"Suicide Pricing" & the coming law firm crisis Forum

[Anonymous User]

And I'm not blaming Biglaw salaries for the crisis. What I am saying is that if entry-level associate salaries went down to rational levels, tuition would have to steeply drop at almost every law school, because no one in their right mind would pay $240K just for school name alone. I realize that you are construing this as me "blaming" Biglaw salaries for the current crisis, but I hope you can see the difference.

There isn't really a difference. You're saying you're not blaming BigLaw salaries while simultaneously claiming they're not "rational" and pegging that as the source of the problem.

Your mistake is chasing a desired effect when you should target the cause. If you gutted attorney salaries across the board, then sure, one effect would be huge drops in law school attendance at current tuition levels. That's not just a ridiculous solution though, it's an unnecessary one. If you push real student loan reform and reduce the amount of money flowing freely into law schools, they'll be forced to cut tuition. Schools charge what people are willing to pay, and if you reduce the amount people can borrow freely, you'll reduce what people are willing to pay. That way you can lower tuition and achieve the desired effect without some bizarre quixotic effort to make an entire industry pay people less.

[JCougar]

There isn't really a difference. You're saying you're not blaming BigLaw salaries while simultaneously claiming they're not "rational" and pegging that as the source of the problem.

Your mistake is chasing a desired effect when you should target the cause. If you gutted attorney salaries across the board, then sure, one effect would be huge drops in law school attendance at current tuition levels. That's not just a ridiculous solution though, it's an unnecessary one. If you push real student loan reform and reduce the amount of money flowing freely into law schools, they'll be forced to cut tuition. Schools charge what people are willing to pay, and if you reduce the amount people can borrow freely, you'll reduce what people are willing to pay. That way you can lower tuition and achieve the desired effect without some bizarre quixotic effort to make an entire industry pay people less.

Except I'm not proposing it as a solution to the tuition crisis. I'm proposing it as a business model that is more appealing to clients. I'm just saying that one of the side effects will just so happen to help combat the tuition bubble.

[dingbat]

Except I'm not proposing it as a solution to the tuition crisis. I'm proposing it as a business model that is more appealing to clients. I'm just saying that one of the side effects will just so happen to help combat the tuition bubble.

So what exactly is your proposed business model that is more appealing to the clients?

[JCougar]

Except I'm not proposing it as a solution to the tuition crisis. I'm proposing it as a business model that is more appealing to clients. I'm just saying that one of the side effects will just so happen to help combat the tuition bubble.

So what exactly is your proposed business model that is more appealing to the clients?

If you bothered to actually follow this thread, instead of lazily hurling insults, you'd know that already.

[Anonymous User]

Except I'm not proposing it as a solution to the tuition crisis. I'm proposing it as a business model that is more appealing to clients.

Well, I've already explained how you were wrong about that.

[JCougar]

Back to the topic at hand:

http://www.abajournal.com/legalrebels/a ... he_formula

This guy obviously isn't some scamblogger, or someone "butthurt" because of whatever. He's a highly successful lawyer, and a smart man.

Michael Roster is co-chair of the Association of Corporate Counsel’s Value Challenge, a project that is looking at ways to improve the value of legal services. He was previously managing partner of Morrison & Foerster’s Los Angeles office as well as co-chair of the firm’s Financial Services Practice Group worldwide. He has also served as general counsel of Stanford University, Stanford Medical Center and Golden West Financial Corporation.

During his tenure at Stanford, Roster moved virtually all of Stanford’s outside legal work to three (eventually five) law firms on fixed price retainers that covered both counseling and litigation. Firm attorneys had offices on-site, attended all the weekly staff meetings and annual retreats, and were listed in telephone directories as a single, unified team with the in-house lawyers.

[JCougar]

Except I'm not proposing it as a solution to the tuition crisis. I'm proposing it as a business model that is more appealing to clients.

Well, I've already explained how you were wrong about that.

No, actually, you haven't.

[dingbat]

Except I'm not proposing it as a solution to the tuition crisis. I'm proposing it as a business model that is more appealing to clients. I'm just saying that one of the side effects will just so happen to help combat the tuition bubble.

So what exactly is your proposed business model that is more appealing to the clients?

If you bothered to actually follow this thread, instead of lazily hurling insults, you'd know that already.

I read it at the time you posted it but didn't feel like rereading. I think you proposed that clients start using midlaw instead of biglaw firms. I'm not sure I understand the logic.
Please explain it to me as if I'm a 3 year old child

[Anonymous User]

Except I'm not proposing it as a solution to the tuition crisis. I'm proposing it as a business model that is more appealing to clients.

Well, I've already explained how you were wrong about that.

No, actually, you haven't.

Since you're playing dumb, I'll repost.

Clients and firms don't care about ethical billing models; they just care about getting the work done at the lowest costs. Salary jobs demand long hours, not just in law but in most professional fields, precisely because the employer gets more value for the same cost if the employee works longer hours. Changing the billing model won't help associates work less. The only thing that would do that is revoking the overtime-exempt status of professional jobs, so that employers had to pay more if they worked longer hours. Only then would firms actually care about making sure associates aren't overworked.

Also, clients don't want to pay "elite law partners" for everything. Associate training is on-the-job training, and while I've learned a lot in the past couple years, it's been while churning out things for clients. Even adding in training time, there's a lot of work to be done that doesn't require the experience of a partner, and the client would balk at paying for that experience. Junior associates do grueling, simpler tasks, senior associates supervise a number of juniors, and partners handle the high-level tasks. The client only pays for the partner's experience when it's needed, and everything else is done more cheaply. Clients will always complain about costs, no matter what the billing model is, but they haven't revolted against billables because the system is less inefficient than their complaining suggests.

[IrwinM.Fletcher]

I can really feel the tide turning for JCougar.

[JCougar]

I read it at the time you posted it but didn't feel like rereading. I think you proposed that clients start using midlaw instead of biglaw firms. I'm not sure I understand the logic.
Please explain it to me as if I'm a 3 year old child

No, that's not what I proposed at all. I proposed that Biglaw move more to a business model of firms like Axiom, etc. Some Biglaw firms are already moving somewhat in this direction. Seyfarth Shaw was one I mentioned in another thread. There's a couple of subsidiary reasons why these firms are different: 1) they rely more on fixed price schemes, and 2) the are moving more toward lower leverage rations and, more (or exclusively, in the case of Axiom) lateral hiring, etc. They are similarly de-emphasizing OCI hiring.

But the primary reason these firms are different is because they make their decisions from a business valuation perspective, rather than simply "following tradition" no matter how absurd or inefficient that tradition might be. In a market that has now become far more competitive, I know which business model's survival I'd wager my money on.

These aren't my ideas--other people came up with them first. I'm not just some "butthurt" dude from JDUnderground poasting on here and feeling sorry for myself. I'm on here telling people what is already happening in the legal profession.

I don't think the current shift in the way law firms value work and employees bodes well for people taking out insanely large amounts of loans. I think OCI hiring, while doing a minuscule bounceback over the last year or two, is bound to get gradually weaker from here on out. Law firms simply will not be able to sell the hours of first year associates for such a high price in the future.

I don't know for sure how deeply these changes in the industry will go, but there is a huge amount of information out there suggesting that this is the direction things are headed in. So while you can respectfully disagree with me, calling me an idiot is just juvenile.

[JCougar]

Since you're playing dumb, I'll repost.

Clients and firms don't care about ethical billing models; they just care about getting the work done at the lowest costs. Salary jobs demand long hours, not just in law but in most professional fields, precisely because the employer gets more value for the same cost if the employee works longer hours. Changing the billing model won't help associates work less. The only thing that would do that is revoking the overtime-exempt status of professional jobs, so that employers had to pay more if they worked longer hours. Only then would firms actually care about making sure associates aren't overworked.

Also, clients don't want to pay "elite law partners" for everything. Associate training is on-the-job training, and while I've learned a lot in the past couple years, it's been while churning out things for clients. Even adding in training time, there's a lot of work to be done that doesn't require the experience of a partner, and the client would balk at paying for that experience. Junior associates do grueling, simpler tasks, senior associates supervise a number of juniors, and partners handle the high-level tasks. The client only pays for the partner's experience when it's needed, and everything else is done more cheaply. Clients will always complain about costs, no matter what the billing model is, but they haven't revolted against billables because the system is less inefficient than their complaining suggests.

Yes, I remember you said this, but what you said is refuted by what is actually going on.

[BeenDidThat]

Since you're playing dumb, I'll repost.

Clients and firms don't care about ethical billing models; they just care about getting the work done at the lowest costs. Salary jobs demand long hours, not just in law but in most professional fields, precisely because the employer gets more value for the same cost if the employee works longer hours. Changing the billing model won't help associates work less. The only thing that would do that is revoking the overtime-exempt status of professional jobs, so that employers had to pay more if they worked longer hours. Only then would firms actually care about making sure associates aren't overworked.

Also, clients don't want to pay "elite law partners" for everything. Associate training is on-the-job training, and while I've learned a lot in the past couple years, it's been while churning out things for clients. Even adding in training time, there's a lot of work to be done that doesn't require the experience of a partner, and the client would balk at paying for that experience. Junior associates do grueling, simpler tasks, senior associates supervise a number of juniors, and partners handle the high-level tasks. The client only pays for the partner's experience when it's needed, and everything else is done more cheaply. Clients will always complain about costs, no matter what the billing model is, but they haven't revolted against billables because the system is less inefficient than their complaining suggests.

Yes, I remember you said this, but what you said is refuted by what is actually going on.

Yeah, your idea of what's happening in the legal field isn't actually what's going on.

[JCougar]

Yeah, your idea of what's happening in the legal field isn't actually what's going on.

You do not know very much.

[dingbat]

I read it at the time you posted it but didn't feel like rereading. I think you proposed that clients start using midlaw instead of biglaw firms. I'm not sure I understand the logic.
Please explain it to me as if I'm a 3 year old child

No, that's not what I proposed at all. I proposed that Biglaw move more to a business model of firms like Axiom, etc. Some Biglaw firms are already moving somewhat in this direction. Seyfarth Shaw was one I mentioned in another thread. There's a couple of subsidiary reasons why these firms are different: 1) they rely more on fixed price schemes, and 2) the are moving more toward lower leverage rations and, more (or exclusively, in the case of Axiom) lateral hiring, etc. They are similarly de-emphasizing OCI hiring.

But the primary reason these firms are different is because they make their decisions from a business valuation perspective, rather than simply "following tradition" no matter how absurd or inefficient that tradition might be. In a market that has now become far more competitive, I know which business model's survival I'd wager my money on.

I'm not familiar with Axiom, but having looked at their website, all I saw was a bunch of flashy terms and no real explanation. Having looked elsewhere, it looks like they're trying to provide bare-bones legal service. In other words, a doc review shop.

There is value in that. There's plenty of legal work that any idiot can do. Hell, I don't understand why doc review requires actual attorneys, and not just high school graduates.

That being said, it still doesn't seem that big a revolution. A bigger change is the switch to fixed pricing, rather than billing per hour. However, this change is nowhere near as big as what people think. The amount of work will be estimated, and a fixed price will be agreed on accordingly. If actual work is a lot more, the firm will renegotiate the price upward. If it's significantly less, the price will be adjusted downward. When work is unusual, or a transaction is out of the ordinary, an exception will be granted. It just shifts the uncertainty of the time required from the client to the firm, but the overall costs will not be that different.

Separating different jobs to different firms already happens, although I don't know how common it is. At my last law firm, we used 4 different law firms - 2 biglaw, 1 midlaw, 1 boutique.

There's plenty of talk about a cataclysmic change to the legal industry. I don't see it being that big.

[JCougar]

I'm not familiar with Axiom, but having looked at their website, all I saw was a bunch of flashy terms and no real explanation. Having looked elsewhere, it looks like they're trying to provide bare-bones legal service. In other words, a doc review shop.

That's not what Axiom does. That's only part of their operation. And they're just one example. If I had enough time to waste during exam period, I could research for you all the other firms moving in this direction, but I don't.

There's been griping about the billable hour model for a long time now, and not much has changed up until just about now. This makes some people think it won't change now, but I don't buy into that argument. The new order among the movers and shakers of this country's economy is efficiency. It's the only way to maintain a healthy economy in a globalized market. They're not just going to toss out legal fees like trick-or-treat candy anymore simply for plausible deniability/name brand's sake. There's going to be a much larger focus on driving efficient results.

[dingbat]

I'm not familiar with Axiom, but having looked at their website, all I saw was a bunch of flashy terms and no real explanation. Having looked elsewhere, it looks like they're trying to provide bare-bones legal service. In other words, a doc review shop.

That's not what Axiom does. That's only part of their operation. And they're just one example. If I had enough time to waste during exam period, I could research for you all the other firms moving in this direction, but I don't.

There's been griping about the billable hour model for a long time now, and not much has changed up until just about now. This makes some people think it won't change now, but I don't buy into that argument. The new order among the movers and shakers of this country's economy is efficiency. It's the only way to maintain a healthy economy in a globalized market. They're not just going to toss out legal fees like trick-or-treat candy anymore simply for plausible deniability/name brand's sake. There's going to be a much larger focus on driving efficient results.

Again, billable hours isn't that big a deal. Thè reason firms prefer the flat fee model is not because it's cheaper (it isn't) but because it's more predictable. The worst thing in business is uncertainty and the more accurately costs can be predicted, the better

[Anonymous User]

Yes, I remember you said this, but what you said is refuted by what is actually going on.

Please, then, illuminate me. Point to what is going on. Give specific examples or a clear basis for your knowledge.

[JCougar]

Again, billable hours isn't that big a deal. Thè reason firms prefer the flat fee model is not because it's cheaper (it isn't) but because it's more predictable. The worst thing in business is uncertainty and the more accurately costs can be predicted, the better

Didn't you read that article I linked to? The reason employers don't like the billable hour model is that it drives inefficiency:

http://www.abajournal.com/legalrebels/a ... he_formula

And everything I've heard anecdotally from Biglaw associates and even some former partners seems to back that up.

I don't think it's a huge deal, but it does mean that there's going to be less Biglaw firms hiring associates simply to do doc review and makework just to run up billables--since the financial incentive to do so has been removed. This is probably better news for associates that do get Biglaw, as they will probably get more meaningful work faster. But it also points to less biglaw associate positions in the long-run, since firms will be inventing less "work" in order to run up profits.

But that's also not the only thing Axiom does. They hire only experienced attorneys, because they realize no one wants to pay $300/hour for an associate whose only previous exposure to practice was a casebook and a bunch of sophistry-trading with their professor.

[TatteredDignity]

ITT JCoug finds arguing with the internet preferable to studying for his sure to be hellacious tax exam

[JCougar]

And from this point on, we're just going to have to agree to disagree. Tonight is my last night to have some fun before exam period makes me want to puke my guts out.

There's evidence out there that attitudes are changing. I've linked to plenty of other articles in other threads. I have no idea if this is going to be industry-wide, but if I had to guess, we're seeing a new paradigm in Biglaw. I really don't think it's going to mean they make less money or lose any prestige. In fact, in the long run, I think it will help the entire industry's credibility and sanity. The attorneys at those firms have decades of valuable experience that clients will still pay for. But the way those firms conduct their business is going to become more streamlined. That is all.

[JCougar]

ITT JCoug finds arguing with the internet preferable to studying for his sure to be hellacious tax exam

I find arguing with people over the internet more preferable than almost anything. Except drinking.

[dingbat]

I wrote a long response only to see JCougar pretty much state that it won't affect profitability and only means that the way firms do business will be more streamlined.
I would say something about this but I'll agree to disagree

[HeavenWood]

ITT JCoug finds arguing with the internet preferable to studying for his sure to be hellacious tax exam

I find arguing with people over the internet more preferable than almost anything. Except drinking.

I still think the cougar in your 'tar is toast. COME AT ME, BRO.

[kryptix]

Again, billable hours isn't that big a deal. Thè reason firms prefer the flat fee model is not because it's cheaper (it isn't) but because it's more predictable. The worst thing in business is uncertainty and the more accurately costs can be predicted, the better

Didn't you read that article I linked to? The reason employers don't like the billable hour model is that it drives inefficiency:

http://www.abajournal.com/legalrebels/a ... he_formula

And everything I've heard anecdotally from Biglaw associates and even some former partners seems to back that up.

I don't think it's a huge deal, but it does mean that there's going to be less Biglaw firms hiring associates simply to do doc review and makework just to run up billables--since the financial incentive to do so has been removed. This is probably better news for associates that do get Biglaw, as they will probably get more meaningful work faster. But it also points to less biglaw associate positions in the long-run, since firms will be inventing less "work" in order to run up profits.

But that's also not the only thing Axiom does. They hire only experienced attorneys, because they realize no one wants to pay $300/hour for an associate whose only previous exposure to practice was a casebook and a bunch of sophistry-trading with their professor.

Billables do drive inefficiency, however, go ask any investment bank if they're rather hire a consultant or an employee, and I guarantee you they'd rather hire the consultant on the hourly rate for the flexibility it provides and the accounting benefits.

I actually agree with a lot of what you say however, you have to remember that law schools have to compete with business schools and other graduate programs for students. If I have 0 chance of a pay raise (biglaw is basically a lateral move for me), why would I ever decide to go to law school? There would be no incentive, I wouldn't be willing to suck up the opportunity cost to transition into an 80k job. Also, if biglaw starts offering only 80k, management consulting and IBs would get the top tier recruits out of law school because they still pay 6 figures with better bonuses. There's a lot more factors here and a lot more competition than your considering. I agree that legal hiring doesn't make sense compared to other industries I've been involved in, however, a good proportion of the people who end up in biglaw are people coming from lucrative business careers who would never take the plunge if they were guaranteed a pay cut. You would end up losing out on a lot of candidates with proven work experience and basically be committing yourself to hiring only candidates who went straight from UG to JD as they would be the only ones who would still be willing to go to law school.

Your right that the hope of making 160k is what attracts a lot of people to law school, and I concede the point, but a lot of the best candidates who go back to school would go for the MBA etc instead if law salaries were lower. You would pretty much need to completely change the whole system to a negotiated salary system for the quality of the candidate pool to stay steady.