Managing Partners Expect Associate Head Count To Remain Stable:
ATL Expects Associate Head Count to be a Useless and Misleading Statistic
American Lawyer released their annual survey of managing partners at top law firms. Despite a high level of uncertainty, managing partners still remain optimistic about the future.
Really.
You’d think all of the layoff news, dissolution rumors, half-bonuses, and the terrible American economy would make Biglaw chieftains more than a little worried about the future of the industry. But no! Everything’s going to be fine. Pay no attention to the man behind the curtain:
But managing partners are still reluctant to throw away their head cheerleader pompoms. Even as uncertainty clouded the responses of the 112 firm leaders who answered this year’s survey, they remained surprisingly upbeat about their firm’s prospects. Make no mistake: Firm leaders know the boom has busted; most of them responded to the survey after September 15, the day that Lehman Brothers Holdings Inc. filed for bankruptcy and Merrill Lynch & Co., Inc., was sold. Few, however, were willing to say—at least for now—that their business will be dramatically different as a result. Even in a time of financial turmoil, they’re counting on clients to continue to demand high-end legal services.
The results are really not that surprising at all, once you become accustomed to the never ending flow of BS that law firm managers spout right up until profits per partner take a significant hit.
But it is always funny to see the disassociation between a firm’s public statements and their internal machinations. Obviously, all of this public backslapping is for the benefit of clients who are not paying enough attention:
Still, one aspect of firm management may never change. In one of the most interesting responses, law firm leaders reported that they are still planning to raise billing rates in 2009. Ninety-eight percent of respondents to our survey said that their rates will be higher next year, though 63 percent said the rise will be 5 percent or less. (By contrast, 62 percent reported in 2007 that they’d raise rates by more than 5 percent.) It may seem counterintuitive to raise rates when clients are hurting, but in interviews, managing partners insist that, for most clients, value trumps rates.
That makes perfect sense. Charge more + Pay less (bonuses) = Stable PPP notwithstanding an economic crisis of global proportions. “I love this plan! I’m excited to be a part of it!”
After the jump, let’s bring out the Stay Puft “Straw” Man.
Over the past few weeks, we’ve seen many law firms explain away “layoffs” as “natural attrition,” hoping that associates (and more importantly: law students) are too stupid to know the difference.
The most consistent statistic firms refer to is “associate head count numbers.” When pressed by AmLaw, the firms apparently fell back on that misleading number one more time:
Perhaps the best indicator of this business-more-or-less-as-usual attitude is the relative stability our survey respondents projected for head count in 2009. Even amid reports of layoffs and recalled offers to summer associates, 72 percent of firm leaders said that they plan to increase head count—not growing as robustly as in previous years, to be sure, but growing nevertheless.
It’s almost as if firms really think that attorneys cannot comprehend basic math. If you bring in 45 first years, and fire 40 people who have been there longer — and are more expensive —- then yes, “head-count” will go up. But that doesn’t mean that there is either stability or security. AmLaw brings up the problem that nearly every firm is complaining about:
Another reason for head count growth is less salutary. According to [Bingham McCutchen chairman Jay] Zimmerman, fewer associates are leaving firms these days unless they’re pushed out. So as firms add new first-year classes, they’re still carrying senior associates who, in better times, would have departed for other jobs. The drop in attrition rates is why firms have had to become more aggressive about weeding out unproductive lawyers. “Quite frankly, I think that there are a lot of law firms out there that are not doing any kind of layoffs or reduction in force, but I think every law firm is looking at its annual evaluation process and being pretty hard-nosed about that,” says a chairman of a large global firm.
The firm double-speak is infuriating. Firms are “not doing any kind of layoffs,” but their being “pretty hard-nosed about” the associate evaluation process. Well, why? Why are firms so committed to giving associates bad reviews if not for the purpose of firing those associates that receive those “bad” reviews? The fact that the firm can bring in an army of new, cheap, first-years is largely irrelevant.
Why is it so hard for some firms to just admit that they are firing people due to the bad economy? Why can’t firms grant their departed colleagues the dignity of acknowledging that market factors beyond anyone’s control lead to their dismissal? White & Case did it. Orrick did it. Mayer Brown did it.
“When the fall is all that is left, it matters a great deal.”
Hopefully, nobody is fooled by the soft deceit that has been adopted at an industry level. Actions really do speak louder than words. If a law firm is firing people and skimping on associate bonuses — while profits per partner remain stable or even grow — you’ll know exactly why so many managing partners are “optimistic” just at the moment.
How Full? [American Lawyer]
(49) 
Comments
Comments hidden for your protection. Show them anyway!
FIRST
first
This is really dumb. If the overall economy contracts, so does the legal service industry.
Seriously, this blog has become a bi$ch-a-thon about how miserable it is to be an associate at a large firm making 160k plus a measly bonus for doing brain dead work that a worker in India would for for $3.50 an hour. This economy is only going to get worse. Just be happy you all have jobs (those of you that still have jobs).
Anyone who's worked in a large law firm knows that in usual times firms go out of their way to keep around unproductive associates, just for the sake of being nice. Now that the economy is in the toilet I see no problem with firms tightening their performance criteria in order to dump on the poor performing associates. Large law firms shouldn't be welfare shops. I know so many associates who are clueless and bill 1,500 hours a year doing average work and they still feel like they're entitled to a job because they get away with it for a couple years. Good for the firms for finally throwing down on all these losers. If you want to survive in a firm then understand it's a business and you need to make The Man money.
just got my second ding.
:(:(
- nervous T-10 1L
email job leads to nervoust101l@yahoo.com
Good post.
- Norm "Son of a" Gunderson
If you bring in 45 first years, and fire 40 people who have been there longer -- and are more expensive --- then yes, "head-count" will *remain go up*.
*Nice.*
It must suck to be a law student right now looking for a job. Poor losers.
nervous T-10 1L,
Why do you want to work at a big firm?
"...will remain go up..."
talk about doublespeak...
---
I agree with the article. No one is leaving their job. As everyone continually repeats, people are just happy to have jobs.
Law firms have to forecast headcount needs years in advance. There is obvious lag/slack in the system when people they thought would leave, don't. Call it a layoff. Call it performance-based attrition. Either way, the excess has to go. Otherwise, law firms would ultimately start having the same kind of labor issues Detroit is suffering from now if they kept everyone on staff regardless of demand. And that seems to be working out well for the Big 3, right?
- nervous t-10 headhunter
I have never been able to figure out one thing. Associate pay increases are only $10k per year. Why is it so much more profitable for a firm to get rid of 3rd/4th years in favor of "cheaper" 1st years? I would think that even the least competent mid-level associates more than makes up for the $20-30k more that they cost compared to the completely green 1st year (especially if there are only half/no bonuses).
Managing Partners *have* to be optimistic, because they are the heads of these law firms, and leaders must always lead. If they thought the shit would hit the fan and told everyone that, people would be racing for the exits and their belief would turn into a self-fulfilling prophecy.
Ask yourself this: what would you do if your own firm's managing partner relayed his/her gloomy forecasts for 2009?
Managing partners, this is how you weather the storm:
(1) Keep the junior and mid-level associates, fire or "Of-Counsel" the seniors who aren't making rain, and cut down on hiring clueless first years who only vaguely recall the Fed. Rules of Civil Procedure.
(2) Shift away from arbitrage-type corporate deals, and move towards litigation. MAKE RAIN. Litigation is counter-cyclical, so there's no damn reason litigation shops shouldn't be bleeding black right now.
(3) Do not, I repeat, do not perform stealth layoffs. This is not 2001 or 1991 or whatever. You will get caught. Your reputation will put your firm on the $hitlist for years, and when the pastures get greener, as they inevitably will, you'll be screwed come recruitment time.
Elie, your forced anger at this year's bonus levels just makes you sound ridiculous. You've called it a bloodbath and make it sound like people are eating off the street now. You don't even work for one of these firms. Seriously, just stop with the faux-outrage commentary.
The head count at my high school used to always stay the same, it was no big deal.
I love all the hate towards first years. The obvious "where the fuck did you come from and what about your first year made you so fucking superior?" aside, it's really pretty god-damned lame to take your rage for having nothing to do but troll a degrading blog out on the kid down the hallway who is JUST LIKE YOU.
Elie...come on! THEY'RE not THEIR
It seems that Duane Morris is now taking in ex-Thelen lawyers for their NYC office:
http://www.philly.com/philly/business/35299484.html
12- associate pay increases are much more than 10k a year. A first year makes 160k. A fourth year makes 210k. Then add in the employer share for payroll tax and social security. Higher bonuses. The fact that clients prefer lower-billing associates so a more senior associate can't be staffed on as many cases. Also, factor in that once an associate reaches a certain level they'll want to make partner, which can create lots of drama if it doesn't happen. All in all, it makes sense that firms want to egg out associates as they get more senior. One of the best things I ever heard about law firm operations is that to partners there isn't much of a difference between a fifth year and a third year. In most cases a third year can do the same work so why keep the fifth year.
14- You are wise, but it's lucky for me they don't listen to you so plz stfu
14 hates on useless first years but then warns about the dire consequences of not getting them in recruiting?
15 is not wholly wrong. Elie is a blunt instrument. Lat had more panache in reporting this stuff.
Or maybe, just maybe, law firms were able to carry "dead weight" in good economic times because there was plenty of work to go around.
And now that there's not, they have to trim the fat.
Come on Ellie...take a breath on the doomsday thing. It really undermines the quality of the blog, and the severity of the REALLY bothersome news, to have you bleating about an exagerated apocalypse constantly.
Troof.
Agree with 14: Stealth layoff are WAY worse than "regular" layoffs and = a shady firm that associates should avoid.
22: I don't think 14 is saying first years shouldn't be hired, just that firms should hire fewer of them. the hiring of new blood is necessary for a few reasons, least of them being to sustain the firm/run the business. first years really bring little 'true' value to the table - but their hiring is a good proxy for the firm's overall health.
28 - I was under the impression that first years, once the billable requirements are applied to them, are actually cash cows for most major firms. Yes, they may not know much, but the stupid money an hour charged for their doc review time is PPP gold, considering the math of #20 above.
CWT did it, too.
29 - you could not be more mistaken outside of large case shiTTTigation.
Survey participants are deluded shills. They have been lying for so long, they simply cannot stop. Associate headcount will fall by 30% to 40% across the AmLaw 100 before this is over.
29 - A first year billing at $300 an hour for 2000 hours brings in $600k net revenue. Salary + bonus runs about $200k, and figure that remaining loading cost is no more than $150k at the outside. So that's still a profit of $250k per associate. Not too shabby.
as this continues to morph into a sort of soft union for associates, it's probably worth keeping the tone moderate and separating the bad (cravath) news from the expected (meal expense reports).
If the tone is "the sky is falling" with all firm news in a contracting economy, we lose the ability to distinguish from infuriating news (cutting pay/layoffs while PPP stays the same) - from the more reasonable actions of firms in tight economic times.
i think this has something to do with firing one associate costs the firm at least $500k in recruiting/training/built-in profit expectation cost. BUT these are unprecedented times.
people need to be a little less short-sighted. when firms make these kind of decisions, the ones that can don't just make decisions based on 2008-2009, but are also contemplating their business models into 2010-2011 and beyond. point being it is an analysis that has a confluence of factors, and is not as simple as those above have outlined.
and since even the professional consultants don't know, and the law firm leaders don't know, we should all give it a rest and stop trying to predict the future.
Elie,
Don't you dare give Mayer Brown credit for being upfront after what they did before the lay offs that they chose to disclose. Their actions were so horrendous and 2 months after our stellar annual reviews in March during summer associate beginning weeks. These firings were so stealth-like that while they gave no agreement of severance they still lied to the summer associates about our departures. They also told us we were to lie to summer associates. (If it really was poor performance, why all the cover-up). They gave absolutely no documentation for fear it would end up on above-the law. (Too bad some of us are actually good lawyers and more resourceful than they currently know.) Then they tried to send us emails copying the world stating something like 'as we agreed, you have resigned and your last day is ______'. Evil does not get much worse and that is only a small sample of some of things that they did. They humuliated associates with lies to the extent that they and I, until now, have not publicly been willing to re-live the horror even though we were not even given the opportunity to get severance or sign agreements of confidentiality.
Time for value firms to emerge. Where are the 6th to 9th year associates who would have the guts to open up shop. Oh, yes, forgot, banks are broke, so no money, no office, no starting up a business - BigLaw wins.
Big law management should realize that their business model sucks. They should hire people out of third year of law school and not waist money on summers. They should lower billable requirements along with salaries and billing rates. They should hire more paralegals and less first years. If they did that, they would not need to fire anyone right now.
A bunch of laid off senior associates should seriously get together and open up a shop. In this economy they could get a ton of free publicity and middle market clients would flock to them for the feel good story (and the lower rates).
First year associates are, at best, barely profitable. Firing third and fourth years that aren't just dead weight makes zero long term sense, since they can and should be much more profitable. Only firms actually running a pyramid scheme would look to associate head counts whild disregarding seniority levels, and conclude that stability equals success.
Depending on the length of this recession, loading up on first years will lead to actual layoff bloodbaths in two or three years and overly thin ranks among more senior associates.
Elie's "analysis" leaves much to be desired.
40 is spot on.
I agree that 40 is the closest yet. There is a difference between lean years and good years. The marginal associates are kept on as long as they can pay their way during the good years. When things get lean, the marginal associates are the ones to get axed. The search is always on for the associates that more than pay their way. The first years are the class where the stars can still emerge. The third+ years are known factors. Why have the associates that can barely pay their way still taking up office space when you can feed the ones that are much better than that with the extra work?
Remember that the first years will be in the same situation as the other associates in two years. If things are still lean, then the marginal associates will again be cut. The tighter things get, the faster the axe falls.
40 et al just prove that this blog is trolled by a huge number of fat assed 3rd-5th year associates who aren't busy enough to feel safe in their jobs but self-superior enough to try and justify keeping them around a firm anyway. If you are a mid to senior associate who is on partner track and has a chance of making it, you aren't getting fired by anybody, outside of dissolution and tremendously poor management. If a firm is axing you to save money, at any level, you just weren't worth it. And your biglaw career was going to be over in a couple years when they told you partnership was out for good. No level of rationalization is going to change the biglaw model of the last couple decades, and no level of bitching on a blog while you aren't drumming up work or being useful to your firm is going to save you either. This has always been true, and is just a little more sharp in leaner times because the firm tolerance for dead weight (ANYone who is underperforming and sucking resources/what work they DO get) is lower.
33 - but you're assuming that a first year can bill 2000 hours. What if in reality they're billing only 1500 (which factors in both how slow the economy is and the fact that clients are increasingly pushing to write off hours). Then the math changes: 1500 x $300/hr = $450k. Take away salary, bonus, overhead (office space, secretarial support, equipment), and training. They may still be making a small profit but its not $250k per year per head.
And that $150k overhead estimate is too low. Most firms goose that significantly. So the firm in 44's example would be losing money on that first year.
43 is right.
also, how can first years be unprofitable when billing rate * billable hours far exceeds salary + bonus? even with some hours written off (not much at my firm, from what i understand), the math seems to weigh in favor of no-layoff.
43 is right.
also, how can first years be unprofitable when billing rate * billable hours far exceeds salary + bonus? even with some hours written off (not much at my firm, from what i understand), the math seems to weigh in favor of no-layoff.
43 is right.
also, how can first years be unprofitable when billing rate * billable hours far exceeds salary + bonus? even with some hours written off (not much at my firm, from what i understand), the math seems to weigh in favor of no-layoff.
38 is so right: the whole hiring scheme is nuts. You interview kids with one year of law school grades with the idea that they'll start as first-years two years later - or even three years later if they do a clerkship. Who can forecast how business will be in two years, or what the firm's condition will be? Interviewing shouldn't start until third year, and , if you want to do a clerkship, you shouldn't be allowed to interview with firms until the fall after you graduate. Yeah, so it takes away a little security from the kids, but that's how life is for the rest of the world. Firm management needs to wise up and learn how to plan and run a freaking business in a business-like way, and law students needs to be more realistic. And, yes, I've been both a first-year and a member of senior management, so don't yell at me. I know what I'm talking about.