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Rationalizing the Process of Hiring and Training Associates

 

                                                                                      Jerome Kowalski

                                                                                      Kowalski & Associates

                                                                                      May, 2010

 

            As the days become longer and warmer at this time of year, too many of the profession’s resources are focused on the administration of  a recruiting  system, that is broken, illogical, irrational, expensive and simply do not make any sense.  Corporate clients, who seek out the profession’s guidance in respect to their own enterprises, are watching and concluding that we are in fact nuts. They won’t pay for the profession’s folly and are wondering how they can rely on our advice in regard to their important business matters while we so poorly manage our own affairs.  Our system requires a complete top to bottom overhaul.   The process of hiring and then training needs to be brought in to a more rational and economically sound system. And, we should be more seriously scrutinizing the issue of lavish summer programs and questioning whether we continue these programs at all.

            The continued economic challenges we confront demand dramatic changes, which will enhance profitability and produce what our clients demand:  The delivery of a quality product efficiently delivered.

A Little Background

             Law firms have historically been economically anomalous business enterprises in almost every respect.  They defy basic rules of supply and demand, make a mockery of principles of economies of scale and are incapable of measuring profitability in the traditional manner on individual client engagements  (the rest of the world: revenues less cost; law firm yardsticks:  hours billed multiplied by hourly rates, less write offs and write downs yielding “realization rates”).  Similarly, law firms also defy extremely basic principles of labor economics; chief among them is the simple fact that no enterprise can predict what its needs for employees will be two years hence.  Yet law firms conducted themselves as uniquely being capable of doing so. Thus, they rush to recruit summer associates, before they even completed first year final exams and bend over backwards to make as many full time offers to these summer associates as possible (in order to induce next year’s crop of summer associates). 

        Last year’s perfect storm created by the downturn in real estate pricing,  the implosion of securitization and the deaths and near deaths of major Wall Street houses was not only a traumatic blow to the legal profession and its previous defiance of basic economic norms.  Suddenly principles of supply and demand burst on the scene, as consumers of legal services outstripped providers.  The plain imprudence of hiring a workforce two years prior to the commencement of their employment came crashing on the scene, as law firms withdrew job offers, deferred starting dates, sometimes for almost two years and dispatched other offerees to “public service” sectors.  This brew then became lethal when law firms engaged in wholesale layoffs of associates, some 5,000 among AmLaw 200 firms and probably an additional 25,000 at firms of 50 or more and clients (the consumers now holding greater power) simply announced “we are not going to pay for the training of young associates anymore.”   At the same time, law schools continued to inexorably spew out some 15,000 graduates each year.  In 2010, law firms began to realize that they were in fact subject to basic economic principles. Offers to law students were essentially halved.  There was certainly no concomitant reduction in students attending law school.  Oh, and we forgot that just as rules of supply and demand now govern pricing of legal services, so too should these principles govern the hiring process, with supply so far exceeding demand.

            In April of this year, Paul Lippe, CEO of www.legalonramp.com, and a regular contributor to AmLaw Daily, publicly revealed in a New York forum, that the king has no clothes: Mr. Lippe let out our little secret: law schools are “misaligned” and teach no practical skills. Oh, my goodness, how could we have all not noticed?

            At that same forum, Chester Paul Beach, associate general counsel of United Technologies, re-emphasized what all clients have been consistently saying for the last year:  UT will absolutely not pay for first and second year associates. “They’re worthless” said Mr. Beach. Clients, he said and as we previously noted  clients “are not going to pay for people who can’t add value.” To be sure, this is not a unique or a startling revelation; rather, this is a mantra that has been repeated by clients for the last 18 months or more.

            Here is another fact we never talk about:  The United States is proudly the only Western democracy which permits lawyers to be admitted to the bar without undertaking a mandatory period of clerkship or, as it is called in many parts of the world, “stagers.”  

            We must also recall the genesis and evolution of “summer clerkships.” Some 40-odd years ago, when the world was different and law firms much, much smaller, some law firms needed a couple of extra hands to handle clerical and some administrative duties as lawyers and staff took summer holidays. A few law firms hired a few second year law students at token salaries to fill these needs. We’ve all witnessed this nifty idea morph into today’s Godzilla.  I invite each of you to spend a moment or two with the septuagenarians at your firms (the few who might still be around), and let them regale you with the tales of yore, starting salaries of $50 a week, etc.

Time for a New Paradigm (Oh no, not another new paradigm!)

             The most obvious solution to the pickle in which we now find ourselves is to skip the nonsense about hiring summer associates and adopt a rational universal method of training new associates so that they can indeed provide value. These concepts, which have been the subjects of hushed discussions in many corners, will doubtless be met with the same vigorous rancor that health care reform was for forty years. Most egregiously, these concepts are rooted in basic concepts of sound economics and fiscal responsibility.

            The mandatory clerkships prior to bar admissions, as is required by the rest of the world is a concept so revolutionary to these shores and would simply take too many years to implement here quickly. But a modified version can be rather readily implemented.

              Modified clerkship programs already have some traction here: the need for training physicians through residencies are universally required and accepted; many industries, such as the media and many financial institutions require internships; a prestigious internship is a badge of honor for these professionals as they pursue the rest of their careers.  And a smattering of law firms have already accepted and adopted this concept.

            The system I propose is one in which law firms would hire law school graduates in the spring preceding their graduation and they would first be dubbed as “fellows,” a designation which may have greater gravitas attached to it than “clerks.”  These fellowships would last two years and would include not only the assumption of the duties now performed by first and second year associates, but also a series of regular and frequent practical skills workshops, clinics and training sessions delivered by not only partners, but clients of the law firm, academics and members of the judiciary. Quite likely, the eminence of law firms would thus be measured in part by the quality of these practicums and their faculties. “Fellows” should receive quarterly reviews in which performance and participation in these seminars should be important elements.

            At the conclusion of these fellowships, these reviews should be collated and a committee of the law firm would confirm that the fellowships were completed, perhaps with “honors” or “high honors.”

            There are certainly other issues which need to be addressed for the successful implementation of this system.

            One issue is the fact, well known for more than twenty years that the period of greatest turnover – that is, associates leaving their firms to join another – occurs during the third and fourth years. A related fact is that many firms, almost all exclusively below the AmLaw 100, simply do not hire young associates, and sit back while larger firms train young associates. These firms hire associates from the crops of those trained by larger firms. Some might call these other firms predatory, opportunistic or economically prudent.      

              Another question is how a law firm, having invested in the training of its “fellows,” receives a fair return on its investment by effectively deploying and using the services of the now well trained, efficient and productive cadre of lawyers. As much as some associates might think otherwise, they cannot be chained to their desks. The solution, it appears to me, to be that incoming associates sign a contract committing to stay with the firm for four years.  One would hope that aspiring lawyers would honor such contractual obligations.  Firms would, however, retain the right to terminate “fellows” for performance reasons.  Further, the formal conferral of completion of a fellowship would only occur upon the conclusion of four years of service.  The contract would further provide that should an associate leave prior to the termination of the four year period, any inquiry by a future employer would result in a response advising a prospective new employer that the associate failed to complete his or her fellowship.

            The successful conclusion of the fellowship would give the associate a resume builder, a proud badge of honor: “Fellow, Firm X”, “Fellow with Honors, Firm X” or “Fellow with High Honors, Firm X.”  These designations would obviously appear on web sites and firm literature.  Our physicians shamelessly post analogous information on their own web sites, on hospital web sites, on their CV’s and even decorate their offices with plaques boasting of their own training.

            Ah, but what of the issue of compensation?  At what level should these “Fellows” be compensated?  Some of the few firms which have adopted comparable systems offer lower compensation levels to their lawyers in training.  Some pay higher levels. In the end, market factors will dictate the answer.

            Even before all of these issues have been settled, three law firms, Howrey, Fross Zelnick and Gibbons have already begun such apprenticeship programs.  These firms are compensating their apprentices substantially less than the rates paid to first year associates, with Gibbons paying $48,000. http://www.lawjobs.com/newsandviews/LawArticle.jsp?hubtype=News&id=1202473054427&src=EMC-Email&et=editorial&bu=Law.com&pt=LAWCOM%20Newswire&cn=nw20101008&kw=N.J.%20Law%20Firm%20Starts%201-Year%20Apprentice%20Program&slreturn=1&hbxlogin=1

Update: On March 9, 2010, Howrey, after an unfortunte downward spiral, called for a vote of its remaing 141 partners (it previously had 279 partners) to dissove.  There is no doubt of the result. http://blogs.wsj.com/law/2011/03/09/ceo-ruyak-partly-blames-contingency-fees-discovery-vendors-for-howreys-fall/?mod=WSJBlog

Summer Associate Programs

            In truth, there is no rational basis for continuing summer programs

            Summer programs are inordinately expensive and economically irrational endeavors. If the purpose of having these programs is to recruit full time associates upon their graduation, we have already shown, and the profession has learned through its excruciating recent experience, that nobody can predict a firm’s professional staffing requirements two years in advance.

            Summer associates are not, by any measure, profit centers.  They are, as we well know, large money pits.  While I personally know the Herculean efforts of young aspiring lawyers have exerted through years of schooling and single mindedness of purpose (having done so myself and having been bestowed upon me a wonderful and memorable summer), this past year forced the conclusion that hard work and academic excellence do not automatically result in an entitlement of a plush summer program. Nor do summer programs adequately provide a yardstick by which either the law student or the law firm can be assessed.

            The profligacy of these programs is notorious. The costs are almost incalculable:  Some estimates of the hard cost for each summer associate are in excess of $75,000 per summer associate, consisting of compensation, recruiting costs, wining, dining, touring, summer camps and so on. The soft costs, partner and associate time spent in this unnecessary courtship are largely incalculable, particularly when opportunity costs (that is, time which might be otherwise productively spent servicing clients) are added to the calculus.

            Many firms have already either simply ended this exuberant spending or sharply curtailed their programs. If law firms feel an irresistible need to publicly display their wealth as a recruiting tool, there are a host of other places to send this money.

            Indeed, as heretical as it may appear, a well informed law student would wisely prefer to join a law firm that is fiscally well managed. Clients, too, would prefer to see parsimony rather than profligacy.

            Finally, while issues of decency hardly ever enter in to discussions of law firm economics, we should also share some sense of shame about the odious appearance of a law firm having recently laid off scores of its own dedicated associates, many of whom served the firm for years with distinction and self sacrifice, rationalizing such layoffs as being compelled by current economic conditions and then bestowing largess upon a new crop of graduates who may some day in the future make some contribution to the firm and its clients. The lesson imparted is that while firms demand loyalty and dedication from its associates, it has no reciprocal obligation.

Collateral Issues

            While there is universal recognition that revolutionary and dramatic change is required, a wide number of constituencies will doubtless vigorously challenge these ideas.

          One expected opponent will surely be NALP (the National Association of Legal Placement) www.nalp.org.   NALP describes its own history and mission statement as follows:

NALP was founded in 1971, during a period of rapid change in both the legal profession and legal education, in response to a perceived need by many law schools and legal employers for a common forum to discuss issues involving placement and recruitment.

NALP is dedicated to facilitating legal career counseling and planning, recruitment and retention, and the professional development of law students and lawyers.

                Forty years later, in a period of even more rapid changes, NALP, which has largely devolved in to an organization which largely exists primarily as the choreographer of the annual recruiting minuet between the profession and law schools, and, like so many other bureaucracies, its own continued existence and relevancy.  While NALP has for many years made important contributions to the recruiting process its relevancy and potency in this new world is increasingly being challenged and questioned

            Recently, NALP elbowed in on the discourse on the integrity and lack of consistency of law firm financial reporting.  Attempting to exercise muscle it no longer has, NALP, despite the fact that its position was well grounded, simply regrettably capitulated and lost the battle.

            Another controversy upon issue was joined earlier this year was an open challenge by major law firms to the continued efficacy of the timing and requirements of the NALP choreography.  The antagonists of opposing views were the most highly respected law firms in the nation and our very best law schools: Sullivan & Cromwell proposed to defy NALP’s offer timing requirements. Other major law firms suggested that they would decline to participate in on campus recruiting.  Law schools responded by stating that such firms would be thereafter banned from on campus recruiting. While it has been suggested that Sullivan & Cromwell was the first to blink,  in fact NALP backed down on its insistence that it alone had the right to direct the choreography and largely capitulated.

            The slim reed upon which NALP relies upon to avoid its increasing marginalization is the threat to ban law firms from on campus recruiting unless it was done, as NALP requires, in the early fall with late fall deadlines for offers and acceptances. The threat is, in my view, impotent.

            As is widely known, the prospects for employment by 2010 law school graduates are grim. Let’s get real:  If any law firm announced it was going to hold a job fair in the spring at an off campus facility, would any student without an offer decline to attend?  Would any student holding an offer withdraw his or her acceptance because of the firm’s temerity in defying NALP rules?  I don’t think so.

            Once again, the issue is a belief that rules of supply and demand are suspended in the legal profession.  Nobody can dispute that the supply of graduating law students spectacularly exceeds demand. The basic reality here is that it is the consumers of law school graduates have the unique ability to dictate the rules to the suppliers.

            I, for one, do not recall any law school course, law school professor or dean ever welcoming law students to a warp zone in which rules of supply and demand do not apply. Nor is there any law school course in which law students are instructed to ignore or forget about basic economic principles upon admission to the bar,

© Jerome Kowalski, May, 2010; all rights reserved.

 

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6 Responses

  1. […] clients to also not pay for the training of first and second year associates, as we previously discussed.  The result of that trend is that fewer law school graduates (3L’s) will also be hired in the […]

  2. As one of those septuagenerians, my ’63 summer law job paid $2.50/hour. or less than $18 In today’s dollars.

  3. […] a subset of the middle category, namely,  “interns,” which I previously discussed at http://kowalskiandassociatesblog.com/2010/05/09/rationalizing-the-process-of-hiring-and-training-ass….  Current press reports show that ta least three law firms, Howrey, Fross Zelnick and Gibbins […]

  4. […] the entire recruiting process. http://kowalskiandassociatesblog.com/2010/05/09/rationalizing-the-process-of-hiring-and-training-ass… This one is a toughie, particularly since concerted action by the profession as a whole is […]

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