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Summer 2010: A Time for Serious Strategic Planning; Spare the Fun and Sun This Year


What Next September’s Essay Concerning How You Spent Your Summer Must Include

 

                            

                                                                             Jerome Kowalski

                                                                             Kowalski & Associates

                                                                             June, 2010

        At our family’s ritual Fourth of July barbecue, a family member would invariably sit back on a lawn chair and sigh “man, what a hard winter we just had.”  Acknowledging nods and grunts would circulate, bottles of beer would bottom up, which was then followed by bursts of discussion for what the summer cycle would bring:  Time at the shore, golf, long weekends, a trip to a country resort. And, one family member or another would always bring this exchange to a grinding halt by saying something along the lines of “this year we’re going to be painting the back porch” or something akin to “this year we’re going to finally be cleaning out the garage.”  What was particularly enraging about these sanctimonious relatives was that they meant it, they did it and their houses were always in marvelous condition.

This year, we not only have a hard winter; it was preceded by an even tougher winter.  Next winter isn’t looking great either. Swimming, sunning, golfing and hiking, all important diversions to be sure, now must take a back seat to required home maintenance as the winter to follow shows no real sign of global economic warming. This is not the summer during which you should relax and then anticipate that things will get back to “normal” after Labor Day. There simply is no “normal” anymore.   I have long cautioned about the serious danger of a double dip recession.  Yesterday, Nobel economics laureate and New York Times Op Ed columnist Paul Krugman, upped the bidding and warned about the real danger of a “Long Depression.” 

It’s therefore essential to be grownups and use the coming two months productively.  Let’s put off the sunning and funning until we know the storm warnings have passed.

Here are some of the things we should be doing over the next eight weeks:

First, take a hard and realistic look back at what the first half of the year actually yielded. No, it’s not time to sling back in a hammock, toss back a brew and simply hope that the second half of the year will be better.  Yes, the winds of this year’s summer must be put to their utmost advantage

This summer, we all need to be Twelve Steppers and seriously invoke Reinhuld Niehbur’s “Serenity Prayer:”

God grant me the serenity
to accept the things I cannot change;
courage to change the things I can;
and wisdom to know the difference.

We cannot change economic realities by wishing them away or hoping they blow away while we sun and fun.  But, we do need to have the courage to make changes necessary to accommodate those things we can alter.

First, take a walk around your entire house and take an objective look at what needs fixing.  Some thoughts:

  1. Take a hard and critical look back at the preceding six months. Has the flow of business from a significant client decreased?  If so, have you met with the client and had the hard discussions?   If the client is suffering its own reversals, use the opportunity to express concern and offer assistance, even if the result is not immediate revenue generation. Cement the relationship; let the client know your interest in its welfare does not end when the revenues stop flowing.  Is the business going elsewhere?  Ask why and inquire as to what you need to do to get the business back.  Is there an existing or new client that has increased its reliance on your firm and generated new revenues?  Cement this relationship further.  Find out what you did right and what lessons you can take away for other prospects.

 

2.       Take the time to talk to peers at other law firms. Gain an understanding of how they weathered the months past and how they are planning to deal with the coming “R” months.

3.       The longer days of summer also provides you with the opportunity to spend time with partners and associates to share with them the direction the firm is headed, solicit their input, eliminate the fear of the unknown and create a sense of shared common purpose and increased transparency. This year’s summer outing should not be only about golf, softball, volleyball, sunning, sailing and swimming.  All of these activities should simply provide more comfortable venues for open substantive dialogue and an absence of opaque leadership.

 4.      The late spring and early summer have wrought significant substantive changes to vital areas of the law vitally affecting your clients. These include (a) recently enacted federal financial reform; (b) the continued vitality of Sarbanes Oxley in light of the Supreme Court’s ruling on June 28 in Free Enterprise Fund v. Public Company Accounting Oversight Board; (c) what is the practical effect of the Court’s holding in Bilski v Kapposs in regard to patenting business methods? And (d) health care reform legislation. Are you on top of these issues?  Are you ready to respond intelligently to your clients’ inquiries on these issues?  More importantly, why are you waiting for the phone to ring?  The next few weeks should be the time during which you should be sending your clients succinct alerts and bulletins explaining in crisp simple English sentences how each of these events affect them and their business.  And, while you are at it, you should also be taking the initiative and staking out and establishing your credible expertise in these areas by posting informative blogs on these important emerging issues.  The New York Times opined on June 26 that the new regulatory schemes were actually intended to provide federal aid to employment in the legal sector.  Nobody is coming up from Washington to hand you a check.  You need to do the work to obtain your entitlement.

5.    Take stock on the performance of your own firm’s practice areas.  Compare year to date performance with the prior two years.  Take note of the trending in these areas and determine where assets and talent might be better deployed. Be sure that you are not falling in to a business concentration trap to post short term revenue gains.Reach in to the bottom left drawer of your desk and dust off your current business plan and take stock of how the firm is performing midway this year and determine where tinkering is essential. The same should also be done with regard to your current budget.  Business plans and budgets, in the current economic climate, are precisely like well thought through and thoroughly researched military battle plans. They are perfect until the first shot is fired.  The summer solstice lifts the fog of war and provides the opportunity to revamp, revise, amend or trash plans that aren’t working. Don’t double down on bets that haven’t been working.  Do increase investments in areas that are showing growth and staying power.

6.    Become fully acquainted with the metrics of The ACC Value Index .  Your firm is being graded by the Association of Corporate Counsel and those grades are publicly posted. Do not put yourself in jeopardy of being voted off the island only because you failed to appreciate on what bases you are being graded .

 7.     Alternative Fee Arrangements are not a passing fad.  Our colleagues at Altman Weil reported just last week that a whopping 94.5% of law firms utilize varying forms of AFA’s.  Firms which have more thoroughly embraced these billing arrangements are experiencing real increases (often double digit increases) in revenues and profitability and substantially enhancing client relationships.  Now is the time to make sure your partners understand that clients are no longer buying in to the palaver that legal matters, particularly litigation, are so unpredictable that the only way for lawyers to be fairly compensated is through an hourly billing model. It is now the time for everybody to slake their thirsts and enjoy the Kool-Aid. 

 8.    As I wrote some months ago, ACC metrics, maximizing profitability, maintaining best practices and requires that law firms be populated with experts on project management. Many firms have already stood up and not just taken notice but have moved forward and developed this expertise. The summer months provides you with the time to clean this part of your garage and develop the requisite in-house expertise necessary for success in this market.

9.  Take stock of your colleagues’ ability to adapt to the revolutionary changes required of lawyers in this challenging and unprecedented competitive economy and make sure that your partners’ resistance to change is being treated with appropriate antibodies.

10.  Realistically reassess, once again, your hiring projections for 2L’s and 3L’s. You won’t be caught up short if you under hire; you will doubtless have an agita relapse if you over hire. When you add the recent law school graduates to the pool of unemployed lawyers laid off in the last couple of years, the available labor pool is now in excess of 60,000.  In 2011, it will exceed six figures. Think about it like packing for a vacation trip:  Take half as much luggage as you planned and bring along twice as much money.

11.  Dramatically expand your own network of contacts.

And, in the Fall, when well tanned visitors come calling, let them be impressed by how fantastic your home looks.

© Jerome Kowalski, June, 2010.  All Rights Reserved.

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Meeting and Overcoming Lawyers’ Resistance to Change; How Are Changes Required by the New Era Effectively Adopted and Incorporated Within the Law Firm?


An IBM Selectric typewriter, model 713 (Select...

An IBM Selectric typewriter, model 713 (Selectric I with 11" writing line), circa 1970. (Photo credit: Wikipedia)

The Times — They Are Changing

 

How to Overcome Lawyers’ Innate Resistance to Change

 

                                                                             Jerome Kowalski

                                                                             June, 2010

In the early 1970’s, when I was a very young lawyer, exciting new technologies, or at least what we then saw as exciting new technologies, were sweeping the profession.  Some of you may even recall what we old timers then saw as “holy crap” moments (this is a family blog, after all).  Some readers won’t even know what I am talking about. There are many arcane terms used below; you may need to ask your parents or grandparents to explain them.

The Changes of the Late 20th Century

The “mag card” typewriters – IBM Selectric typewriter with a “memory” that retained information typed on the machine (no screen – the typist had to find particular entries through trial and error and sheer dumb luck to find the part that required editing).  But, the document could be printed at the lightening speed of four minutes a page.  Vydec machines; a prehistoric version of a word processor; (it was the size and had the feel of a small space station). It came with a screen, and, gets this, the ability to print a document at a warp speed of two minutes a page. Portable hand held dictating equipment.  Direct dial telephone numbers; Voice mail (one of my former partners threatened to vote to dissolve the partnership if the firm acquired a voice mail system). Computerized time keeping and billing.  Sharing secretaries. Lexis. High speed printers.

My personal favorite was the fax machine. The device then cost upwards of $15,000 a unit, and, get a load of this: you could stick a document in, dial a number and then, assuming the proposed recipient also had a fax machine in some other part of the world, the recipient would receive an exact copy, printed out on long endless rolls of wax paper – at the amazing rate of four minutes a page. Long documents produced a ribbon of wax paper that might stretch to the size of a football speed.

Then ultimately, two decades before the Internet, PC’s, which actually was my second favorite, since prior to the early 90’s, virtually no lawyer had a clue as to what they were or how to use them.

All of these innovations, and many, many more had a few things in common:  One, at first, only the largest and best firms initially acquired these marvels. Second, anybody then over the ripe old age of 40 resisted each change. Smaller and midsize firms refused to invest in these technologies. The “older” generation swore they would never use them. But, slowly, and I do mean very slowly, each (and others not mentioned here) became regular tools of the trade.

As I said, faxes were one of my favorites. It was initially a sign of enormous prestige for a law firm to boast a fax number on its letterhead. Most still had cable addresses (if you don’t know what these are, ask your parents). Fax use spread at a snail’s pace. An older acquaintance, a single New York practitioner, an old family friend, finally succumbed to the pressure of an important client in Pittsburgh and invested $1,000 and purchased one. He had his mail room person unpack the contraption, read the instructions and install the device. Later that day, the lawyer dictated a long letter to his secretary, who used Pittman shorthand, who then transcribed it, using carbon paper for the two required office copies (who remembers this 0 and 2?).  Changes and typos were made by cutting and pasting. The lawyer summoned the mailroom guy and bellowed (proudly) “fax this letter to Pittsburgh.”

The lawyer returned to other matters and two hours later the wildly angry client called and demanded “Murray!! What are you doing?  I have 40 copies of your letter and you’re totally tying up our fax machine.”

Murray charged in to the mailroom and demanded to know what was going on.  “Boss, “the mailroom attendant said, “I was just going to come in and see you.  The machine is broken.  I keep putting the document in, dialing the number, hit the send button and it keeps coming out on the other side.”

My second favorite was the desk top PC.  In the early 80’s almost no lawyer had a clue as to what they were, except that they looked real neat.  In 1985, while I was 35 year old partner in the world’s second largest law firm and absolutely nobody at my firm had a PC (and even if they did, wouldn’t have a clue as to how use them or their reason for existence), I traveled on business to Denver to work with a midsize firm which was our co-counsel on a matter. I was blown away by the fact that each lawyer in the Denver firm had a PC on his or her desk.  I asked my Denver counterpart what this paraphernalia was.  He said he didn’t have a clue; one of the managing partners bought a bunch of screens, mounted them in each lawyer’s office and visiting clients were simply wowed by their existence.

Kicking, fighting and screaming, the profession as a whole and individual lawyers adapted to these changes and more.

The point is that lawyers are genetically resistant to change.

21st Century Changes

The changes described above are mere child’s play when compared to the economy’s enormous demands that lawyers engage in spectacular change or join the piles of dinosaur bones: As Jeffrey Carr, General Counsel (and Five Star General of the army of corporate counsel demanding change)  of FMC Technologies said To quote a former U.S. Army chief of Staff, ‘If you dislike change, you’re going to dislike irrelevance even more .’”

We know the changes demanded of us:

Alternative Fee Arrangements

Get to know the ACC Value Challenge and live up to its standards.

Give us a real budget on an engagement and live up to it.

Take on some of the risk when we engage you.

Give us a quality product and do so efficiently.

Train your associates on your nickel and we’ll pay for them when they know what they are doing

Recognize, as we do, the inefficiencies and high costs hourly billing breeds.

Don’t overstaff or overwork a case.

Provide true transparency in the billing process.

There are plenty of providers for legal services and less demand for outside counsel. You’re going to have to meet the competition.

Well, all of that is easy. Perhaps. But given the professions’ genetic resistance to change how does the profession and how do law firms overcome that resistance?

In fact, resistance to change is not unique to the profession. It is widely known among psychologists and much ink has been devoted to the issue, including a note by Dr. A. J. Schuler, the observations of Value Based Management, strategies suggested by Team Building, Inc., and the more detailed exposition of The American Society for Quality.

In fact, there is nothing unique to the legal profession’s resistance to change. It exists in every stratum. A century’s study by academia and management professionals of resistance to change, applied to the law firm community, dictates the methodology which must be embraced by law firms to avoid extinction.

Transparency.  Perhaps one of the most overused nouns of the decade; it does have real resonance here and is, indeed, the core principle to lawyers’ endemic resistance to change in the new era.  Transparency must be adopted by law firms within every aspect of their very own societal culture and permeate every fiber of their being. Transparency is not limited to dealing with clients alone; it must be part of every law firm’s culture. Fear of change is brought about by fear of the unknown and inherent uncertainty of the future. In days of yore, associates, and, indeed partners, hade simple metrics by which they could readily determine their own compensation. Minimal hour billing requirements yielded certainty of compensation; meeting higher hours billed equaled a guaranteed bonus. Bringing in a level of revenues yielded an arithmetic equation by which partner compensation could be calculated.

Management must share openly with the partnership how demands by a newly empowered client base will be met and engage in open dialogue regarding how these challenges will be dealt with by the law firm. Dialogue means active and full participation and consideration of substantive productive suggestions and ideas of the full partnership, a clear, common and shared understanding of the challenges confronting the law firm and how they are going to be met.  Sorry, top down management and fiat doesn’t work here.

Transparency also means that associates participate regularly in the discussion, understand the client demands and be part of the dialogue in which how these challenges will be addressed.  Do not set hearts thumping and, more important, fear of the unknown, by summoning the troops to a conference room and issue diktats from on high. That is, unless you want your associates live in total fear and uncertainty and have an insatiable desire to provide grist to Above the Law and the rest of the blogosphere about imagined chaos at the law firm.  Clients and potential laterals read this stuff; more traditional trade journals report on it, fed by the blogosphere. It has become the 21st century’s version of the childhood game of “telephone.”

A simple case in point: Had management openly discussed with the associate corps in 2009 the need to reduce payroll of the professional staff in 2009 and offered them the option to have a secret ballot of one of two options, namely, reduce salaries across the board or terminate some number of associates, there is little doubt that the vote would have been overwhelmingly for the former and an enhanced sense of common cause, rather than fear or resentment resulted.

And now, let’s get down to same basic principles of human nature, not confined exclusively to the legal profession. Actually, lessons learned over a century by management professionals:

1.    We all fear that the risk of change is greater than the risk of standing still.  The full and open dialogue now mandated, as discussed above,  is designed in large measure to convey to the law firm’s entire community that the risk of standing still is far greater than the risk of standing still. Be sure that the message conveyed is an institutional sea change is required to be undertaken by the firm to survive as a continuing and thriving institution.  The message: The risk of standing still far outweighs the need for change.

2.    The nature of organizational life is that members of the lower level of the totem pole look to their seniors for role modeling. Young associates dress and act like their seniors. Senior associates dress and act like partners. Organizational life is one in which tone, tenor and style is indeed top down and set by example. Accordingly, as younger associates observe their seniors, mentors and role models adapting to the new realities, so will they.

3.       The great motivator is the carrot and stick. Accordingly, lawyers within the firm adapting to and meeting the new challenges to the profession are those who should be rewarded.  New yardsticks for compensation must be developed and clearly communicated. Instead of the old metrics for calculating compensation on the old “minder, finder and grinder” measure,  the new yardsticks must be based on rating lawyers (and compensating them), utilizing numerical scores, on the identical scoring system of the ACC Value Index: [1] understanding objectives/expectations; [2] legal expertise; [3] efficiency/process management; [4] responsiveness/communications; [5] predictable cost budgeting skills; and [6] results delivered/execution. Lawyers within the firm must be educated on these new requirements and the annual review process demands that those who convey the reviews explain in detail how the yardsticks were applied in assessing performance and areas in which improvement is required.

4.     At the same time, the law firm must instill a communal notion that attracting new clients, serving those clients and retaining them is a firm-wide obligation; part of the woof and fabric of the institution.  Just as those who meet high grades using an internally applied ACC Value Index, so too should these efforts be gauged and included in the calculus of pain and pleasure on an individual basis, but viewed in the context of the firm as ongoing enterprise. Transitioning in to the new “new” should not be viewed as a threat to those who have the talent and ability to bring in new clients and simply be rewarded for those critical efforts.  Rather, adapting to the new world will require weaning and time and should not be seen as a threat to those who had achieved money, fame and glory because of their unique ability to bring in new clients. Law firms and its partners simply need to begin to remove the personal pronoun and use the collective pronoun in reference to clients; it’s no longer “my” client, it’s “our client.”

5.      Prevent systemic and personal overload by expecting and requiring changes overnight. Regular roundtables and group meetings must merge as a critical of the firm during which the new yardsticks are discussed; difficulties (no doubt shared by partner and associate alike), are discussed openly, with no judgmental factors attached. Participants should be encouraged to raise problems they may have encountered in this new paradigm and invite suggestions from those assembled on how to meet these challenges.  Regular discussion of how the firm is meeting new client requirements removes fear of change, embracing change, have the competence to meet change, remove skepticism of change, threat of changes in personal standing wrought by change and universal buy in to its application and essential need.

© Jerome Kowalski, June, 2010.  All Rights Reserved.

Associate Compensation in the New Era


2011 MLS Salary Grid

2011 MLS Salary Grid (Photo credit: Bernhardt Soccer)

A long, hard look at associate compensation is in its infancy and long overdue.  There is no cosmic obligation that firms universally set the gold standard at a $160,000 starting salary nor is there a divine imperative by associates to demand compensation at that level.  Law firms have received no exemption from compliance with the laws of supply and demand. Nor are they exempt from basic concepts of basic economically rational behavior.

At the outset, let’s recall how law firms got to the gravity defying $160,000 plus bonus starting salaries.  In the last decade, as investment banks became increasingly profitable and the pool of bright B-school graduates was limited, investment banks turned to top law school graduates for fodder.  Recent law school graduates of well ranked schools were then certainly bright enough to perceive that their own economic opportunities, both short term and long term, was far rosier in the investment banking world.  Top ten law firms, upped the ante and spiraled starting salaries to the $160,000 plus level. The next tiers of law firms, forgetting that their business base was largely middle market thought that merely because they had increased in size and paid rent in major metropolitan markets they were cut of the same cloth as traditional top ten firms.

If royalty was cloaked in red velvet and astronomic starting salaries were part of that vestment, these newly large firms thought that they would also be viewed as part of the regal clan by including this vestment, ignoring their somewhat humbler roots.  So, the legal profession went in to a bidding war with the investment banks for this talent.  We’ve now seen the virtual death of the investment banking industry and, guess what?  The legal profession won the bidding war.  But, what it won was the booby prize; the investment bank world has largely died.  The competition for the high priced talent died with them.  And, law firm clients were no longer interested in financing either the no longer existing bidding war or the cost of training young lawyers.  Rather, the primary focus is on efficiently deployed legal expertise, understanding the client’s objectives and budgeting.  I have scoured the curricula of over 100 law schools and none offer coursework in these vital areas.

Rather anomalously, another driver in maintaining logic defying extraterrestrial associate compensation levels are the various blogs in which so many associates happily and anonymously share gossip,  divulge confidential information about their law firms and whine about salaries.  These blogs have assumed a jarring force in the profession.  Assuredly, many, many lawyers and professionals either sneak peeks at these blogs or follow their titillating tales with religious regularity, but basing important business decisions on these blogs is as rational as making life decisions based on the tabloids piled at supermarket checkout stands.

It certainly has not escaped our attention that in the waning weeks of 2009 and upon the dawn of the new decade, some firms announced bonuses and the unthawing of salary freezes.  Many of these announced bonuses were cosmetic, as were the thawing of the freezes. Some of the bonuses as well as increased salaries were conditioned upon realizing minimum annual hourly billing; an unrealistic achievement for many associates who are both honest recorders of time and simply haven’t been assigned enough work to get to the brass ring. Some of the “unfrozen” salary and concomitant cosmetic raises now also include a “holdback” of material portions of annual compensation, a neat way to also preserve capital and at year end, microscopically scrutinize performance, giving the firm the option to decline paying holdbacks because of purported failures to pass muster.  In some cases, the unthawing of salary freezes came with an elimination of lockstep compensation.  Thus, some firms could give the appearance of joining the elite in the AmLaw and simultaneously deal with associate compensation in the ever changing black box we witnessed in early 2009.  The ultimate results in continued declines of associate morale will again reoccur.  (Associate job satisfaction is not something not to be trifled with: http://kowalskiandassociatesblog.com/2010/09/13/associate-job-satisfaction-why-law-firms-should-care/ ). Since early 2009, we have been strong advocates of complete transparency on associate retention and compensation issues, including involving the associates in the factors being considered by management in making these crucial decisions.   That view has not changed.

In the case of some of the early 2010 announcements of unconditional thawing of previous freezes and the resumption of bonus payments by a small number of law firms which are simply top ten wannabes,  this is simply a short sighted error in judgment, with long term adverse consequences.  It is a repetition of previous lemming-like conduct, for which the financial penalties will be the same experienced in 2009.  As George Santayana famously said in 1905, “those who don’t learn from the past are condemned to repeat it.”  Or, as psychologists are wont to say, the repetition of the same acts expecting different results is the ultimate definition of insanity.

The year end associate public bonus announcements demonstrate a lack of a grasp to reality.  Surely, rewarding those who have contributed to a firm’s year end success, whatever that may be, is certainly commendable.  But, fixed amount bonuses make no economic sense.  Munificently rewarding those who are simply still breathing at year end and survived the scythe of layoffs and crowing about that grandiosity publicly also shows an indifference to client concerns that “lawyers are making too much money,” a sentiment we now know widely exists among clients.  Such bonus awards, if appropriate, should be granted privately during personal year end reviews. Associates should be told during year end reviews why he or she received or did not receive a bonus. It defies credulity that each surviving associate at each level of seniority performed and contributed equally to the firm’s year end results is simply absurd.  No firm would reward partners an equal bonus, based only on seniority.  Rewarding associates in this public fashion not only makes no sense but serves to throw more sand in client’s eyes. No other business awards annual bonuses and salary increases by simply taking an employee’s pulse, measuring continued brain wave activity and simple confirmation of continued life at year end.

Rewarding additional bonuses based on yearend total hours billed is plainly pernicious. Dr. Atul Gawande, the renowned surgeon, MacArthur Fellow and New Yorker journalist has poignantly pointed out that paying physicians on a simple fee for services basis only provides economic inducements for physicians to order and provide more services, needed or not and certainly does not provide better medical care or better medical results. Compensating associates (and indeed law firms as a whole), based on hours billed breeds only more hours, not better results. When the economic risk is passed on to the law firm, as sea changing alternative billing arrangements require (http://kowalskiandassociatesblog.com/2010/08/24/alternative-fee-arrangements-lesson-ii-of-the-primer/ ), closer scrutiny of hours billed by the firm will be the only economic result; improved or enhanced legal services will not necessarily be achieved.  The firm will more carefully consider whether a particular item of research is really needed, whether a deposition of a particular witness is really necessary.  Clients now really understand this; firms too often just don’t get it.

And, let’s say openly what we have been afraid to say publicly for a generation or more:  When you base associate compensation on hours billed or bonuses on reaching higher plateaus, you simply encourage cheating at worst and exaggeration at best. A reading of http://kowalskiandassociatesblog.com/2010/09/14/222/ is instructive.   If the associate is performing well and he or she is not billing sufficient hours, it is the firm, not the associate who is at fault. It is the firm’s obligation, not the associate’s obligation, to fill his or her plate, with due consideration to the performance of the associate.  Our deep and dark dirty little secret is that compensation and bonuses based on hours billed breeds a culture of dishonesty.

While statistics sometimes make the eyes glaze over, it is significant to quickly review some significant raw data about young associates and future recruiting: The recent publicly acknowledged round of layoffs of associates in 2009 at AmLaw 200 firms alone numbered in excess of 5,000.  That number does not include so called “stealth layoffs,” that is, lawyers who were let go because of accelerated or routine annual reviews, for which the “bar” was set higher. That number does not include layoffs for firms of 100 or more lawyers, not members of the hallowed AmLaw 200.   Nor does that number include partners or counsel who were let go; greater discretion and judgment kept these partners from wagging their tale of woe to the nearest blog. All told, we believe that approximately 27,000 lawyers are now unemployed who previously worked at firms of 100 or more lawyers.

And, the pipeline keeps spewing out more lawyers. Approximately 40,000 students graduate each year.   At the height of the hiring boom in 2007, AmLaw 100 firms hired a total of 10,000 new graduates. The estimated total number of recent graduates hired by firms of over 100 lawyers during that same top of the curve is estimated at approximately 27,000.  Accordingly, the total available labor pool for 2010 will be more than 75,000 lawyers – new graduates plus currently unemployed or underemployed lawyers.  Accordingly, if miraculously the demand in 2010 equals the demand that existed at the previous zenith; there are still three times as many available applicants as openings. We must also add to this calculus that headcounts at AmLaw 200 firms declined by about 5%. Sadly, we know that miracles seem to be in rather short supply.   2011 will add at leat 45,000 new graduates to this pool.

The incredibly long lines appearing in 2009 before the windows reading “hiring today” tells the story. Forty thousand applications were submitted for 1,200 federal clerkships. Hundreds of applicants apply for each lawyer posting appearing on www.usajobs.com. And that’s just federal jobs. Anecdotal evidence suggests that there are more than 30 applicants for each government job; the openings range from assistant counsel at a municipal waste district to the hallowed halls of the Justice Department. Six applications are made for each pro bono position. Imagine that:  six people competing for a job that offers no compensation.  The Manhattan District Attorney’s office took on so many pro bono applicants this year that it didn’t even have enough folding chairs, let alone desks, to seat them. Aspiring lawyers, $150,000 or more in debt are sitting on the floor trying to work for free to enhance their resumes in the hope of landing a paying job when the smoke clears. One bright small note is the passage of legislation which provides for law school tuition loan forgiveness for lawyers employed in the public sector ( http://legaltimes.typepad.com/blt/2010/09/doj-to-finally-give-government-lawyers-loan-relief-.html )

We have all heard a bit too often recently that employment is a lagging indicator in a recovery from a recession. But, your blood may further chill upon learning the fact that job recovery for the legal profession following a recession is one of the most significant and longest lasting indicators.

While I feel a need to apologize for numbing you with these numbers, these rather ugly statistics should play an important role in fixing associate compensation, deployment of associates and the recruiting process as a whole.

As an aside, I have frequently observed over the last year that if law school deans who recruit college graduates to enroll in law schools were held to the same standards of disclosure as issuers or underwriters of securities, many, if not most, would now be housed by the Federal Bureau of Prisons.

My own guess is that economic realities will compel a continued downward spiral of starting salaries; tiering of associates; moving associates up through the tiers only upon their mastery of important client demanded skills.  Most significantly the powerful Association of Corporate Counsel is now publicly ranking law firms by clients on a scale of one to five for six objective criteria. Thus far, 1,800 evaluations have been made of 600 law firms. Associates will be necessarily evaluated on their mastery of the ACC identified skills.

Nor does it make sense given the current state of affairs to maintain a bench full of young lawyers to be available for that call from the Big Client for a major matter.  Rather, with the streets teeming with well educated and often well trained lawyers, more associates will be engaged directly by law firms on a project by project and as-needed basis, subject to oversight by  project managers and quality control systems and personnel. Less than voluntary flex time and part time lawyers will be more common.  These lawyers obviously will be paid less and will not receive benefits.  The increasing use of temporary help, as opposed to full time employees, across all industry lines was a trend noted and reported on December 19, 2009 by the United States Bureau of Labor Statistics.  And, given the vast army of such lawyers pounding the streets, as I previously described, the necessity to use contract lawyer agencies to effectively act as distributors of these resources and paying them a distributor’s profit, the efficient law firm will retrofit its own recruiting personnel, no longer engaged as deeply in on campus recruiting and deploy them to find these project lawyers.  Some number of these project lawyers will shine and be offered full time employment.  Most others will return to await the next casting call.

Law firms in the coming months and years, are going to be dragged, perhaps kicking and screaming, back in to basic economic norms, including laws of supply and demand, rational compensation systems, merit based increases, leaner staffing, more efficient delivery of legal services and compliance with client demands.

It’s a brave and scary world out there.  But virtually every other member of the business community has already learned to survive and often thrive adhering to basic economic norms.  The fallout to the legal profession is ineluctable.  Associate compensation will continue to scale down. Numerous lawyers will be day laborers. Many lawyers now in the profession will never again work as lawyers.

© Jerome Kowalski, January, 2010, All Rights Reserved.

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