 grads is about $93,000, and even that’s misleading. Starting salaries for new lawyers follow a barbell-shaped distribution–big at the ends, small in the middle–not a bell curve.  New lawyers who land insanely-competitive jobs at big firms start at $160,000 a year, while about one-third of 2009 new-lawyer salaries distribute along a mini bell curve between $45-60,000.  As I noted in the linked post last July, adjusted for unreported income and for the more complete data at the high end of the scale, the adjusted mean salary for 2009 grads is closer to $85,000.

The post from the Chronicle of Higher Education titled Law Schools: Tournaments or Lotteries? comments critically on the Times article:

Everyone applying to law school takes the same standardized test. Classes are graded on a curve and class rank is relative to other students who took the same classes. It’s not perfect—nothing is—but law school is about as close to a fully transparent pure meritocracy as you’ll find in American education.

One thing all of this means:  if you’ve always been a B student, you will likely be no better than a B student in law school, and you will get the jobs available to law students with 3.00 GPS–which do not start anywhere close to $160,000 a year.

Do Due Diligence

A few readers have said that I am too negative about pursuing legal careers.  I don’t think I am–I urge wannabe law students to do due diligence and assess their job prospects with brutal honesty–but for the sake of argument let’s say I consistently discourage law school attendance.  I still have nothing on these blogs:

  • Big Debt, Small Law (Dirt poor lawyers in a filthy rich town) Sample:  Legal practice has “degenerated into a money-grubbing, paper-churning farce, where the “winners” walk away with millions and the “losers” are packed elbow-to-elbow in sunless boiler rooms and forced to work sweatshop hours for slave wages, under conditions that often shock the conscience.”
  • Exposing the Law School Scam Sample:  “This blog is written by a coalition of lawyers . . . interested in exposing the dramatic oversupply of lawyers, and how that oversupply has been caused by bogus employment and income/salary statistics used by most law schools to induce applicants to apply to law school.  Also, we are concerned with how the legal establishment is complicit in this ‘law school scam.'”
  • JD Underdog Sample:  JD Underdog “worked the doc review circuit before finally landing a permanent job that he could have gotten with a college degree. His mission is to humor you, but warn you of the dangers of going to law school with the deck so heavily stacked.”

If that’s not enough some of these blogs contain links to blogs with similar themes.

And who says attorneys aren’t helpful?

Law Career Blues

I’m not trying to discourage prospective law students.  Honestly.  I just want to reduce the number of former students who return to shout in my face “practicing law sucks!” or “the only job I could get is doing document-review piecework as a $23/hour contract attorney!”

Forewarned is forearmed.

Life in a Corporate Law Firm . . .

I discovered Bitter Lawyer Blog and its “Living the Dream” webisodes from Legal Blog Watch.  I’ve watched a few and they are hilarious, although I don’t know how well the humor translates to non-lawyers, or lawyers who’ve not worked in big firms.  As someone who spent hours as a young associate proofreading financing documents around conference tables with other young associates, “Typo” hit close to home (except for the blind date).   Watch and beware, future lawyers!

via YouTube – Living the Dream, Ep. 3, “Typo”.