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Wanna Save Millions of Dollars and Bring Them All to Your Bottom Line? Radical Changes in the Legal Profession’s Recruiting Process Will Put Real Money in Your Pockets

New York Recruiting after a "small explos...

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Jerome Kowalski

Kowalski & Associates

May, 2010

If I or any of you could predict with any degree of precision what the economy was going to look two years from now, I would not necessarily be writing this note and you surely would not be reading this posting.  Should we have the ability to know what the world will look like four years from now, we would each be as wealthy as Bill Gates, Warren Buffet, Oprah Winfrey or at least Croesus.

Yet, every large law firm that participates in the NALP choreographed minuet that takes place every fall in connection with the hiring of summer associates feigns the ability to be remarkably prescient.  Even now, law firms’  hiring partners, executive committees and department heads and firms’ recruiting staffs are devoting substantial time in rehearsing for the legal profession’s version of “Dancing with the Stars”, but more significantly, throwing hundreds of thousands, if not millions of dollars out the door.  In these recessionary times of continued cost cutting, and watching every penny on the expense side, law firms’ hiring expenses, both hard and soft, are economically irrational and may be the most wasteful expenditure that any law firm engages in.

Whose fault is it that we are now in this pickle?

To blame NALP, as some have done, most notably Peter Kalis, the visionary leader of K&L Gates has said in his thoughtful essay and as Pete Kalis has advocated in the press , misplaces the blame.  To blame the law schools for relentlessly spewing out in excess of 40,000 new graduates, the overwhelming number of which will likely never earn enough money to repay their student loans, also misplaces the blame. In fact, a reading of NALP’s recent and incisive report on the employment statistics for the class of 2009 should serve as a long overdue wake up call for law firms, law students and should be required reading for any law school applicant.  To blame the ABA for its own juggernaut of accrediting law schools (140 at last count; ten more in the pipeline) also misplaces the blame.

In fact, as much as I admire and respect Pete, I think Pete’s basic premise is far too conservative.  Pete Kalis’ premise is that law firms are being forced to make staffing decisions two years in advance.  In fact, professional staffing decisions are in reality being made four years in advance, as I describe below, based on skimpy information extracted from candidates and without even the slightest clue as to what the world will look like four years hence.

In fact, laying blame is a uniquely Western unproductive tradition (as John Kennedy famously said in 1961, “Victory has a thousand fathers and defeat is an orphan”), the Japanese tradition is to acknowledge a problem and focus on curing the problem and not pointing fingers.

The fact is that NALP is a membership organization, made up of major law firms and law schools.  It is not a deus ex machina that lives and breathes a life of its own.  And the ABA is a membership organization, comprised of lawyers.  Thus, if we insist on looking for the villain, he or she appears every morning in your mirror.

We have previously written on the subject and return to it again because the recent NALP report and the continued and escalating focus on reducing expenses wherever possible, demands that we do so.

How did we get in to this pickle?

 

A quick review of the process is rather remarkable to anybody who looks at it from a clearheaded objective perspective. In fact it almost has an Alice in Wonderland quality to it.

In the spring of each year, firms spend hundreds of hours completing the requisite NALP questionnaires and the fungible essays on each firm. Firms then take a wild-assed guess on how many new associates they will need each year.  Dozens of senior lawyers engage in this activity:  Practice leader, office heads, law firm management, CFO’s and countless others who believe that they have something to contribute to the process. Once all of these contributions are stirred in a pot, shaken vigorously and baked overnight a raw number emerges. Recent experience suggests that simply throwing a bunch of numbers in a hat and having a partner pick the number while blindfolded would yield the same speculative result and save a great deal of time.

The next step is sending out platoons of lawyers on campus to conduct on campus interviews of law students who have nine or ten months of legal education under their belts (we used to dispatch regiments, but some recent recession compelled thoughtfulness prevailed here and the number of campuses visited by each firm and the number of candidates interviewed has been sharply reduced, given the economic realities we all now face).  The on campus process is often 18 – 20 law students seen for 20 minutes by a lawyer representing the law firm, too often distracted by thoughts of pressing client engagements, Blackberries, rushed cell phone calls and the like.  Typically, the interviewer has a single piece of paper in front of him or her used to assess the candidate:  A resume that all too often carries little of real substance:  Law school and undergraduate honors, a summer job or two and a word or two on language or technical skills and interests outside the law. Too often, these resumes are read for the first time while the candidate sits before the interviewer (the 20 minute clock is counting down).  Rarely, if ever is there any substantive discussion of the law (huh?  Isn’t that how we make our living?)

The interviewer then makes some quick judgments and invites some number back to the office (two sounds right; maybe three?) No decision for a callback is based on any criterion essential to the successful practice of law.

Now we get to some of the most amusing parts.  On the callback, the candidate usually spends about five or six hours meeting a mix of partners and associates. These sessions range from 30 to 45 minutes.  Protocol requires that almost none of these chats involve any substantive discussions of the law.  A de rigueur lunch is almost always included; proper table manners being somehow thought to be an accurate yardstick by which future success at the law can be measured. Writing samples and transcripts are submitted by the candidate.  Evaluations are completed by the interviewers and lunch companions and are then the subject of a deliberative meeting in a somber conference room; white clouds emanate from these sessions signaling that decisions have been made as to which candidate will receive an offer.

Wait; it gets better.  Although most firms have reduced the number of weeks of their summer programs and scaled back the Disneyland quality of summers of yore, each summer associate is compensated on a weekly basis the same rate of compensation as first year associates. And, here is another one of my favorites:  As a recruiting tool for generations to come, firms bend over backwards to make as many offers of full time positions for the following year to summer associates as possible (90% plus is often the case).

In short, as we all know too well,  law firms make decisions about which and how many  law students will become part of a law firm’s ranks based on an aggregate of perhaps six hours of chitchat and these decisions are made two years before they are to start work.

How much do we spend on these garnishes?

The estimated hard costs (travel expenses for interviewers and interviewees, salaries for the summer associates, even the scaled down romps) for recruiting these young men and women is estimated to be about $75,000 per summer associate. Like so much else of the anomalies of economics of law firms there are precious few economies of scale. The soft costs (primarily lawyer time in the interviewing process, mentoring and so on):  Like the folks at MasterCard say, “priceless.”

Now, the next part gets even more interesting and certainly breathtakingly more expensive.  Since as well now know too well, and as we previously reported , clients are simply refusing to pay for first and second year associates. Accordingly, scads of time is dedicated to training and mentoring first and second year associates:  CLE programs; workshops, observing the various negotiations, client meetings, transactions, closings, hearings, motions, trials and the other stuff we do to earn our keep. And while we teach and train these young associates, we also insist that we pay them in a grand style (at least that small percentage – NALP estimates approximately 22% — of law school graduates that make it in to “the big game”;  I believe the percentage is actually far lower) the “going rate” — $160,000 per annum.  The cost of paying these young lawyers and the incremental allocation of overhead together fringe benefits during these first two years typically exceeds $400,000 per lawyer.  And again, there is insufficient data to calculate the substantial soft costs, namely, the time of more mature lawyers involved in the training and mentoring process.

In all fairness, associate compensation should not be trivialized.  We of course do need to recognize the crushing debt carried by young lawyers.  But, by the same token, so much of the gravity defying salaries paid by most of the AmLaw 200 firms are rationalized by “competitive pressures” by law firms that are AmLaw top 50 wannabes.

At the ultimate end of this grueling four year process, $500,000+ expenditure, when productive lawyers are first added to a law firm’s profit centers, the most explosive result occurs: Attrition.  As associates move in to their third and fourth years, associates begin to think about alternative careers:  Government service, in-house corporate departments, smaller firms, competing firms, public service careers, family businesses and a host of other endeavors.  A fair number of associates are found by their employers to be wanting and are asked to leave.  The generally accepted estimate is that the attrition rate at the third and fourth year is 40%.

Now, let’s recap the dollars out the door and, because math is not my strong suit, I will simply arbitrarily assume an incoming class of 100 summer associates:  (a) $75,000 for the summer; plus (b) $500,000 in direct expenses for each associate’s first two years; times (c) 100; less (c) the 40% of associates that leave the track equals a very real hard cost of almost some $960,000 to produce each productive third and fourth year associate.  If your firm is larger or smaller, the math is fairly readily calculable. If your law firm is paying lower salaries or you have lower overhead costs, you still cannot escape the ineluctable facts:  There are whopping amounts paid for bringing along third and fourth year associates, all predicated on some irrational guess as to what the world will look like four years from now.

The awful pain the profession went through in 2010, as we slaughtered so many of our young, is the product of this system.

And, I return to the basic premise here:  No man or woman on this planet has a clue as to what the economy, let alone the demand for legal services, will be at the end of the four year gestation period required for the creation of a productive third and fourth year associate by current convention. But we do know that it will take at least two years of billing hours by these hard working associates to amortize these costs.

And how do we get out of this pickle?

But, there is no reason for us to now run around screaming like Chicken Little that the sky is falling.  There are plentiful solutions:  Spring prior to graduation hiring, as so many have suggested.  Some examples:

(a)    Requiring mandatory clerkships prior to bar admissions:

(b)    More rigorous screening than the causal six hour process we now employ.  We should take some important lessons from the processes used by major consulting firms, the financial services industry, the accounting profession and Fortune 1,000 companies.

(c)    Most significantly, the best example from which we must draw important lessons from is the medical profession through the use of the national residency matching program (www.nmrp.org) and the mandatory residency programs required by the medical profession.

Recently, as I lay awake in the wee small hours of the night, focused on the optimization of profitability of the legal profession, as I so often do, the idea of utilizing the medical residency analogue for the legal profession hit me like a thunderbolt.  I knew I had conjured up a unique and novel solution to the hiring and training process. I actually thought that when I revealed what I truly thought was a unique contribution to the legal profession I would be hailed as a consummate visionary.  But, as I devoted some time to researching the feasibility of using this model, I inevitably found my way to an absolutely compelling article written in 2009 by Professor Ashish Nanda, the Robert Braucher Professor of Practice, Faculty Director of Executive Education, and Research Director at the Program on the Legal Profession at Harvard Law School  Professor, assuredly a far more substantial and thoughtful intellect than me, authored a riveting piece in which he revealed, among other things, that he had analyzed the problem and thoughtfully addressed the “matching”  concept I innocently thought that I invented one dark pre-dawn spring day.  Thus, in spite of Professor Nanda’s stealing my thunder, I encourage you to read his piece.

 

The professions’ tossing out millions of dollars in the current completely broken system is the profession’s own fault and its collective inertia. In any new system, NALP would fill an even more vital role.  And, please remember at year end, as partners divide a continuously shrinking pie, how much money was tossed out the window in the current recruitment process.

 

In the weeks ahead, I will further explore some of the other concepts I described above.

 

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

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One Response

  1. […] the full details of his matching program, but it is a concept that I first raised last May in http://kowalskiandassociatesblog…and elaborated on in my book, “Navigating the Perfect Storm: Recruiting, Training and Retaining […]

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