People are talking about an interesting Slate article entitled “Leaving Big Law Behind: The many frustrations that cause well-paid lawyers to hang out their own shingles.” It’s currently the most-read piece on the site. But it’s actually quite similar, even down to some of the sources, to an article that appeared a few days earlier in Crain’s New York Business:
A lawyer’s hourly billing rate used to be a badge of pride — the higher the number, the more valuable (and supposedly brilliant) the lawyer. But over the past 18 months, a strange phenomenon has been sweeping the legal arena: Partners at major law firms are quitting because they want to be able to charge less for their services.
This is, of course, not a new development. Kash and I wrote about it in a December 2009 cover story for Washingtonian magazine, in which we interviewed a former member of the $1,000-an-hour club who left a large law firm and started his own shop so he could offer clients better value. But all the recent coverage — in Crain’s, Slate, and elsewhere — suggests that the trend is picking up steam.
Which kinds of lawyers are leaving Biglaw to hang up their own shingles? Why are they doing it? And how’s it going for them?
The Biglaw break-off boutiques tend to be specialized, and they’re often (but not always) in areas that (a) don’t require armies of associates and (b) feature some amount price sensitivity by clients. You don’t see many new boutiques devoted to handling, say, lucrative billion-dollar mergers between public companies (although query whether one could have a Lazard-style M&A boutique that wouldn’t do a merger soup-to-nuts, but would offer high-end advisory services and ride herd on the big firm(s) tasked with the due diligence, SEC filings, etc.).
Even if they might not be that much cheaper, the Biglaw spinoff firms are frequently in areas where a certain amount of flexibility or innovation on rates is desirable. From Crain’s:
“Clients no longer feel their day-to-day needs justify paying the $800- or $900-per-hour rates of a partner at a large firm,” says Joseph Gioconda, who left a partnership at DLA Piper last December to found the Gioconda Law Group, an intellectual property boutique that specializes in protecting corporate brands and trademarks. The 13-year legal veteran says being able to negotiate his own rates was a big part of his decision.
(Joe Gioconda, by the way, has a very interesting practice, representing some of fashion’s biggest names; see here.)
The Crain’s piece analyzes the Biglaw-to-SmallLaw trend from the perspective of clients, who can turn to smaller firms and receive the same quality of legal services, from the same lawyers, at lower rates. But it’s not just about a price discount; it’s also about “certainty and predictability when it comes to rates,” as noted by Joshua Stein, the former longtime Latham & Watkins partner who left to start his own real estate law firm.
And it’s about not paying high prices for disappointing results. Joe Gioconda’s firm generates a third of its revenue from cases billed on a contingency basis, where the size of the fee is tied to the quality of the result.
The Slate article, meanwhile, examines the exodus from Big Law to Small Law more from the perspective of the lawyers. It begins by mentioning Marc Zwillinger and Christian Genetski, who left Sonnenschein to start their own internet-focused law firm, Zwillinger Genetski (news that we broke back in February). Then the piece gets into the allure to attorneys of hanging a shingle:
Partners who ditch overcomplicated Big Law practices for nimble, flexible shops that facilitate simpler client relationships are like other denizens of the little-guy economy. They want more autonomy, less bureaucracy, and a better quality of life.
But the shifts also come down to money. Big Law takes about two-thirds of a partner’s business; e.g., if a partner brings in $9 million in revenue a year, the firm skims $6 million off the top. Some might call that highway robbery, but a firm is, in certain ways, a team effort. (The idea—and it’s an ideal that firms rarely abide by these days—is that the firm will support attorneys if they have lean years.)
In other words, going out on your own might be appealing to Biglaw partners who feel shortchanged in the distribution of firm profits, whether due to a lockstep system that doesn’t work in their favor, firm politics that undervalue their contributions, or some other similar reason.
But money isn’t everything; breaking off from Biglaw has other attractive factors:
Being a Big Law partner comes with a host of responsibilities that don’t necessarily yield more money, clients, or perks—unless you count camaraderie, commiseration, and, yes, tickets. Partners are expected to cross-sell clients if there’s an issue in a practice area where the partner has no expertise. It can be awkward. A partner might collaborate with a lawyer in the Houston or Miami office that isn’t necessarily best suited for the job. Or partners and associates in a group may be so busy that they don’t give the inherited client the attention he or she deserves—and the work suffers.
Indeed. The lawyers we’ve spoken to who have struck out on their own often talk — with pleasure — about how they are now able to give their clients the attention they deserve.
Business conflicts also encourage partners to go out on their own. Firms get so big that conflicts become unmanageable and partners turn down business because it might offend a high-revenue-generating client. “There’s a secret chamber of partners that make these decisions that have no basis in logic,” said [former Greenberg Traurig partner Jeffrey] Ifrah. While working on a large securities fraud case in California, he needed to subpoena banks, but the firm considered it adverse to potential future banking clients.
Client conflicts are a huge reason that many lawyers leave big firms to start their own shops. One of the most famous (and profitable) litigation firms in the country, Boies Schiller, was founded when David Boies left Cravath over a conflicts issue. Of course, now Boies Schiller is a large law firm itself — and spawning spinoffs of its own, due in part to potential client conflicts.
Are today’s small law firms just the Big Law behemoths of tomorrow? Or is there truth to the adage that “small is beautiful” — and will small firms try to stay small, resisting the extra power and prestige that can come with growth?
P.S. At the end of the Crain’s article, there’s a nice round-up of notable moves from Biglaw to SmallLaw. In addition to Zwillinger & Genetski, it mentions John Desmarais, the superstar patent litigator who left Kirkland & Ellis to start his own firm, Desmarais, and Andrew Sandler and Benjamin Klubes, the powerhouse financial-services lawyers who left Skadden to start BuckleySandler (a move we discussed here).
But there are other examples we can think of, as mentioned in these pages — such as Steve Molo and Jeff Lamken, who left Shearman & Sterling and Baker Botts, respectively, to form MoloLamken, and David Stone and Robert Magnanini, who left Boies Schiller to form Stone & Magnanini.
P.P.S. A caveat to young lawyers thinking of starting their own firms: note that the lawyers discussed above are seasoned practitioners, who left their large firms with lots of experience and clients (actual or potential). As we’ve discussed before, starting your own firm when you have little to no experience or clients can be fraught with peril.
Earlier: Musical Chairs: Sonnenschein Internet Practice Group Leaders to Launch New Boutique
Musical Chairs: Shearman & Sterling and Baker Botts Partners Start New Firm
Musical Chairs: Skadden Partners Jumping Ship
Boies Schiller Spins Off NJ Office: Say Hello To Stone & Magnanini
Hang Out a Shingle? Don’t Bother, Says Solo.