Wednesday, March 07, 2007

Countdown to the death of billable hours continues

Two stories in today's Wall Street Journal caught my eye (and, like all "the sky is falling" theorists, confirmed my theory that law firms are going to have to move away from a billable-hours based budget): a story on defense firms taking on more contingency fee cases (and the issues that they face divvying up the wins and sharing the losses) and a blurb noting that Harvey Miller is planning to leave behind his investment firm and rejoin Weil, Gotshal. For some juicy/nasty comments about the latter story, see the Wall Street Journal's Law Blog. (FWIW, I heard Harvey give a keynote address at an American College of Bankruptcy initiation, and his words and delivery moved me greatly.)

The point is that there's movement afoot in the larger law firms: moves to some non-traditional types of fees and moves of well-known players. Add to this my prior post about partners feeling the pinch between their draws and the starting salaries of new associates and an article by Stephanie Francis Ward in the Feb. 2007 ABA Journal. Stephanie's article, The Ultimate Time-Money Trade-off, suggests that some significant number of large firm associates would cut their paychecks in return for a cut in billable-hour requirements. That finding goes against the traditional wisdom I've heard from some big firms--that they must pay starting associates more and more each year to be able to get the ones they want.

At some point, firms won't be able to increase starting salaries for associates and still keep their rates low enough to get and keep the good work on which they've been relying to pay their bills. Something's got to give.


Andrea said...

I read in the NLJ this week that a firm--I think it is DLA Piper--is raising patent associate starting salaries across the country to $160,000 from $145,000. All non-patent associates will continue to make a starting salary of $145,000. The firm justifies the patent associate salary raise because the demand for patent work is high and they can't find enough "qualified" patent attorneys. Also, I have read recently that the big NYC firms continue to up the ante on bonuses and salaries for all associates. So while I don't disagree with you that salaries are getting higher and law firms are going to have to find another way to comp the associates and pay their bills, it doesn't appear that everybody is feeling that same pinch.

What would you, as an academic, say to law students who have amassed over $150,000 in law school loans and who need to make that big paycheck just to get some suits and to make the minimum payment on the loans? Should they not make the money even if client demand for legal talent, particularly those from "top 10" or "top tier" schools, is high? Should there be fewer law schools graduating fewer law students (and needing fewer law professors)? The corporate clients --The MBAs at these corporations--just don't want to pay the market rate for legal services. Ironically, though, these MBAs are the same people who get huge bonuses from the money that they "save" by paring down the bill for legal services. The money doesn't go to the shareholders for sure, so why shouldn't the money go to the associates who provide legal services (which appear to be higly valued in the marketplace)?

In my opinion it's the corporation's shareholders who lose in the end though.

Nancy Rapoport said...

Great questions, Andrea!

First off, I actually do think that first-year associates aren't worth anywhere near these starting salaries (which put them in, what, the top 10% of income-earners in the U.S. right off the bat?). It takes years to develop the knowledge and skills to be a decent lawyer, and very good lawyers at smaller firms and firms in less trendy states make nowhere near the salaries at some of the largest firms.

Second, I agree with you that associates who are graduated from law school with $100+K in debt have to do whatever it takes to pay down their (non-dischargeable) debt, and it's not their fault that the market is overcompensating them.

Third, I believe that there are already way too many law schools and that, over time, something's going to give on that axis as well.

Frankly, I think that we all lose in the end by having salaries this high: there's less time to train associates and to mentor them, because clients aren't going to pay for those training costs and firms can't always afford to absorb them; high costs will equal high billable hour requirements, which will equal less free time for lawyers; and the pace of practice will continue to stay frantic, which hurts clients and lawyers alike.

Thanks for commenting!