Law Firms Invent New Recipe For Disaster

Recently, the New York Times published an article called At Well-Paying Law Firms, a Low-Paid Corner. In short, the paper is reporting that some very well known firms are hiring lawyers at cut rate prices (less than half) of what associates on partner track are making at the firm. And these cheaper resources are performing the same services as their partner-track colleagues. This feels like a recipe for disaster to me.

I’ve known a few people who have positions like this at firms. Their names and the firms they work for will remain nameless, however in this post. In each case, the lack of transparency of how this arrangement really bothers me as a client.

First, how do the firms determine which work gets assigned to which group of associates? And does it differ depending on how busy the firm is? If I hire a firm to represent me in a financing, are the folks doing the diligence (which really is the most important part of a financing, not the documentation) sometimes partner-track folks and other times not? Do the clients have a right to decide?

And how are the firms billing out for these lower-cost resources? If they bill the same, it feels like I’m getting ripped off. If they bill less, then my bill will reflect that I’m be represented by the lower-paid people. While I think many junior associates aren’t worth what they are paid (but it catches up later), one does normally get what one pays for. I refuse to believe there is no quality difference in an associate making $160,000+ and one making $60,000.

I worry about mentorship and training, too. What incentive does a firm have to really train folks that aren’t on partner track and might not stick around long term?

Lastly, I would propose the theory that camaraderie is important to the concept of the law firm. Clients hire partners at law firms, but also the firms themselves. This includes the firm culture and the knowledge that client teams traditionally are near each other physically, not in outpost office where some lawyers are making less than have of their other colleagues.

While the reason for this shift was to help with escalating billing rates, I’m still perplexed why lawyers and accountants are the only professions that every year raise their rates. It doesn’t fit with the rest of the economy or their clients. Perhaps instead of creating a group of second-class citizens within the firm, they should pay attention to some of the things I prescribed in my law firm 2.0 series.

  • Dan Deppen

    This kind of reminds me of the UAW where they have a 2-tier pay system with the old timers making double what the newer people make. Is this a way for partners to afford a higher salary than what the market is really willing to pay them?

  • While I generally agree with your argument, I think the “quality difference” you raise is probably overblown. u00a0Having been at a big firm (as I know you were), I found that there was a big difference between the quality of associates (and partners) regardless of pay. u00a0Also, after the bloodbath of 2008, there are a lot of well qualified attorneys out there who are still not getting picked up by big law firms and have had to resort to staff attorney or contract positions for work. u00a0In the end, I think the “quality” of a lawyer is difficult to determine…usually it isn’t until the sh*t hits the fan that you find out whether the work you paid for is actually worth the paper it’s printed on.u00a0nnI would point to the dreaded PPP (Profits Per Partner) as the driver of this tiered pay system. u00a0Clients are doing everything they can to drive down legal fees, which means less PPP. Firms can’t pay associates less for fear of losing out on “top talent,” so the money has to come from somewhere. u00a0If the firm can outsource low level, high billable hour tasks (doc review, diligence, etc…) to low paid attorneys, then PPP rises. u00a0When in doubt about the actions of law firms, always follow the money.

  • I’m surprised you don’t like Orrick Wheeling given your Law Firm 2.0 series and your support for Brightleaf. u00a0My guess is that Orrick bills the Wheeling associates out at a lower rate and has them do less complex work. u00a0I think Orrick Wheelingu00a0is good for clients (assuming they pay lower fees for the Wheeling associates who are doing lower-end work), good for Orrick (lower costs for the Wheeling operation should make for good profits despite lower billing rates; Orrick’s ability to offer lower overall bills should help win clients), good for the Wheeling associates (who have jobs that might not exist at a higher cost) and good for partner-track Orrick associates (who likely get to pass-off some less interesting worku00a0and who are at a firm with what should be a more profitable business model). u00a0In your Law Firm 2.0 series, you discuss how legal outsourcing can work. u00a0Why shouldn’t firms try to make money off it? u00a0If you would like to see more detail on why we think Orrick Wheeling is a good thing, check out our post on the Times articleu00a0“Biglaw Tries ‘In-Sourcing,’ Profits and Good Jobs Ensue”.nnI was a corporate associate at a large law firm and am now with a startup trying to improve due diligence. u00a0Our product will be faster, better and cheaper than the alternative, somewhat parallel to what Brightleaf is doing with document assembly. u00a0Not that I assume you parrot Brightleaf’s views, but I would expect Brightleaf to see Orrick Wheeling the same way I do–as an example of howu00a0firms can make more money by being more efficient.

  • nnnnnnnnnnnnnnnnnnnI think youu2019re rightly concerned about the practice ofnin-sourcing legal work.u00a0 That practice,nas well as legal outsourcing, is very opaque, as you point out.u00a0 Clients have an absolute right to hire and tonfire the lawyers they entrust with their legal matters.u00a0 In the absence of transparent dealings withntheir lawyers, that right is rendered meaningless. nnnnIu2019m afraid legal insourcing is part of Law Firm 2.0 as is legal processnoutsourcing.u00a0 In my view, Law Firm 2.0 isna mosaic comprised of an ever evolving and diverse set of business models andnpractices u2013 some old and some new.u00a0 JoenFlom used to say that the reason Skadden is such a successful firm is becausenitu2019s the u201cgo-tou201d firm for u201cupper margin worku201d — bet-the-company transactionsnand litigations that demand the attention of the highest calibernattorneys.u00a0 So long as clients havencomplex legal problems, there will always be demand for firms that offer accessnto super talented attorneys and a willingness to pay the fees they charge.u00a0 I think whatu2019s changed is the belief that thenbest attorneys are invariably found at Skadden and their peer firms.u00a0 nnnu00a0nnnLargely as a matter of choice, increasing numbers ofntalented attorneys have taken advantage of new business models, like the onenAxiom Law uses, to maintain a challenging practice without sacrificing familynand personal time the way you usually have to when you work in BigLaw.u00a0 Likewise, many lawyers who practice on theirnown or with micro-boutiques choose those platforms because the conflicts spacenis smaller than what it would be at a large firm.u00a0 The flexibility these platforms provide is angreat for lawyers, like me, who are passionate about working with entrepreneursnand startups.u00a0 Companies like LawPivotnare emerging to help them use technology to connect with the clients they wantnto serve.u00a0 The Skaddens, Axioms, and LawPivots,nof the legal world are all part of Law Firm 2.0.u00a0 Each is addressing itu2019s own slice of thenlegal market while, ideally, allowing lawyers to calibrate their desired levelnof work-life balance and flexibility of practice. nnnu00a0nnnFinally, Iu2019m really glad you flagged the issues ofncamaraderie and training/mentoring.u00a0 Lacknof camaraderie and training/mentoring are acute problems for attorneys doingnoutsourced work since that work is often at the lower end of the value chain. u00a0I think diversity is another value thatu2019s beingnimpacted by the evolution of the law firm model.u00a0 I know from my own experience as a former BigLawnattorney, and from the stories that other people tell me, that lawyers fromnunderrepresented groups are more likely to be working outsourced jobs thanntheir peers from the majority.u00a0 We neednto keep an eye on all of these values if weu2019re going to preserve the element ofnchoice in the market for legal services as well as the market for legalnemployment.u00a0nnn

  • Your refusal to believe that there is “no quality difference in an associate making $160,000 (top market) and one making $60,000” reflects an obvious lack of knowledge about what 1-3 year associates do at law firms. With the fairly recent proliferation of electronic discovery, most litigation associates’ time is spent pressing the forward arrow on a keyboard looking for a key word or phrase given them by a senior associate or partner. Transactional associates engage in equally menial labor. Tailoring contracts already written to a current situation on the exact advice of an authority figure. nnThe money you are paying for these services will be too high until someone offers a lower cost service with the same results. Yet, ironically, the perception (that you apparently share) that the quality of legal service is tied to the cost of that service, is the reason that no one is offering a lower cost service, and the reason you pay so much in legal fees. In reality, what most lawyers do isn’t very difficult, and they are happy to keep you in the dark about the fact that your prestige laden misperceptions about the legal services industry are lining their pockets with imported silk.

  • You make good points, but I also commend law firms forntrying to innovate.u00a0 The key isntransparency.u00a0 If clients understand thenstatus of those doing their work and law firms pass the personnel cost savings onnto clients, it seems smart.u00a0 The realitynis a lot of big firm legal work in the early years is critically important butnnot rocket science.u00a0 The key is for lawnfirms to focus more on service.u00a0 In thenpast 10 years, this has meant 24×7 attorney access u2013 if you email a lawyer at anbig firm on Sunday at 2pm, you better get a response before 3pm.u00a0 But client service needs to mean a lot morenthese days u2013 i.e., partnering with the client in a way that reflects thenreality of the clientu2019s business conditions.u00a0nWhen I practiced at OMM, the litigation head, Marty Glenn, cut our ratesnfor a core client, Bankers Trust, when BT had hit some economic rocks.u00a0 He did this without BT asking.u00a0 It was hugely impactful for the BT team.u00a0 To my mind, that type of thinking was aheadnof its time.u00a0 If firms apply it to thisntwo tier associate structure, it has the potential to benefit clients.u00a0 As for law firm morale, there is a risk thatna two tier system could be demoralizing, but if the lower compensated associatednenjoy reduced hours and higher quality of life, then that too is an informednchoice people might reasonably make.

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