Future Employment Considerations for Law Firms

For a few law firms, the post-recession legal world looks the same as it did pre-recession, but for most, it is one where significant changes must be made to their business models in order to survive and prosper. The firms requiring significant change are seeing their clients demanding more work for less money, fewer associates staying with the firm, competitors using different staffing models to compete ' and sometimes win ' on price, and the internal need to squeeze more profits out of a flat or slightly declining revenue stream.

Along with a basic operational focus shift from revenue to profits comes many interesting discussions and plans related to “efficiency” in the service delivery model. Absent significant, foundational changes, each model has a limit to the profitability level it can sustain. The business of law is based on a simple supply ' demand relationship and the demand patterns have changed and will not return to pre-recessionary levels any time soon. Some firms have already made significant strides with respect to driving down the costs of services provided on the supply-side of the equation, while those firms that have not already done so will likely be forced to re-design the structure of their attorney staffing, re-evaluate the types of lawyers they hire, evaluate lateral books based on the top and bottom lines, and re-structure how lawyers are developed within the firm.

Structure of Attorney Staffing

In order to: 1) make career paths available to the increasingly high number of young lawyers who do not want to be equity owners; 2) address, at least partially, the brain drain associated with lawyers who leave their firms for family or personal reasons due to the rigid work and demand model; and 3) create more options for lawyers with valuable skills who do not have all the skills needed to be an equity owner, law firms still operating under an up-or-out structure will eventually be forced to consider developing alternative career paths that vary from the old associate ' non-equity partner or counsel ' equity partner track. It is quite possible for an attorney to strike a work-life balance, not be a partner, and still produce valuable client services.

The firms or practices that will rely most on non-partner-track attorneys are those facing the greatest fee pressures from clients. Their clients are not just demanding discounts off standard rates, some clients are setting low fixed fee amounts for their work and telling firms to take-it-or-leave-it. In order for firms to continue to profit from these clients the work needs to be performed by capable, lower cost resources.

Much of the current focus for these lower-cost positions is on some variation on the “staff attorney” position. This is a non-partner-track lawyer who is focused on specific, lower-value tasks (from the client's perspective), such as document review or quality control. This type of attorney tends to be paid less than lawyers on the partner track, is profitable with respect to economic contributions to the firm, and is happy in the role. Some may demonstrate the skills needed to switch to a different career track, and others with management/process improvement skills may realize opportunities for advancement as managers in charge of the budget, timing, and processes.

Clients are increasingly comfortable with such models, because having different divisions within a particular job class is nothing new in the corporate world. Corporations have long held dual career paths within their technical divisions. It is common for a corporation to have one set of engineers or scientists advancing along a technical path, while having another set advancing along a managerial career path.

Attorney Hiring Strategies

The associate salary wars of the past 10-15 years have resulted from a large number of firms competing for a relatively small number of supposed “top-tier talent” out of prestigious law schools. However, the recession has forced some firms to reconsider this approach because: 1) the associate work performed at many firms can be competently completed by individuals who do not command the same salaries as “top-tier talent” (which ties back in to the staff attorney positions described, above); and 2) several studies suggest that the correlation between law school class ranking and/or class rank and the ability to be a good lawyer is relatively weak.

We know of a few progressive law firms that are commissioning studies within their ranks to try and identify those characteristics that are the strongest predictors of success at that firm (e.g., an individual's degree of academic pursuit, degree of interpersonal sensitivity, degree of ambition, degree of sociability, etc.). The idea in these firms is once their “success characteristics” are determined, they can be used as tools to assist with recruiting and internal evaluation efforts. It's not a perfect exercise, but any effort that can improve talent retention rates deserves consideration.

We are also seeing a different philosophy at some firms regarding the hiring of associates for different practices. In the past, these firms would hire the same type of high-priced associate for each practice regardless of whether or not the specific practice actually required, or could afford, such an associate. These firms are now considering the needs of the specific practice groups and will consider different associates, and offer different starting salaries, depending on the needs at hand. Again, the staff attorney role, referenced above, creates the flexibility needed to address this scenario.

This is another practice that is aligned with how clients think and deploy resources. It is not uncommon for corporations to offer different salaries to new graduates (undergrad or graduate school) depending on the hiring department; furthermore it is not uncommon for corporations to offer different salaries for the same position in the same department depending on the candidates' credentials.

Book of Business Profitability

With respect to lateral hiring, firms are paying more attention to the bottom line than ever. In the past, law firms focused on top-line revenue growth, with the understanding that profits would follow. However as clients increase the fee pressure, law firms are increasingly realizing the need to factor in the costs and relative profitability of matters. Therefore, it is inevitable that firms will eventually increase the scrutiny of
a lateral hire candidate's book of business.

In the future it won't simply be good enough to see that a lateral hire candidate has a $2M book of business. Questions about profit margins and how the matters are staffed (e.g., staffed mostly by partners or associates) are as important as the portability of the book of business. These are topics and figures that hiring firms are focusing on and evaluating during the due diligence process. Candidates may be more attractive to a firm, and vice versa, if they can explain not only how their book of business can be expanded in the new firm, but run more profitably as well.

Lawyer Development Trends

As opposed to the past, where associates learned and adopted the styles and procedures of the partners that they worked under, some firms are realizing the benefits of having associates learn a uniform style and process that is practiced throughout their practice group and/or the firm. This can be done cost effectively by: 1) agreeing on basic tasks and uniform and standard general approaches that can be adopted and taught to young lawyers to the greatest degree possible; 2) selecting the right teachers from the lawyer ranks; 3) dedicating the time needed to get this done; and 4) following up and improving the process. Investments ' largely of time ' in the development of lawyers and staff produces uniformity, consistency, and a better basis for evaluations. The resulting “style” that develops for the practice or the firm is often noticed, and appropriately valued, by the clients.

Associate merit-based/competency models will continue to be an option as firms plan their future staffing and development needs. By requiring associates to achieve certain key measures of success before they are advanced to the next billing rate/compensation level, firms that implement this model provide career clarity to their lawyers and consistency of service providers to clients, who know that each lawyer of a certain classification has developed and mastered the skills required for that position ' and is worth the fee charged.

Firms are also realizing that some partners merit additional training to support their development. This is particularly evident with respect to: 1) developing rainmakers; and 2) developing future leaders. A “water seeks its own level” approach to development may leave the firm in need. If in need, a firm can either identify and develop ' via coaching ' of those with hidden talents, or recruit those with the necessary talents into the firm. Development is often the first course of action because lateral rainmakers tend to be expensive and lateral leaders tend to have a credibility problem.

Conclusion

These are just examples of considerations many firms will be contemplating as they try to move forward in the post-recession world. In the past, getting the work was the biggest challenge law firms faced, but now law firms have the added challenge of figuring out how to turn a reasonable profit once they've won the work. This heightened emphasis on profitability will force firms to re-evaluate their staffing models and the career paths and skill sets required to maximize the efficiency of those new staffing models.

Jonathan S. Kuo is a management consultant with Thomson Reuters specializing in the legal profession. He is based in Washington, DC, and can be reached at [email protected].

For a few law firms, the post-recession legal world looks the same as it did pre-recession, but for most, it is one where significant changes must be made to their business models in order to survive and prosper. The firms requiring significant change are seeing their clients demanding more work for less money, fewer associates staying with the firm, competitors using different staffing models to compete ' and sometimes win ' on price, and the internal need to squeeze more profits out of a flat or slightly declining revenue stream.

Along with a basic operational focus shift from revenue to profits comes many interesting discussions and plans related to “efficiency” in the service delivery model. Absent significant, foundational changes, each model has a limit to the profitability level it can sustain. The business of law is based on a simple supply ' demand relationship and the demand patterns have changed and will not return to pre-recessionary levels any time soon. Some firms have already made significant strides with respect to driving down the costs of services provided on the supply-side of the equation, while those firms that have not already done so will likely be forced to re-design the structure of their attorney staffing, re-evaluate the types of lawyers they hire, evaluate lateral books based on the top and bottom lines, and re-structure how lawyers are developed within the firm.

Structure of Attorney Staffing

In order to: 1) make career paths available to the increasingly high number of young lawyers who do not want to be equity owners; 2) address, at least partially, the brain drain associated with lawyers who leave their firms for family or personal reasons due to the rigid work and demand model; and 3) create more options for lawyers with valuable skills who do not have all the skills needed to be an equity owner, law firms still operating under an up-or-out structure will eventually be forced to consider developing alternative career paths that vary from the old associate ' non-equity partner or counsel ' equity partner track. It is quite possible for an attorney to strike a work-life balance, not be a partner, and still produce valuable client services.

The firms or practices that will rely most on non-partner-track attorneys are those facing the greatest fee pressures from clients. Their clients are not just demanding discounts off standard rates, some clients are setting low fixed fee amounts for their work and telling firms to take-it-or-leave-it. In order for firms to continue to profit from these clients the work needs to be performed by capable, lower cost resources.

Much of the current focus for these lower-cost positions is on some variation on the “staff attorney” position. This is a non-partner-track lawyer who is focused on specific, lower-value tasks (from the client's perspective), such as document review or quality control. This type of attorney tends to be paid less than lawyers on the partner track, is profitable with respect to economic contributions to the firm, and is happy in the role. Some may demonstrate the skills needed to switch to a different career track, and others with management/process improvement skills may realize opportunities for advancement as managers in charge of the budget, timing, and processes.

Clients are increasingly comfortable with such models, because having different divisions within a particular job class is nothing new in the corporate world. Corporations have long held dual career paths within their technical divisions. It is common for a corporation to have one set of engineers or scientists advancing along a technical path, while having another set advancing along a managerial career path.

Attorney Hiring Strategies

The associate salary wars of the past 10-15 years have resulted from a large number of firms competing for a relatively small number of supposed “top-tier talent” out of prestigious law schools. However, the recession has forced some firms to reconsider this approach because: 1) the associate work performed at many firms can be competently completed by individuals who do not command the same salaries as “top-tier talent” (which ties back in to the staff attorney positions described, above); and 2) several studies suggest that the correlation between law school class ranking and/or class rank and the ability to be a good lawyer is relatively weak.

We know of a few progressive law firms that are commissioning studies within their ranks to try and identify those characteristics that are the strongest predictors of success at that firm (e.g., an individual's degree of academic pursuit, degree of interpersonal sensitivity, degree of ambition, degree of sociability, etc.). The idea in these firms is once their “success characteristics” are determined, they can be used as tools to assist with recruiting and internal evaluation efforts. It's not a perfect exercise, but any effort that can improve talent retention rates deserves consideration.

We are also seeing a different philosophy at some firms regarding the hiring of associates for different practices. In the past, these firms would hire the same type of high-priced associate for each practice regardless of whether or not the specific practice actually required, or could afford, such an associate. These firms are now considering the needs of the specific practice groups and will consider different associates, and offer different starting salaries, depending on the needs at hand. Again, the staff attorney role, referenced above, creates the flexibility needed to address this scenario.

This is another practice that is aligned with how clients think and deploy resources. It is not uncommon for corporations to offer different salaries to new graduates (undergrad or graduate school) depending on the hiring department; furthermore it is not uncommon for corporations to offer different salaries for the same position in the same department depending on the candidates' credentials.

Book of Business Profitability

With respect to lateral hiring, firms are paying more attention to the bottom line than ever. In the past, law firms focused on top-line revenue growth, with the understanding that profits would follow. However as clients increase the fee pressure, law firms are increasingly realizing the need to factor in the costs and relative profitability of matters. Therefore, it is inevitable that firms will eventually increase the scrutiny of
a lateral hire candidate's book of business.

In the future it won't simply be good enough to see that a lateral hire candidate has a $2M book of business. Questions about profit margins and how the matters are staffed (e.g., staffed mostly by partners or associates) are as important as the portability of the book of business. These are topics and figures that hiring firms are focusing on and evaluating during the due diligence process. Candidates may be more attractive to a firm, and vice versa, if they can explain not only how their book of business can be expanded in the new firm, but run more profitably as well.

Lawyer Development Trends

As opposed to the past, where associates learned and adopted the styles and procedures of the partners that they worked under, some firms are realizing the benefits of having associates learn a uniform style and process that is practiced throughout their practice group and/or the firm. This can be done cost effectively by: 1) agreeing on basic tasks and uniform and standard general approaches that can be adopted and taught to young lawyers to the greatest degree possible; 2) selecting the right teachers from the lawyer ranks; 3) dedicating the time needed to get this done; and 4) following up and improving the process. Investments ' largely of time ' in the development of lawyers and staff produces uniformity, consistency, and a better basis for evaluations. The resulting “style” that develops for the practice or the firm is often noticed, and appropriately valued, by the clients.

Associate merit-based/competency models will continue to be an option as firms plan their future staffing and development needs. By requiring associates to achieve certain key measures of success before they are advanced to the next billing rate/compensation level, firms that implement this model provide career clarity to their lawyers and consistency of service providers to clients, who know that each lawyer of a certain classification has developed and mastered the skills required for that position ' and is worth the fee charged.

Firms are also realizing that some partners merit additional training to support their development. This is particularly evident with respect to: 1) developing rainmakers; and 2) developing future leaders. A “water seeks its own level” approach to development may leave the firm in need. If in need, a firm can either identify and develop ' via coaching ' of those with hidden talents, or recruit those with the necessary talents into the firm. Development is often the first course of action because lateral rainmakers tend to be expensive and lateral leaders tend to have a credibility problem.

Conclusion

These are just examples of considerations many firms will be contemplating as they try to move forward in the post-recession world. In the past, getting the work was the biggest challenge law firms faced, but now law firms have the added challenge of figuring out how to turn a reasonable profit once they've won the work. This heightened emphasis on profitability will force firms to re-evaluate their staffing models and the career paths and skill sets required to maximize the efficiency of those new staffing models.

Jonathan S. Kuo is a management consultant with Thomson Reuters specializing in the legal profession. He is based in Washington, DC, and can be reached at [email protected].