NALP Exec. Dir. Leipold: Change in Biglaw hiring "permanent" Forum

[JCougar]

From the NALP Bulletin.

http://www.scribd.com/doc/110113683/NALP

I have been surprised recently that a number of law schools, through their dean or their office of career services, have called on NALP generally and on me specifically to develop a more positive message about the entry-level job market. One request went so far as to urge me to describe the entry-level legal employment market as good. Ah, if wishing would only make it so

We also know that the large law firm hiring model is different than it was before the recession, and is not likely ever going to look like it did in the last years before the economic collapse. That is because the business environment for large law firms has changed in significant ways that are likely to be permanent, or at least it has changed because of trends that are not likely to reverse themselves.

I recently had the good fortune to hear Jim Jones speak again, this time at the International Legal Technology Association conference here in DC. He identified three changes that he thinks mark a tipping point for the U.S. legal services market. The first is a shift from what had for countless years been a seller’s market to a buyer’s market for legal services. That means that most of the critical business decisions about the relationship between clients and their law firms that used to be made by law firms are now made by client corporations. According to Jones that shift in the balance of power is not likely to reverse itself even if the U.S. economy improves significantly.

The other two major developments are the disaggregation of legal services and the drift toward alternative fee arrangements.

Finally, you should not count on getting a job at a big law firm that pays $160,000 a year, even if you are at the top of your class. Those jobs are an increasingly small part of the pie, and you are much more likely to make $45,000 to $60,000 when you graduate than you are $160,000.

This isn't from some troll or some scam-blogger. It's from the Executive Director of the National Association of Law Placement (NALP).

The coming efficiency crunch in the legal market is going to restrict Biglaw hiring even more than it already has. Clients are just not seeing the value of paying $300/hour for a first-year associate to do document review or research some obscure legal question when they can outsource that work to India or a temp agency for $50/hour.

The current Biglaw salary bubble is not a given in legal hiring. It was not too long ago that biglaw starting salaries were less than half what they are now. It's not hard to see them starting to drop when there is a glut of unemployed or underemployed lawyers willing and able to do the same work for much less. If clients remain in the driver's seat, this is eventually what will happen.

This is the stark reality, and yet the law school tuition bubble has yet to respond and correct itself. It just keeps going up and up, because students convince themselves that either the legal market will rebound, that they will beat the odds, that their school is good enough and reputable enough to supply them with a comfortable living given the debt load of its graduates even if they miss out on Biglaw, etc.

In short, this insane and irrational process is close to coming to the end. Don't be one of those people that jumps into the fire after the hiring bubble bursts, but before the tuition bubble responds. Either take a significant scholarship, or wait this one out.

[BruceWayne]

People are going to flame you for this, but the more discussions I've had with practicing attorneys, after working in a big firm environment, after interviewing, and after seeing what's happening to my classmates (as well as other students at other schools). This article is dead-on. The days of most of the class at a top 14 landing the big firm job, let alone keeping those jobs, are gone.

One thing about JCougar, he posts the truth, whether the majority of posters like that truth or not.

[NoodleyOne]

The thing is, I don't think any of this is really "news". The facts are though that the 160k jobs still do exist, albeit in smaller numbers, and at certain schools you still have a good/very good shot of landing these jobs. Penn, Columbia, Northwestern and I think Harvard all placed more than 50% of their class into BigLaw jobs.

Basically, there's a middle ground here between "The Sky is Falling" and "Everything is just peachy". The jobs exist, they're just harder to get. One of the reasons people hope it will get better is the declining number of law school grads in general, which is probably true. I don't think anyone is predicting pre-2008 levels to be reached again, though.

[vanwinkle]

I'm incredibly skeptical of claims the billable-hour model is going away, since there have been a couple prior recessions where people went, "Look! Now it's a buyer's market for legal services! Finally, clients will be able to pressure law firms out of hourly billing practices!" Aaaaaaand most firms are still using billable hours today.

Otherwise I don't disagree with anything. Too many law schools, too many JDs, too few jobs. It's all true. I also agree that hiring for firms is changing, permanently, due to other factors (trying to operate leaner/cut expenses/raise PPP, outsourcing to West Virginia, etc). The truly high-end jobs are still there, but that market is shrinking, while the supply of new grads just keeps growing.

[JCougar]

I'm incredibly skeptical of claims the billable-hour model is going away, since there have been a couple prior recessions where people went, "Look! Now it's a buyer's market for legal services! Finally, clients will be able to pressure law firms out of hourly billing practices!" Aaaaaaand most firms are still using billable hours today.

I don't think it's safe to assume that this recession is the same as prior recessions. The pressure being put on law firms is far greater this time around, and is being sustained for a longer period of time.

The fact that most firms still bill hours today is not really dispositive on the issue. Industry-wide changes like that happen slowly and gradually. And all the literature out there that I've read suggests that firms are still gradually moving to more fixed-fee arrangements.

Were I a client, I would be well aware of the perverse economic incentives of a billable hour arrangement, and would do everything in my power to get out of any such arrangement.

[JCougar]

The thing is, I don't think any of this is really "news". The facts are though that the 160k jobs still do exist, albeit in smaller numbers, and at certain schools you still have a good/very good shot of landing these jobs. Penn, Columbia, Northwestern and I think Harvard all placed more than 50% of their class into BigLaw jobs.

The "news" portion of this article extends beyond that. The article talks about how likely things are to bounce back, and that is still an issue on which many in the industry still seem out of touch. I do not think there will be a bounce-back. Biglaw firms are being forced to become leaner, and when the information asymmetries regarding the cost/benefit of attending law school begin to fade, the legal education bureaucracy will be economically forced to lean itself as well. Until that happens, law school will be a bad idea or at the very least, a risky proposition, for most people who pay near sticker price for tuition.

[JCougar]

This article is dead-on.

As it should be, because the author is about as informed, respected, and well-connected as you can get regarding the state of legal employment.

[rayiner]

Everyone thinks they live in unprecedented times.

As far as I can tell, the number of big law jobs is about the same as it was for C/O 2002-2003. Remember that all this hand-wringing is about revenue growth slowing down. Firm profits are near record levels.

You could never count on a $160k job. That was never the case, even during the boom. The big change is that law schools are finally admitting it.

[09042014]

Everyone thinks they live in unprecedented times.

As far as I can tell, the number of big law jobs is about the same as it was for C/O 2002-2003. Remember that all this hand-wringing is about revenue growth slowing down. Firm profits are near record levels.

You could never count on a $160k job. That was never the case, even during the boom. The big change is that law schools are finally admitting it.

NLJ250% peaked at below 75% in 2007, even for schools like Columbia. Gtown's NLJ250% in 2007 was only 48.5%. It's 31% in 2011, and will probably be significantly higher in 2012-2013 because 2011 was abysmal for OCI.

CLS went from 74.8 in 07 to 51.7 in 2011. NW from 73.5 to 52.1. Michigan 56.4% to 31.5%.

So from the best year to worst, we are looking at maybe 20-25% difference. By now it's probably more like 15%.

[JCougar]

We already discussed that the drop in biglaw jobs from 2007 to 2011 was about 45%. I don't really think 2012 will be that much better.

[vanwinkle]

I don't think it's safe to assume that this recession is the same as prior recessions.

Regarding the death of the billable hour - I'm not assuming that it is; I just don't think it's safe to assume that it isn't.

[dingbat]

I don't think it's safe to assume that this recession is the same as prior recessions.

Regarding the death of the billable hour - I'm not assuming that it is; I just don't think it's safe to assume that it isn't.

I think its effects are overblown. Billable hours are not going away for unusual and/or unpredictable projects.
What's happening is where a company has certain repeat transactions, experience might show that such a transaction takes, eg 8-12 billable hours. Let's say we expect 100 such transactions, then we agree that we will pay 10 hours worth per transaction. Sometimes the firm makes extra profit, sometimes they lose out, but at the end of the year, the firm still bills 1000 hours (when it otherwise would be about 990-1010).
Now, of it turns out that the project takes around 14 hours each time, the firm will renegotiate the flat fee to make up the difference. If one particular transaction is unusual and takes, say, 20 hours, the firm will discuss a one-off surcharge with the client (or choose to eat it as a relationship building tool)

Doesn't have a big impact for the law firm or the client, but the client is much happier because they can predict costs more accurately.

If something new comes up and it's a one-off and god knows how long it'll take, the job will still be billed by the hour.
Altogether, it doesn't really impact the firm much

[ms9]

What hasn't been mentioned in this thread, and I agree with much but not exactly all the Jim says, is how taut the pressures on law schools continue to be. I certainly agree that BigLaw hiring is not going back to the Cravath model of old. The domino effect is pretty obvious. Recent graduates who would be going to BigLaw are now going to x,y, z, those who then would go to x,y,z are going whatever legal job they can, and the rest are in a really bad way (I realize this is a million times restated--I happen to feel like I lived it through time after time with successive graduating classes). So, we all know this, applications are down yet again (the graph is pretty dramatic of all of this at lsatblogspot.com) law school have reduced revenue, most are tuition dependent, few have endowments to sustain them, are caught up in a scholarship arms race like never before, struggling with outputs, and cannot control overheard. Yet there are 18 more ABA approved law school now than when I started law school administration.

Something has to give at some point.

[JCougar]

What hasn't been mentioned in this thread, and I agree with much but not exactly all the Jim says, is how taut the pressures on law schools continue to be. I certainly agree that BigLaw hiring is not going back to the Cravath model of old. The domino effect is pretty obvious. Recent graduates who would be going to BigLaw are now going to x,y, z, those who then would go to x,y,z are going whatever legal job they can, and the rest are in a really bad way (I realize this is a million times restated--I happen to feel like I lived it through time after time with successive graduating classes). So, we all know this, applications are down yet again (the graph is pretty dramatic of all of this at lsatblogspot.com) law school have reduced revenue, most are tuition dependent, few have endowments to sustain them, are caught up in a scholarship arms race like never before, struggling with outputs, and cannot control overheard. Yet there are 18 more ABA approved law school now than when I started law school administration.

Something has to give at some point.

And yet tuition continues to increase as if nothing has happened.

The US News arms race really has to be ended. Making "expenditures per student" part of the calculus as to what determines a successful law school creates all kinds of crazy and perverse incentives.

[ajr]

Everyone thinks they live in unprecedented times.

This.

[IAFG]

What hasn't been mentioned in this thread, and I agree with much but not exactly all the Jim says, is how taut the pressures on law schools continue to be. I certainly agree that BigLaw hiring is not going back to the Cravath model of old. The domino effect is pretty obvious. Recent graduates who would be going to BigLaw are now going to x,y, z, those who then would go to x,y,z are going whatever legal job they can, and the rest are in a really bad way (I realize this is a million times restated--I happen to feel like I lived it through time after time with successive graduating classes). So, we all know this, applications are down yet again (the graph is pretty dramatic of all of this at lsatblogspot.com) law school have reduced revenue, most are tuition dependent, few have endowments to sustain them, are caught up in a scholarship arms race like never before, struggling with outputs, and cannot control overheard. Yet there are 18 more ABA approved law school now than when I started law school administration.

Something has to give at some point.

I don't understand how you can say we aren't going back to the Cravath model when we are still operating under the Cravath model. Which firms used to operate under that model and has since abandoned it? Which firms that cancelled summer programs haven't reinstated them? I can point to a couple of regional midlaw firms, but not many, and I can point to others that didn't hire from my class who are now taking summer classes again for next year.

I have said before, and of course agree, that the rates of large law firm hiring is not going back to the real estate bubble peak anytime soon. It's an entirely different thing, though, to take that conclusion and extend it to say that the hiring model is going to radically change or that clients aren't going to pay a premium for name brand legal services. Clients still have the same motivations they always have to hire the name brand firms they always have.

[JCougar]

Everyone thinks they live in unprecedented times.

This.

Except these are unprecedented times (at least over the last 70 years).



Not only did we have a monumental market crash, but we have the forces of globalization depressing wages here. It's a double whammy. Eventually, things will stabilize, but I can't see anything more than sluggish growth ahead.

[ajr]

Changes always happen; there are ups and downs everywhere. In general (post high-school) education in the US is overpriced when placed in context with the expected outcome.

The legal profession is closer to any other profession than what TLS makes it out to be.

[dr123]

Unrelated, but being the ED of NALP sounds like the lamest fucking job ever

[JCougar]

Which firms that cancelled summer programs haven't reinstated them? I can point to a couple of regional midlaw firms, but not many, and I can point to others that didn't hire from my class who are now taking summer classes again for next year.

Seyfarth Shaw is one major Chicago one that comes to mind. Also, a lot of the employment boutiques such as Jackson Lewis, Ogletree Deakins, etc. are more frequently moving toward lateral hiring rather than recruiting from schools.

You might even be able to take a course on managing projects in an efficient way:

In 2012, Northwestern's law school plans to add the subject to its curriculum, either as a stand-alone course or by inserting pieces of it into related courses, says James Lupo, associate dean for academic affairs in charge of curriculum.

Read more: http://www.chicagobusiness.com/article/ ... z29cvvH8uk
Stay on top of Chicago business with our free daily e-newsletters

I have said before, and of course agree, that the rates of large law firm hiring is not going back to the real estate bubble peak anytime soon. It's an entirely different thing, though, to take that conclusion and extend it to say that the hiring model is going to radically change or that clients aren't going to pay a premium for name brand legal services. Clients still have the same motivations they always have to hire the name brand firms they always have.

Clients paying a premium for name brand legal services isn't inconsistent with the Cravath model changing. Of course there will still be elite firms full of highly-paid experts in certain areas. But if clients are paying that much, they're going to demand experienced, proven attorneys rather than first-year associates that don't know anything.

[rayiner]

We already discussed that the drop in biglaw jobs from 2007 to 2011 was about 45%. I don't really think 2012 will be that much better.

There was a huge run-up from 2005-2007. The number of NLJ 250 spots went up from 5,376 in 2005 to 7,131 in 2007 (+33%): http://www.law.georgetown.edu/academics ... rticle.pdf (pg. 2). My estimate is that there were about ~4,500-5,000 NLJ 250 jobs in 2011, and probably over 5,000 in 2012 (based what I've read about summer recruiting for C/O 2012).

In terms of big law hiring, I don't think we're far off from pre-boom hiring numbers.

[rayiner]

Clients paying a premium for name brand legal services isn't inconsistent with the Cravath model changing. Of course there will still be elite firms full of highly-paid experts in certain areas. But if clients are paying that much, they're going to demand experienced, proven attorneys rather than first-year associates that don't know anything.

Where are those experienced attorneys going to come from, praytell?

[IAFG]

Which firms that cancelled summer programs haven't reinstated them? I can point to a couple of regional midlaw firms, but not many, and I can point to others that didn't hire from my class who are now taking summer classes again for next year.

Seyfarth Shaw is one major Chicago one that comes to mind. Also, a lot of the employment boutiques such as Jackson Lewis, Ogletree Deakins, etc. are more frequently moving toward lateral hiring rather than recruiting from schools.

You might even be able to take a course on managing projects in an efficient way:

In 2012, Northwestern's law school plans to add the subject to its curriculum, either as a stand-alone course or by inserting pieces of it into related courses, says James Lupo, associate dean for academic affairs in charge of curriculum.

Read more: http://www.chicagobusiness.com/article/ ... z29cvvH8uk
Stay on top of Chicago business with our free daily e-newsletters

I have said before, and of course agree, that the rates of large law firm hiring is not going back to the real estate bubble peak anytime soon. It's an entirely different thing, though, to take that conclusion and extend it to say that the hiring model is going to radically change or that clients aren't going to pay a premium for name brand legal services. Clients still have the same motivations they always have to hire the name brand firms they always have.

Clients paying a premium for name brand legal services isn't inconsistent with the Cravath model changing. Of course there will still be elite firms full of highly-paid experts in certain areas. But if clients are paying that much, they're going to demand experienced, proven attorneys rather than first-year associates that don't know anything.

Seyfarth Shaw Chicago hired from NU c/o 2011. Like most major firms, they have gone back to their old ways.

Every firm would hire only laterals if they could. They can't do that, though, because know-nothing juniors become highly profitable midlevels. But you and I have had this conversation before.

[09042014]

Cravath model isn't dead, period. I'm not sure how anyone could claim otherwise. It's been four years since Lehman Bro's imploded. The firms that jumped off it, for the most part jumped back on it, or Howrey'd.

As to flat rate billing? That won't be publicized so it's harder to tell if this is actually the trend. But revenue for big firms is fairly flat. So they clearly aren't getting soaked by clients demanding cheaper services.

There definitely were some structural changes. It appears that billing 1-2 years out on mostly on doc review is done. Seems like standard practice is contract doc reviewers or electronic. This means you need less juniors, and these jobs are forever gone.

And of course mortgage derivatives work is gone forever.

But this is all the same pattern just a different magnitude. Instead of the bottom 20% being really fucked, it's the bottom 35%. That's not a model change.

[JCougar]

Clients paying a premium for name brand legal services isn't inconsistent with the Cravath model changing. Of course there will still be elite firms full of highly-paid experts in certain areas. But if clients are paying that much, they're going to demand experienced, proven attorneys rather than first-year associates that don't know anything.

Where are those experienced attorneys going to come from, praytell?

Where wouldn't they come from? Ones that show aptitude in the work world, wherever they are working...smaller firms, agency work, you name it.