As we mentioned in Morning Docket, the American Lawyer recently released its highly influential, closely watched Am Law 100 law firm rankings. They say that “slow and steady wins the race,” and with regard to economic recovery, Biglaw firms seem to have taken that up as their new motto.
Yes, partners are still living as large as they ever were, but their success now comes in the form of single-digit returns with regard to key financial metrics. The divide between the “haves and the have-nots” in the world of major law firms has grown to epic proportions, and some Am Law 100 staples have fallen out of the top hundred firms altogether. Welcome to the new normal.
Are you ready to get excited about “modest” and “spotty” gains across the board? Let’s dig in….
What’s happening to the compensation of top partners at one major firm.
What kind of world are we living in? As we mentioned yesterday, a law school just announced that it’s lowering tuition — a shocking move, given that law schools almost always increase tuition by a few percentage points per year.
And now we get this news: a major law firm is cutting — yes, cutting — pay for top partners. This is a big surprise too, given that the powerful trend in the industry has been in favor of a growing divergence in pay between the highest- and lowest-earning partners. According to one recent study, “the spread in compensation between the highest- and lowest-paid partners in law firms has increased to 6-to-1 or 7-to-1 from the previous count of 4-to-1 or 5-to-1.”
So which firm is making this move, and what’s motivating it?
Ed. note: This is the fourth installment in a new series of posts from the ATL Career Center’s team of expert contributors. Today, we have some great advice for newly minted attorneys from Joshua Stein, the principal of Joshua Stein PLLC, a prominent commercial real estate law practice in Manhattan.
It’s your first year as a new lawyer. What do you need to know? How can you not screw it up? Here are some suggestions, based on more than 30 years of experience — as an associate at two firms, then a brief time as an associate at a third firm, followed by 20+ years as a partner at that third firm. These suggestions reflect my own experiences, lessons learned along the way, and what I’ve seen and heard from others. Nothing here applies specifically or uniquely to any firm where I worked.
It’s a Business. As much as we might all want law firms to be kind and gentle, remember that client demands are not kind and gentle. Also remember that a firm’s profitability — the ultimate main event — depends on buying a lot of legal expertise wholesale, converting it into as many hours of billable legal work as possible, then selling those hours at retail. That isn’t going to go away. Get used to it. That’s the business you’re in. If you don’t want to be in it, go find some other business to be in.
Last month, we provided you with detailed information about how much various former partners of Dewey & LeBoeuf earned in the last two years of the firm’s existence. We also reported on how much these partners were each being asked to pay into the “Partner Contribution Plan,” a global settlement that would provide these partners with releases from future Dewey-related liability.
At the time of that report, we didn’t know which partners decided to sign up for the PCP and which ones declined the offer. But now we do, thanks to a recent bankruptcy court filing by Dewey.
The Dewey & LeBoeuf drama continues to unfold. As we mentioned in Morning Docket, there have been a few notable recent developments. Citibank just filed a vigorous response to allegations by Steven Otillar, a former Dewey partner, that Citi colluded with Dewey to take advantage of individual partners. Meanwhile, three former leaders of the firm — former chairman Steven Davis, former executive director Stephen DiCarmine, and former CFO Joel Sanders — have filed objections to the global settlement with former partners.
It’s not a pretty picture. And here’s what we’re wondering: Could it happen to another major law firm, sometime in the next twelve months?
As we mentioned in the Labor Day edition of Morning Docket, there’s some interesting news on the Dewey & LeBoeuf front. The one former Dewey partner being sued by Citibank for allegedly defaulting on a capital loan — energy lawyer Steven Otillar, now a partner in the Houston office of Akin Gump — is opposing Citi’s attempt to collect on the debt, by arguing that he was “fraudulently induced” to borrow the money in question.
How much are we talking about? How does the debt compare to Otillar’s compensation while at Dewey? And what are Otillar’s specific allegations about “fraudulent inducement”?
Last year, one of my columns explained how I went about developing a new practice at a large law firm. Now that ABA Publishing has repackaged some of my old columns as a book, I’m hearing new reactions to some of those older columns. One of my recent correspondents — a partner at an AmLaw 100 firm — raised a good issue about my column on business development. He gave me permission to crib from (and slightly revise) his long e-mail (without attribution to him), so that’s what I’m doing here:
“In your case study of business development, you ask whether the business development game is worth the candle. But you seem to presuppose that the game is really worth playing in the first place. My problem isn’t with the premise that if you want to develop business you must work hard at it and be lucky. My problem is with the assumption that the only goal worth achieving in law is success in business development. I think you are correct in saying that law firms under-appreciate business development efforts and over-appreciate business development successes. But I think they over-appreciate both compared to good lawyering . . .
The current CEO of Greenberg Traurig, Richard Rosenbaum, recently gave an interview to the Daily Business Review in which he discussed the firm’s recent capital call (among other subjects). We mentioned the interview in Morning Docket, but because it contains a lot of grist for the mill, it merits a second look.
The subtext of the interview — and, at one point, the explicit text of the interview — could be summarized as, “Look, we are not like Dewey!” The bad news is that such statements should even be necessary. The good news is that they seem to be true (at least based on the information currently available).
Today at 5 p.m. is the deadline for former partners of the bankrupt Dewey & LeBoeuf law firm to sign up for the “Partner Contribution Plan.” Under the terms of the Plan, which in its latest iteration seeks $90.4 million in “clawbacks” from ex-partners, participating partners would contribute specified amounts to the Dewey bankruptcy estate in exchange for releases from future liability (to the Dewey estate, to other participating partners, and to Dewey lenders, thanks to recent revisions to the PCP).
When talk of the Plan first surfaced, I opined that “[s]uch a deal sounds reasonable in principle.” I later observed that even if the PCP might not be perfect, “[i]f you’re a productive partner, happily ensconced at a new and stable firm, and just want to forget the D&L debacle and return to serving your clients, this deal may Dewey the trick.”
But now, after numerous revisions to the Plan, seemingly endless extensions of the deadline to join, and a still-insufficient amount of participation, I’m beginning to think that maybe it just won’t fly — and Dewey should just be allowed to die, i.e., slip into a straight-up liquidation. Perhaps Dewey’s bankruptcy advisers should stop trying to flog a product that nobody seems interested in buying.
UPDATE (4:35 PM): It looks like the Dewey estate’s perseverance has paid off. The $50 million participation threshold has been reached.
Here’s one good thing about the Partner Contribution Plan: thanks to the PCP, we now have detailed information about how much each of Dewey’s partners received from the firm in 2011 and 2012. And yes, we’re willing to share the data for the top earners with you, in spreadsheet form.
Some people are big believers in the virtues of black-box compensation. But here at Above the Law, we’re all about transparency….
Law firm consultants have endless advice about how best to compensate partners at firms. The consultants analyze the extremes: Lockstep compensation avoids quibbles about pay, but it may reward less productive older partners at the expense of the young turks. Eat-what-you-kill compensation rewards people who bring in business, but may cause bitter fights over client origination credit or cause partners to hoard their clients.
Various permutations on those extremes have their own advantages and disadvantages. But riddle me this: Why don’t we see consultants debating the pros and cons of pure black-box compensation? Under this system, the managing partner (or a small committee) sets compensation for each partner in the firm. There is no specific formula for allocating the spoils, and partners are forbidden from discussing their compensation with each other. Each partner is told what he’ll make in the coming year (either as an absolute number or as a projected draw assuming the firm hits 100 percent of budget), and the process is over.
At least a few large firms use black-box compensation systems, so this subject surely deserves a moment’s thought. What do you think of a black-box compensation system — good, bad, or indifferent?
If you are considering a virtual law practice, you know that many of today’s solo firms started that way. But why are established, multi-attorney law firms going virtual?
Many small firms are successfully moving part—or even all—of their practice to a virtual setting. This even includes multi-jurisdictional practice spanning several states and practice areas, although solo and small partnerships are still the largest adopters of virtual law.
Can you do the same? The new article Mobile in Practice, Virtual by Design from author Jared Correia, Esq., explores how mobile technology bring real-life benefits to a small law firm. Read this new article—the next in Thomson Reuters’ Independent Thinking series for small firms—to explore how a mobile practice:
Reduces malpractice risk
Enables you to gather the best attorneys to fit the firm, regardless of each person’s geographic location
Leverages mobile devices and cloud technology to enable on-the-spot client and prospect communication
Transitioning in-house is something many (if not most) firm lawyers find themselves considering at some point. For many, it’s the first step in their career that isn’t simply a function of picking the best option available based on a ranking system.
Unknown territory feels high-risk, and can have the effect of steering many of us towards the well-greased channels into large, established companies.
For those who may be open to something more entrepreneurial, there is far less information available. No recruiter is calling every week with offers and details.
In sponsorship with Betterment, ATL and David Lat will moderate a panel about life in-house and we’ll hear from GCs at Birchbox, Gawker Media, Squarespace, Bonobos, and Betterment. Drinks, snacks, networking, and a great time guaranteed. Invite your colleagues, but RSVP fast, as space is limited.
Ed. note: The Asia Chronicles column is authored by Kinney Recruiting. Kinney has made more placements of U.S. associates, counsels and partners in Asia than any other recruiting firm in each of the past seven years. You can reach them by email: firstname.lastname@example.org.
It’s that time of year again when JDs are starting to apply for 2L summer jobs and 2L summers are deciding which practice area to focus on.
For those JDs with an interest in potentially lateraling to or transferring to Asia in the future, please feel free to reach out to Kinney for advice on firm choices, interviewing and practice choices, relating to future marketability in Asia, or for a general discussion on your particular Asia markets of interest. This is of course a free of cost service for those who some years in the future may be our future industry contacts or perhaps even clients.
For some years now Kinney’s Asia head, Evan Jowers, has been formally advising Harvard Law students with such questions, as the Asia expert in Harvard Law’s “Ask The Experts Market Program” each summer and fall, with podcasts and scheduled phone calls. This has been an enjoyable and productive experience for all involved.