The Broken Covenant: A Retrospective -- 'Partners for Life'?

As a summer associate in New York in the late 1980s, I could sense even then that the profession was undergoing profound change. Starting salaries seemed to rise almost monthly, as the large firms engaged in their own version of an arms race that even Ronald Reagan couldn't end, and summer associate class sizes rose to feed the war machine. In order to make room for its latest bumper crop, my firm was 'forced' to relocate several retired and semi-retired partners from their spacious partner offices to associate offices on unfamiliar floors. While they were outwardly lauded by management as 'real pillars of the firm,' it was clear to many of us that perhaps not everyone thought that their continued presence was welcome, let alone valued. Rather than ease into retirement and reap the benefits of a life spent dedicated to the growth and development of 'The Firm,' the loss by these firm elders of their partner offices was just further evidence of a culture of change that eschewed the value of their lifetime of commitment in favor of more immediate short term needs. In their view, the covenant had certainly been broken.

What caused the shift? To find out, I spoke with several of Washington's senior statesmen, lawyers who came of age during this transition: Rick Bernthal, managing partner of Latham & Watkins' Washington, DC, office; John Aldock, chairman of the Washington, DC, office of Goodwin Procter and the former chairman of Shea & Gardner prior to its merger with Goodwin Procter, and legendary communications lawyer Dick Wiley, founding partner of Washington, DC's Wiley Rein.

Advertising

All agree that the breaking of the covenant stemmed from the confluence of several events: First, following the landmark 1977 Supreme Court case, Bates v. Arizona, law firms were permitted to advertise their services and promote their successes. This freedom to advertise led to a greater awareness among lawyers, and clients, of the different firms and resulted in greater competition among law firms for both lawyers and business. 'Poaching,' which was once viewed as unseemly, became more commonplace.

'Super Firms'

Second, the rise of a new breed of 'super firms' helped accelerate an era of free agency among lawyers that rewarded individual success over firm loyalty. Says Bernthal: 'There were new firms were forming, firms like Finley Kumble [later to be known as 'Finley Crumble' at the time of its demise] and others, which were raiding everybody, and people got the notion that there was a lot of money to be made out there. Loyalty to a team became anachronistic ' it wasn't just in sports and it wasn't just in law ' changing teams became widely accepted.' Wiley adds that with the expansion of firms from dozens of partners to several hundred or more, the bonds that were formed by proximity and shared experiences became more tenuous. No longer could you possibly know each individual before voting on whether to invite them to join the partnership ' instead, you were forced to rely on the judgment of management or partners in other offices whom you never met. Since you hardly knew these partners to begin with, your sense of loyalty to them was greatly diminished, and it became easier for firms to force them out or cut their pay. Aldock agrees: 'I don't think anyone broke the covenant ' the market rendered it unenforceable and unworkable. Market forces caused the firms to get big ' to do bigger deals and handle bigger litigations ' law firms reacted to their clients' needs and our clients needed us to be bigger. The covenant was based on long-standing personal relationships and you can't have these with all your partners any more.'

'Lawyers Got Greedy'

While 'market forces' certainly played a role, some point to the fundamental frailty of the human condition as a major precipitating factor, specifically citing two of the seven 'deadly' sins. 'In the 70s and 80s,' says Aldock, 'lawyers saw the enormous fees that investment banks were earning and became envious because their legal fees were just a fraction of what the bankers were making.' 'Lawyers got greedy,' offered another retired partner. 'In the old days, we were content to be 'comfortable' and now we wanted to be rich.' Bernthal agreed with this observation, lamenting its impact on the profession: 'Too many lawyers are chasing wealth and losing sight of the insidious negative aspects [such approach has on the legal profession].'

Publicity

Moreover, with the rise of publications like The American Lawyer (a sister publication of this newsletter), lawyers learned, for possibly the first time, that some firms were vastly more profitable than others, and it caused partners to question management as to why their firm lagged behind. Formerly, partners simply didn't talk about how much money they made. They all belonged to the same clubs, their kids went to the same private schools, and they just assumed that the folks at Arnold & Porter were making as much as the folks at Wilmer. All those interviewed for this article agreed that once The American Lawyer began publishing firms' financial information, it put pressure on each firm to keep up with its perceived competitors, an exercise that has only accelerated over the course of the last 20 years.

This pressure caused law firms to fundamentally change their methods of compensation and personnel management. Bernthal estimates that prior to the 1980s, up to as many as 25% of a firm's partners were 'dead wood' (or, in today's lexicon, 'unproductive'): 'In the old days, if you had unproductive partners, you just lived with it. Most firms were lockstep and there were no bonuses. Law firms began the phenomenon of managing people out and moving away from the lockstep in order to keep people in and attract new lawyers.' Adds Aldock: 'There used to be the notion that people did different things and had different skills ' some were great brief writers and some were great with clients, but all were thought to contribute. Partner meant tenure for life, with certain exceptions for things like willful misconduct. Even partners who became ill or suffered from dependency issues could be dealt with in changes in their compensation, but today many firms cannot afford this luxury.'

Was It Better the Old Way?

Was life truly better for partners under the covenant? Aldock thinks so: 'The whole profession was a happier place. I'm not sure if we worked harder or not, but we were happier with what we did and felt more appreciated by our clients.' Bernthal agrees: 'I think we were working just as hard, but there was much less pressure to bill hours. We ate dinner at the office back then, just like we do today, but there was more time for distraction,' noting that he used to host a dart tournament in his office at 4:00 p.m. each day. Adds Aldock: 'Nobody ever looked at billables, and many of the senior partners didn't even keep time sheets. Each year you simply sent your clients a one-line bill that didn't say much more than 'For Services Rendered.' The nature of the work is more stressful now. Clients are more demanding and opposing counsel are less collegial. Client loyalty is nowhere what it used to be ' if [the business people] are going to be held to an impossible standard [by their bosses], then so are their law firms. Lawyers are less trusted advisers and more hired guns.'

Of course, the covenant did not benefit everybody. As Aldock, Wiley and Bernthal were each quick to note, prior to the 1980s, there were virtually no partners of color, and those few women who did make partner were often treated differently than their male counterparts, receiving lower salaries and expected to perform 'traditional female' responsibilities within the firm, such as pouring coffee for their male counterparts.

The Partner/Associate Relationship

The broken covenant has also had a profound impact on the partner/ associate relationship. According to Aldock, 'it seems as though a significant percentage of today's associates have no interest in being partners. In the old days, making partner was purely a function of your work and not your ability to generate business. Today, many associates look at the life of a law firm partner and just don't want it, while others believe their chances are so slim of making it that there's just no point in trying.' Consequently, at many firms, a partner's desire to invest time in training associates is greatly diminished. Bernthal agrees: 'It seems as though none of them come today with an expectation to be a partner.' Bernthal believes this disaffection with partnership does not stem from an inherent lack of drive in today's junior lawyers, but rather a result of what (until recently) had been a relatively stable and thriving economy. 'I've seen it four or five times in my life ' contentment is a reflection of prosperous times,' he observed, noting that a precipitous downturn in our economy may result in a 'cathartic cleansing' both of partners who are unproductive and young lawyers who really don't want to be practicing.

Not everyone believes the covenant has been broken, at least with regard to his or her own firm. Wiley feels that his firm has stayed true to itself since its founding in 1983. In Wiley's view, his firm's decision to not expand outside of the Washington, DC, area has allowed it to maintain a sense of family and collegiality. Bernthal and Aldock also believe that, despite their firms' size, they too have been able maintain a culture of collegiality and cohesion. 'It's different now, of course,' they agree, and while they acknowledge that many associates come to their firms for the training, the credential of having worked there (and, yes, the money) before moving on to other careers, both feel that for those who stay, there is still very much the old sense that they are all in it together.

Conclusion

In retrospect, there was a certain inevitability to the breaking of the covenant, for its premise ran counter to the very nature of a capitalistic society that glorifies the individual and prizes a free press. While the increased scrutiny given to law firms by periodicals such as The American Lawyer certainly played a role, the publication of law firm profitability numbers at best only hastened the demise of the covenant: Natural forces of competition ' the very essence of the American way of life ' were responsible for the rest.

Jeffrey Lowe is the Managing Partner of Major, Lindsey & Africa's Washington, DC, office.

For today's young lawyers, that notion belongs to a different era, one that seems as far away as the New Deal and Tammany Hall. But it really wasn't all that long ago that this concept was the anchor of law firm life, a covenant that provided stability and security for the firm's members.

The covenant worked as follows: Join the firm, be a good lawyer, work hard and seven or eight years later you receive the golden handshake welcoming you into the partnership. Thereafter, your compensation would rise in lockstep with your peers, moving inexorably higher as you claimed your rightful place among the firm's senior partners. Of course, there were always the 'worker bees' and the business generators, but the covenant provided that all were to be treated (mostly) equally, borne of a collective notion of common purpose and shared reward. Over the last 30 years, however, this covenant has steadily eroded across firms of all sizes, resulting in a culture that more closely resembles baseball free agency than a 'gentlemanly' profession. This article examines the covenant and several of the factors that led to its demise.

What Broke the Covenant?

As a summer associate in New York in the late 1980s, I could sense even then that the profession was undergoing profound change. Starting salaries seemed to rise almost monthly, as the large firms engaged in their own version of an arms race that even Ronald Reagan couldn't end, and summer associate class sizes rose to feed the war machine. In order to make room for its latest bumper crop, my firm was 'forced' to relocate several retired and semi-retired partners from their spacious partner offices to associate offices on unfamiliar floors. While they were outwardly lauded by management as 'real pillars of the firm,' it was clear to many of us that perhaps not everyone thought that their continued presence was welcome, let alone valued. Rather than ease into retirement and reap the benefits of a life spent dedicated to the growth and development of 'The Firm,' the loss by these firm elders of their partner offices was just further evidence of a culture of change that eschewed the value of their lifetime of commitment in favor of more immediate short term needs. In their view, the covenant had certainly been broken.

What caused the shift? To find out, I spoke with several of Washington's senior statesmen, lawyers who came of age during this transition: Rick Bernthal, managing partner of Latham & Watkins' Washington, DC, office; John Aldock, chairman of the Washington, DC, office of Goodwin Procter and the former chairman of Shea & Gardner prior to its merger with Goodwin Procter, and legendary communications lawyer Dick Wiley, founding partner of Washington, DC's Wiley Rein.

Advertising

All agree that the breaking of the covenant stemmed from the confluence of several events: First, following the landmark 1977 Supreme Court case, Bates v. Arizona, law firms were permitted to advertise their services and promote their successes. This freedom to advertise led to a greater awareness among lawyers, and clients, of the different firms and resulted in greater competition among law firms for both lawyers and business. 'Poaching,' which was once viewed as unseemly, became more commonplace.

'Super Firms'

Second, the rise of a new breed of 'super firms' helped accelerate an era of free agency among lawyers that rewarded individual success over firm loyalty. Says Bernthal: 'There were new firms were forming, firms like Finley Kumble [later to be known as 'Finley Crumble' at the time of its demise] and others, which were raiding everybody, and people got the notion that there was a lot of money to be made out there. Loyalty to a team became anachronistic ' it wasn't just in sports and it wasn't just in law ' changing teams became widely accepted.' Wiley adds that with the expansion of firms from dozens of partners to several hundred or more, the bonds that were formed by proximity and shared experiences became more tenuous. No longer could you possibly know each individual before voting on whether to invite them to join the partnership ' instead, you were forced to rely on the judgment of management or partners in other offices whom you never met. Since you hardly knew these partners to begin with, your sense of loyalty to them was greatly diminished, and it became easier for firms to force them out or cut their pay. Aldock agrees: 'I don't think anyone broke the covenant ' the market rendered it unenforceable and unworkable. Market forces caused the firms to get big ' to do bigger deals and handle bigger litigations ' law firms reacted to their clients' needs and our clients needed us to be bigger. The covenant was based on long-standing personal relationships and you can't have these with all your partners any more.'

'Lawyers Got Greedy'

While 'market forces' certainly played a role, some point to the fundamental frailty of the human condition as a major precipitating factor, specifically citing two of the seven 'deadly' sins. 'In the 70s and 80s,' says Aldock, 'lawyers saw the enormous fees that investment banks were earning and became envious because their legal fees were just a fraction of what the bankers were making.' 'Lawyers got greedy,' offered another retired partner. 'In the old days, we were content to be 'comfortable' and now we wanted to be rich.' Bernthal agreed with this observation, lamenting its impact on the profession: 'Too many lawyers are chasing wealth and losing sight of the insidious negative aspects [such approach has on the legal profession].'

Publicity

Moreover, with the rise of publications like The American Lawyer (a sister publication of this newsletter), lawyers learned, for possibly the first time, that some firms were vastly more profitable than others, and it caused partners to question management as to why their firm lagged behind. Formerly, partners simply didn't talk about how much money they made. They all belonged to the same clubs, their kids went to the same private schools, and they just assumed that the folks at Arnold & Porter were making as much as the folks at Wilmer. All those interviewed for this article agreed that once The American Lawyer began publishing firms' financial information, it put pressure on each firm to keep up with its perceived competitors, an exercise that has only accelerated over the course of the last 20 years.

This pressure caused law firms to fundamentally change their methods of compensation and personnel management. Bernthal estimates that prior to the 1980s, up to as many as 25% of a firm's partners were 'dead wood' (or, in today's lexicon, 'unproductive'): 'In the old days, if you had unproductive partners, you just lived with it. Most firms were lockstep and there were no bonuses. Law firms began the phenomenon of managing people out and moving away from the lockstep in order to keep people in and attract new lawyers.' Adds Aldock: 'There used to be the notion that people did different things and had different skills ' some were great brief writers and some were great with clients, but all were thought to contribute. Partner meant tenure for life, with certain exceptions for things like willful misconduct. Even partners who became ill or suffered from dependency issues could be dealt with in changes in their compensation, but today many firms cannot afford this luxury.'

Was It Better the Old Way?

Was life truly better for partners under the covenant? Aldock thinks so: 'The whole profession was a happier place. I'm not sure if we worked harder or not, but we were happier with what we did and felt more appreciated by our clients.' Bernthal agrees: 'I think we were working just as hard, but there was much less pressure to bill hours. We ate dinner at the office back then, just like we do today, but there was more time for distraction,' noting that he used to host a dart tournament in his office at 4:00 p.m. each day. Adds Aldock: 'Nobody ever looked at billables, and many of the senior partners didn't even keep time sheets. Each year you simply sent your clients a one-line bill that didn't say much more than 'For Services Rendered.' The nature of the work is more stressful now. Clients are more demanding and opposing counsel are less collegial. Client loyalty is nowhere what it used to be ' if [the business people] are going to be held to an impossible standard [by their bosses], then so are their law firms. Lawyers are less trusted advisers and more hired guns.'

Of course, the covenant did not benefit everybody. As Aldock, Wiley and Bernthal were each quick to note, prior to the 1980s, there were virtually no partners of color, and those few women who did make partner were often treated differently than their male counterparts, receiving lower salaries and expected to perform 'traditional female' responsibilities within the firm, such as pouring coffee for their male counterparts.

The Partner/Associate Relationship

The broken covenant has also had a profound impact on the partner/ associate relationship. According to Aldock, 'it seems as though a significant percentage of today's associates have no interest in being partners. In the old days, making partner was purely a function of your work and not your ability to generate business. Today, many associates look at the life of a law firm partner and just don't want it, while others believe their chances are so slim of making it that there's just no point in trying.' Consequently, at many firms, a partner's desire to invest time in training associates is greatly diminished. Bernthal agrees: 'It seems as though none of them come today with an expectation to be a partner.' Bernthal believes this disaffection with partnership does not stem from an inherent lack of drive in today's junior lawyers, but rather a result of what (until recently) had been a relatively stable and thriving economy. 'I've seen it four or five times in my life ' contentment is a reflection of prosperous times,' he observed, noting that a precipitous downturn in our economy may result in a 'cathartic cleansing' both of partners who are unproductive and young lawyers who really don't want to be practicing.

Not everyone believes the covenant has been broken, at least with regard to his or her own firm. Wiley feels that his firm has stayed true to itself since its founding in 1983. In Wiley's view, his firm's decision to not expand outside of the Washington, DC, area has allowed it to maintain a sense of family and collegiality. Bernthal and Aldock also believe that, despite their firms' size, they too have been able maintain a culture of collegiality and cohesion. 'It's different now, of course,' they agree, and while they acknowledge that many associates come to their firms for the training, the credential of having worked there (and, yes, the money) before moving on to other careers, both feel that for those who stay, there is still very much the old sense that they are all in it together.

Conclusion

In retrospect, there was a certain inevitability to the breaking of the covenant, for its premise ran counter to the very nature of a capitalistic society that glorifies the individual and prizes a free press. While the increased scrutiny given to law firms by periodicals such as The American Lawyer certainly played a role, the publication of law firm profitability numbers at best only hastened the demise of the covenant: Natural forces of competition ' the very essence of the American way of life ' were responsible for the rest.

Jeffrey Lowe is the Managing Partner of Major, Lindsey & Africa's Washington, DC, office.