Biglaw, In-House Counsel

On Growing Forever, When The Economy Is Not

The business of law has changed, and expectations need to change with it.

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dartboard pen inside straight“The total number of lawyers in the Am Law 100 stayed basically flat, at just below 93,000” between 2014 and 2015.

It’s actually worse than that for a fair number of the Am Law 100.  Compare numbers for 2009 and today, and you’ll find many firms whose size has remained constant over the past seven years.

This doesn’t work: Until professional services firms unearth a new business model, they must grow or die.

That’s the whole story.

A partner at a firm that once was small and now is large told me this:

When my firm was small, we made a promise to each associate that we hired: “If you’re good enough, we’ll make you partner.” That was a hard promise to make, because it meant that we’d grow forever. With our business model, we can only make one new partner if we also hire several new associates. We were telling new associates that we’d grow in perpetuity; on reflection, that seems silly.

Now, we’re big. And we’re silent when we hire.

Right.

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So what are law firms doing that aren’t growing?

That’s a particularly pointed question for firms showing no growth in number of lawyers, while simultaneously showing increased profits per partner over the last seven years. What’s up with that?

Let me tell you what’s up.

First, these firms have thrown everyone who was optional out of the equity ranks. If you’re not bringing in very substantial business, then you’re not an equity partner at those firms. You can’t increase PPP without either increasing the numerator (revenue) or decreasing the denominator (number of partners). If you haven’t grown, then you’ve cut the number of equity partners.

That also means you have a lot of unhappy folks working for you — the de-equitized multitude.

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Second, these firms are not admitting new equity partners up through the ranks. They may be making new income partners — because income partners don’t count for the American Lawyer numbers — but they’re not sharing the dough with any new folks.

What are those firms telling the new associates they hire?

Damned if I know. But if they’re saying, “if you’re good enough, you’ll make partner,” then they’re lying. Because if the firm hasn’t grown in nearly a decade, then many, many people who were good enough were not being let into the club.

Third, those firms have used every financial trick in the books to inflate their numbers. They’re stopped the pension plan; the employees are contributing more for health care; income has been accelerated; payments delayed; there’s no more that can be done. Times are about to get very tough.

Fourth, they’ve started to squeeze the associates: Starting salaries haven’t been raised at the bottom and have been compressed as you go up through the ranks; bonuses are individualized in some way that doesn’t force the firm to match the market; the firm is silent about the rest. You can’t let the word get out that you’re suffering, so you do what you can to conceal it.

I’ve got some bad news for you: You ain’t seen nothin’ yet.

I’m a client. We now do fixed-fee deals for the majority of our work. And we’re never going back to the old days. Sorry.

We use alternatives to law firms — e-discovery vendors and the like — for much of what used to go to you. And we’re not going back. Sorry.

We’re worried about how secure our information is — and we’re starting to ask you hard questions about how you’re securing our information. That’s going to cost you a fair amount of money, and you can’t pass the cost on to clients.

For all but the most important matters — of which there are too few to feed you all — we’re going to more reasonably priced providers. (A very few law firms truly do the “bet the company” stuff. But there are far more firms competing for that work than there is work to go around.)

None of that is changing.

What’s the future of your firm in a world like that?

I don’t know what you’ll tell associates you’re hiring this year — youngsters hoping for partnership ten years hence — about your commitment to them. But I hope it’s honest, and it fairly reflects your vision of the future.

Mark Herrmann is Vice President and Deputy General Counsel – Litigation and Employment at Aon, the world’s leading provider of risk management services, insurance and reinsurance brokerage, and human capital and management consulting. He is the author of The Curmudgeon’s Guide to Practicing Law and Inside Straight: Advice About Lawyering, In-House And Out, That Only The Internet Could Provide (affiliate links). You can reach him by email at inhouse@abovethelaw.com.

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