Over the last two weeks, we have heard from an In-House Insider, an opinionated source of insight into Biglaw-client relations — see here, here, and below. As with the two prior installments, the only changes I made to the Insider’s words were those done to protect their identity, and Insider was given the opportunity to revise their points once I added the questions and commentary. Again, I thank Insider for the candid observations and thoughtful opinions on these core issues.
AP: How firms are viewed from a value perspective is often very difficult to gauge from the outside. What criteria do you use to determine if a firm is delivering services to your company appropriately from a billing perspective?
IHI: While I can only speak for myself, when I choose firms for assignments and analyze bills, my focus is on value (which is a package) rather than price (and I am not alone on this). I need predictability to set appropriate expectations on cost with my commercial teams, and a miss on these budgets is a big problem for me. If our external counsel staffs and handles the matter as efficiently as possible (making sure the right people are doing the right tasks), we are getting value and usually hit the mark. When I see too many high-priced lawyers billing too many hours on something, we have a problem (invoices of that type I view as a first offer from the firm). To be clear, this evaluation process differs significantly from how I evaluate firms/lawyers that pitch services to us (whether inside or outside of an RFP process), but that is a different topic.
(AP: Insider’s words pretty much speak for themselves on this issue. It is well-known that controlling the number of timekeepers is the surest way to keep bills from escalating out of control. Further fine-tuning the timekeeper-task mix is a more considered skill, but ultimately critical if you want clients to consider your services as offering value intermixed with effective legal advice.
Another point to consider, and one where a firm’s interests are not always aligned with a client’s, is in the area of the budget-busting bill. As an associate, I often saw billing partners express very little concern for the plight of in-house counsel presented with a over-budget bill on the one hand, and an unfortunate tendency to consider that same bill as an opportunity for a windfall (even if some cuts were made by the client) on the other hand. Granted, that behavior was in the mid-2000′s Biglaw heyday, but I am sure that even today certain partners consider themselves entitled to bill wantonly, personal and professional considerations of in-house counsel be darned.)
AP: Why have clients drawn such a line in the sand when it comes to paying for associate time?
IHI: From my perspective, firms do not recognize basic market dynamics. I work for a company whose product’s prices fluctuate based on many factors. You work for a firm that sells legal services for which demand fluctuates. Yet rates always go up, and firms pay compensation to junior lawyers that does not seem to reflect market reality for the client demand for their services (so firms seem to react primarily by adjusting headcount as the primary cost driver for firms, as everything else other than office rental is peanuts). If we saw value in paying several hundred dollars per hour for a junior lawyer to work on our matters we would. Billing policies on this stuff came about because we don’t see the value from that work. In the past it was easier for junior lawyers to get hours because in real terms they delivered value based on cost, ability, and productivity, and clients saw that. Adjusted for inflation, I made much less than associates today and billed out at a much lower rate (I imagine trends in salary and rate compression over the years contributed to the current state of affairs), so it made sense to the client. When we were associates, we were in fact cost-effective (or at least more so than junior lawyers today).
Firms must justify the cost of junior associates relative to the value they deliver and invest in training associates better through boot camps, shadowing senior lawyers, mentoring, etc.; firms talk about this stuff, but I don’t think most take associate development seriously. Some of the most valuable training I got as a corporate lawyer came from working with one of the firm’s senior paralegals early on (real nuts and bolts stuff — didn’t bill for that time — which brings up another point, that everyone must take initiative to develop and hone skills whether on the clock or not, for corporate types read The Anatomy of a Merger (Freund) and The Art of M&A (Reed & Lajoux) [affiliate links], volunteer time on things). Make everyone set specific and achievable performance goals annually and work with associates to develop a career plan to succeed (not the amorphous goals people sit down and scratch out early in the year, which go to HR and stay there).
If firms took a serious approach to personnel evaluation and talent management and promoted folks when they developed requisite skills to advance to the next level instead of just passing them along to the next class year, that process would allow associates to develop at their own pace and also allow partners to staff these folks on matters in a cost-effective manner. We are amazed when we see the kid that manages to get through high school and can’t read and firms do the same thing, just moving everyone through their associate years at the same pace (even with attrition rates). This sort of one-size-fits-all approach with managed attrition does not seem particularly efficient. If you don’t see results on these things, it is because firm management does not take it seriously (given the realities of modern firm partnerships with folks moving around all the time, I can understand that), which is astounding because firms are nothing but a loose collection of people and some office leases and equipment — as they say, the assets walk out the door every night, everyone has a one-day employment contract and you are never more than 90 days from going out of business.
(AP: It is hard to disagree with Insider’s take on the current associate situation in Biglaw. The reality is that most firms have too many associates relative to the demand in many of their practice groups, and not enough associates for the practices that actually could benefit from the additional help. The fixed costs attached to adding employees (and for all the talk about them being “the future of the firm,” associates are just employees) are partly to blame, as well as the unwillingness of many Biglaw firms to take a hard look at where the demand for their services actually is. Too many firms are invested in advertising themselves as “one-stop shops,” and as a result carry too much overhead in the form of associates for non-core practice groups. As Insider notes, clients do not want to pay for that overhead, whether it be in the form of associate “training” (in busy practices associates get their training from the constant exposure to serious matters, and learn efficiency as a survival tactic) or keeping under-utilized associates busy by having them help on what should be routine projects for partners.
I can’t blame the clients, when they can just as easily get partner-level work from rival firms for the same price that their preferred firms may be charging them for associate time. Firms, in contrast, still want to think of associates as profit centers (or potential ones) rather than cost centers, and much of what Insider recommends in terms of training is expensive, both in terms of partner time and firm investment. But just because it is expensive does not mean it is not worthwhile.
Personally, I think most associates would benefit from a shift in thinking away from the “class year” paradigm underlying the Cravath system, towards a slightly longer-term evaluation period along the lines of what Orrick’s “bands” attempt to capture. The vagaries of market demand for a particular firm’s practice group’s associates simply make it unfair to expect a consistent delivery of opportunities for those associates to acquire and demonstrate additional skills. Insider’s call for Biglaw to adopt “a serious approach” to associate development and evaluation is a worthy one, and if Biglaw gets it right, we may earn greater satisfaction from clients on the “value” front as well.
We will wrap up our interview with In-House Insider next week. In the meantime, let me know of your reactions to Insider’s points, in the comments below or by email….)
Anonymous Partner is a partner at a major law firm. You can reach him by email at email@example.com.