NY Times Article re Associate Retention Efforts
It will be no news to you that big law firms are struggling to retain associates. Almost all of them suffer from an enlarging associate vacuum after the 3rd year. The national attrition average at the 5 year point is around 80%! It really hurts firms to lose associates during what would be their most profitable years, not to mention the impact on firm morale when so many jump ship.
Some law firms are finally getting the message and starting to develop new associate programs aimed at keeping their talent. Although the programs may feel revolutionary inside the firm, in reality, many firms are just dipping their toes in the water. It’s hard to be forward-thinking and innovative when your whole culture is based on looking backwards and following precedent.
To get a peek at what some firms are doing, read the excellent New York Times article “Who’s Cuddly Now? Law Firms?” published yesterday. Most are trying to create more flexibility. Their plans purportedly allow lawyers to decide for themselves whether they want to be hard chargers racing to the holy grail of partnership, or whether they are willing to accept a later partnership entry in exchange for healthier working hours. It will be interesting to see whether the firm cultures really do reward either path.
Post Date: January 25, 2008
ABA Says Collaborative Law Is Ethical
Some lawyers question whether a lawyer can fulfill her ethical duty to zealously represent her client in a collaborative process where the parties agree to open communication and information sharing. The challenge mainly arises out of the requirement that the lawyer must withdraw from the representation if the collaborative process breaks down, and the parties pursue litigation. In August 2007 the ABA published its Formal Opinion 07-447 about Ethical Considerations in Collaborative Law Practice, and opined that the Collaborative Law process is ethical.
This is an important stride for the Collaborative Law process, and for clients. Today many clients want lawyers to help them resolve disputes without getting so caught up in “winning” that they lose sight of the real interests of the client. Clients know that all-out warfare is often deadly to their health and well-being, as well as to their bank accounts.
The Christian Science Monitor recently published a succinct and informative piece on Collaborative Law and the recent ABA Opinion. If you want more information about Collaborative Law, check out the website of the International Academy of Collaborative Professionals. You can also read an article I wrote a few years ago about the spread of Collaborative Law from family law disputes to business disputes.
Post Date: October 10, 2007
A Revolution in the Legal World?
A landmark event in the legal world launched in May. This event will ultimately change the course of the practice of law. Or perhaps it is just further evidence of how dramatically the legal world has already changed in the last 10 years.
Australian Law Firm Goes Public
An Australian law firm went public and was listed on the Australian Stock Exchange on May 21, 2007. Australia adopted legislation that permits non-lawyers to invest in the ownership of a law firm, and capital to be raised publicly. The 140-lawyer firm, Slater & Gordon, will initially have shares owned by 42 lawyers and staff, according to a June 1, 2007 article in The American Lawyer. Legislation has also been introduced in the United Kingdom to permit law firms there to sell stock publicly.
Big Partnerships Taking on Corporate Attributes
The expanding global economy has already fueled corporate-like merger and acquisition activity among U.S. mega law firms, as clients seek firms that can meet their needs across the country and around the world. With more than 75 U.S. law firms growing to over 500 attorneys and 20 exceeding 1000 attorneys, the traditional partnership structure has become less and less manageable.
Very large firms have already adopted many aspects of corporate structure with tiered management through practice group leaders, local office managing partners, and regional directors. Most large firms have non-lawyer executive directors, business managers, and human resource directors who report directly to the executive committee, or even sit on the executive committee. The firms also depend on the capability and experience of information technology experts and marketing professionals to keep pace in the legal world, competing with the corporate world for the best providers. Thus a shift in ownership structure authorized under Australian law in many ways merely formalizes the already accomplished transition of the legal profession to a business.
Predictable Impact of Legislation
Although the UK legislation is not without opposition, if it gets adopted it will probably launch a wholesale shift in the legal business. When law firms in two major English-speaking economies have superior access to capital and a mechanism for long-term wealth-building beyond the billable hour, U.S. law firms will find themselves scrambling even more than they already do to compete for talent.
Legions of detractors will resist the change, citing many good reasons for their resistance. They will not be able to stop the wheels of commerce, once set in motion, however. Despite the inevitable lamentations about the loss of professionalism and the rise of commercialism, there may be a bright side to publicly held law firms, and this article will mention a few.
The Bright Side
Few would argue that today’s large law firms have a highly desirable culture and working environment. One need only observe the rampant and sometimes crippling associate attrition that most large firms experience, to recognize the dysfunction plaguing their ranks. While I wouldn’t suggest public ownership of law firms as the solution to that problem, such a stunning and revolutionary change may have ancillary benefits that affect the firm culture positively.
Shifting mega-firms away from the traditional partnership structure to a more corporate structure with outside investors may generate significant benefits to the firms and even to the legal profession. As Prof. Milton Regan at the Georgetown University Law Center wrote, “Currently, there is no influential stakeholder whose financial stake in the firm encourages profitable lawyers to curb self-interest for the sake of the firm. Those with the most business are the most mobile, and often the least inclined to make this compromise.”
Self-interested behavior threatens the stability of the firm and would make the firm unattractive to investors. Indeed, allegations in court papers relating to the 2003 demise of the mega-firm Brobeck Phleger & Harrison LLP claimed that self-interested behavior destroyed the firm. It was alleged that partners continued taking large distributions even when economic downturns affected the firm, and then a mass defection triggered a freefall.
Prof. Regan suggests that firms may decide that a compensation system weighted heavily toward “eat what you kill” is counterproductive in a world in which stability and commitment to the firm are key considerations for investors. This may lead to a more productive balance of cooperative and competitive incentives within the firm, as well as simply a more pleasant and supportive atmosphere. To read more discussion by Prof. Regan on this and related topics, go to http://www.law.georgetown.edu/legalprofession/documents/firmsethicsequity.pdf.
Bridging the Chasm
As true business managers and marketing experts have the opportunity to share in the profits they generate in a law firm, the great class chasm between lawyers and non-lawyers within the firm may diminish. Firms may develop more balanced methods of valuing the contributions of its employees, as training and mentoring become recognized as being essential to the stability and productivity of the firm. Perhaps even teamwork could become popular. As Prof. Regan puts it, “investor preference for stability thus could temper what some see as excessively individualistic tendencies in modern law practice.”
As financial distinctions between lawyers and other contributors blur, the ‘up or out’ cultures that still exist in many large firms due to the stigma of not making partner, will also transform. Law firms will probably stratify more, with associates, paralegals and staff having the opportunity to share in the profits that their efforts create.
Lawyers who have family or lifestyle reasons for working reduced hours may find a comfortable way to stay with the firm when success or failure is not marked by the bright line of partnership. Stock options and employee stock ownership can provide additional opportunities for all lawyers and other employees to share in the success of the firm as the result of their extraordinary performance, contributing to improved talent retention.
Commoditization of Legal Services
I confess that I have some difficulty imagining how a public law firm would work in the near term. I can imagine the possibility of a serious decline in the professionalism of law practice and the commoditization of many legal services. Largely due to the Internet, we already see the beginning of the commoditization of legal services. I’m not sure that public opinion of lawyers can sink much lower, so the public may welcome lower prices and fail to notice any decline in professionalism.
One result may be that many lawyers will make less money, with most becoming part of the working middle class, instead of the professional elite, and a few becoming ultra-wealthy titans. When we compare the income of lawyers in mega-firms to those in most of the smaller firms, one could say that trend launched a decade ago.
Your Thoughts?
I suspect that my musings may trigger some heart palpitations. I welcome your thoughts on the potential impact of law firms going public.
Post Date: July 20, 2007
Law Firm Goes Public!
An Australian law firm went public and was listed on the Austrailan Stock Exchange on May 21, 2007. Australia adopted legislation that permits non-lawyers to invest in the ownership of a law firm, and capital to be raised publicly. The 140-lawyer firm, Slater & Gordon, will initially have shares owned by 42 lawyers and staff, according to The American Lawyer. Legislation has also been introduced in the U.K. to permit law firm IPOs.
If the UK permits law firms to go public,it will probably be the beginning of a wholesale shift in the lawbiz. There will be many detractors and much resistance in the U.S., but moving mega-firms away from the partnership structure to a real corporate structure may have significant benefits. As true business managers and marketing experts have the opportunity to share in the profits of a law firm, the great class chasm between lawyers and non-lawyers may finally disappear. Innovation may become more valued in firms. The billable hour may fall away to value-billing or other creative structures. Firms may develop more balanced methods of valuing the contributions of its employees. Hey! Perhaps even teamwork could become popular.
I confess that I am having some difficulty imagining how a public law firm would work in the near term. I can imagine the possibility of a serious decline in the professionalism of law practice. Even commoditization of many legal services. We are already headed that way, however, and I’m not sure that the public opinion of lawyers can sink much lower.
One result may be that many lawyers will make less money, with most becoming part of the working middle class, instead of the professional elite, and a few becoming ultra-wealthy titans. One could say we are seeing that trend already, however. As firms go public, they will probably stratify more, with legions of paralegals and other non-lawyers. As bright line distinctions blur, there certainly won’t be the defacto up or out policies that still exist today in many large firms. Just smaller stock option packages, or lawyers who don’t receive stock options.
Whew! It boggles the mind to think what the future may hold for law firms and lawyers.
Post Date: June 6, 2007