Biglaw Model can't be supported: How will things change? Forum

[SOCRATiC]

I've actually read half a dozen of journal articles about the biglaw model being unsustainable. But how will things be different in the future? Does this mean that biglaw as it is today will disappear within the next two decade or so (Equity partners, etc.)?

I tried searching for a post that relates to this topic, but I found nothing. I hope this ends up being an interesting discussion for many people.

[dpk711]

interested as well, tagged

[MrPapagiorgio]

I've spoken with a few 3L's from the school I will be matriculating at in the fall and they basically said that the biglaw model is no longer feasible and firms are reinventing themselves using the midlaw model (whatever that really is).

To me, that means the future includes the same hours, but with 40-60K less pay/year.

[SOCRATiC]

I've spoken with a few 3L's from the school I will be matriculating at in the fall and they basically said that the biglaw model is no longer feasible and firms are reinventing themselves using the midlaw model (whatever that really is).

To me, that means the future includes the same hours, but with 40-60K less pay/year.

How the fuck does that make sense?? lol... same hours, quarter the pay.

I actually envisioned a world where all of the biglaw firms decides to cut those $145/$160K salaries into half, cut the minimum billable hours requirement in half, and then double the number of associates. imagine how sexy and beautiful that would be.

But seriously; how is midlaw any different from biglaw besides the fact that biglaw has more clients and more money (maybe easier to get partner)?

[FalafelWaffle]

I've actually read half a dozen of journal articles about the biglaw model being unsustainable. But how will things be different in the future? Does this mean that biglaw as it is today will disappear within the next two decade or so (Equity partners, etc.)?

I tried searching for a post that relates to this topic, but I found nothing. I hope this ends up being an interesting discussion for many people.

It'll be like that episode of Rocko's Modern Life where Rocko's neighbor Ed Bighead works for Conglomo and he has the magic meatball, and, like, every day when no one finishes their ungodly amount of work a lever gets pulled and they fall into a pit or some shit. I dunno I haven't seen that episode in like 10 years so don't quote me.

[Hank Chill]

I've actually read half a dozen of journal articles about the biglaw model being unsustainable. But how will things be different in the future? Does this mean that biglaw as it is today will disappear within the next two decade or so (Equity partners, etc.)?

I tried searching for a post that relates to this topic, but I found nothing. I hope this ends up being an interesting discussion for many people.

It'll be like that episode of Rocko's Modern Life where Rocko's neighbor Ed Bighead works for Conglomo and he has the magic meatball, and, like, every day when no one finishes their ungodly amount of work a lever gets pulled and they fall into a pit or some shit. I dunno I haven't seen that episode in like 10 years so don't quote me.

+1

[Anonymous User]

People say the BigLaw model is "unsustainable" because the current structure is not very stable. It used to be that law firms were a brand (e.g. "Cravath") but nowadays the individual lawyer is the brand. As a result, partners lateral from firm to firm in order to get a higher paycheck. Because partners can now move around as they please, large law firms can't rely on their partners to stay through the thick and thin. Instead, there will likely be more and more law firms like Howrey, which collapse in the midst of massive partner defections. I don't think the large law firm will disappear. Instead, you're going to have more ups and downs (spectacular rises coupled with spectacular failures).

This short-term focus is fine for lawyers who are already partners or senior associates. They have the skills that people want and they'll continue to be paid quite handsomely. They can move to other firms as their current firms collapse.

The difficulty is with the new associates. No one (not firms, not clients) wants to pay for new associate training. For the firms, more associate training means less profits. For the clients, more associate training means higher bills. Now, add 160K first-year salaries to the mix and it's a mess. That's just your salary though, you're likely being billed to the client at $250/hour. I'm a law student and I can't for the life of me figure out how after 3 years of law school, I'm generating $250/hour in value. Perhaps there is the potential to do that one day but I seriously doubt it's happening on day 1.

As a result of the dynamic with the lateral partner market, the short-term focus, and not getting "value" from first-years, there's two possible routes for new associates.

1) Fewer associates at any given firm
2) Lower salaries for new associates

I actually think both are happening as we speak. These smaller summer classes are going to the be "new normal." And $160K first-year salaries are going to stay put for a long time (allowing inflation to give first-years an effective pay cut).

My advice (and mind you I'm just a lowly law student like all y'all): get good experience in a niche as quickly as possible. This way, a law firm can bill you out for a few hundred dollars an hour and the client won't feel like they're being ripped out. Perhaps even more valuable, you can go solo or create a small law firm with your friends (where you can charge lower rates but earn more because you have lower overhead and because you don't have the split the earnings pie 1000 ways).

[sundance95]

I keep reading that 'the BigLaw model is finished' but I've yet to to see anyone explain exactly why that is the case. Can someone please clarify why it is dead?

And before I get 'ITE, brah,' I'd just point out that the Cravath system has been around since the 19th century, meaning it survived the Great Depression. Why is today different?

[lightbulb1986]

.

[SOCRATiC]

I keep reading that 'the BigLaw model is finished' but I've yet to to see anyone explain exactly why that is the case. Can someone please clarify why it is dead?

And before I get 'ITE, brah,' I'd just point out that the Cravath system has been around since the 19th century, meaning it survived the Great Depression. Why is today different?

It's true that Cravath has been around for a long time. But you gotta remember that these "mega size" law firms didn't exist until recently; I think the sheer size of things somewhat changed a lot in the law firm hiring/partnership structure. Once a firm size exceeeds several hundred attorneys, I'm sure the ethos that presumably existed during the early Cravath days somewhat disappeared.

[Kohinoor]

Once a firm size exceeeds several hundred attorneys, I'm sure the ethos that presumably existed during the early Cravath days somewhat disappeared.

How so?

[WVUCelticFan]

tag

[RVP11]

The reason this is brought up over and over again is because a lot of people WANT to see the model fall apart, not because there is actually good evidence that it is falling apart.

So far, the only firms who have significantly changed their model for junior associates are firms who were failing (Orrick, Howrey). And if you think because big firm hiring at the summer associate and junior associate levels has been reduced, that means most big firms are failing, then LOL @ you.

[vamedic03]

The reason this is brought up over and over again is because a lot of people WANT to see the model fall apart, not because there is actually good evidence that it is falling apart.

So far, the only firms who have significantly changed their model for junior associates are firms who were failing (Orrick, Howrey). And if you think because big firm hiring at the summer associate and junior associate levels has been reduced, that means most big firms are failing, then LOL @ you.

^this. NY firms are reporting 2007 levels of M&A activity with rising PPP. Even non-finance firms are reporting flat or climbing profits. All the major firms have been scrambling to hire the Howrey partners.

[Anonymous User]

The reason this is brought up over and over again is because a lot of people WANT to see the model fall apart, not because there is actually good evidence that it is falling apart.

So far, the only firms who have significantly changed their model for junior associates are firms who were failing (Orrick, Howrey). And if you think because big firm hiring at the summer associate and junior associate levels has been reduced, that means most big firms are failing, then LOL @ you.

+1 to all of this.

There are a lot of different factors all working at once.

I interviewed with Cravath, and asked what it was like soliciting business these days, given the crisis but also the long list of institutional clients a firm like that would have. The partner noted the colloquialism that business development used to jokingly be referred to as "answering the phone on the third ring" - and admitted those days were largely behind the firm. But just because there is more competition doesn't mean the brands and institutions are on their way to collapse. Cravath (singling out because it's easy, not because it's the only one) still has an enormous reputation, it still recruits top students from top schools, it still pays them huge amounts of money, and it still basically never hires laterals at the associate or partner level. It was a major story in the legal news when they hired one a few years back.

A partner I interviewed with at a different vault firm proudly described outsourcing efforts (it was unclear if they were domestic or abroad) which enabled new litigation associates to have substantially reduced rote document review responsibility. So it's important to point out that there are conceivable benefits to shifts in the model on top of the costs - if there are fewer jobs, those who obtain them could stand to see more substance.

Also, you have to look at the salaries and bonuses and realize that firms aren't (just) doing them to try and signal alpha-dog status. Certainly paying a large bonus to associates can be a signal of strength like a corporation paying a large dividend, but it means something more: talent (whatever that means in this context) is in demand. S&C would not have paid spring bonuses out of an egalitarian spirit and deep compassion for its associates. Simpson Thacher would not have raised base compensation to $160,000 (in January '07) per year because they really thought they could help pay down the debt of their starting attorneys sooner. For those of us beginning to look at the model in the midst of a recession, it looks crazy. But for firms with clients who still had work, and for all firms as work begins to rise, new associates are both valuable and mission-critical to law firms. They need students, every year, and they have a very hard time attracting and keeping them. That sound ridiculous given diminished hiring levels, but it's absolutely true. So much of the boom was characterized by firms making moves to actually attract and retain people with options given the grueling nature of the job.

There was a brief period when that system totally reversed itself and associates clung to their job because there was nowhere else to go, but every metric suggests that even if we're not moving back to the "glory days" the system is still moving back to one of recruiting and retention pressures on big firms.

Finally, you can find "death of big law" articles (academic and journalistic) stretching back dozens of years. It's quite funny to see the death of biglaw predicted in 2002, in the 80s, etc. But as some sources have pointed out, Howrey failing (and the two other recent big ones) is hardly unheard of. Like any other business, some fail. People have made lists of dozens of big firms that have failed over the past hundred years - but most of the big ones are still around, and will be for the foreseeable future.

Increased lateral movement, outsourcing, and cost control pressure are certainly going to cause changes to the legal landscape, especially coupled with the general decline in the demand for legal services when the recession hit. But to call the model unsustainable or predict some kind of sea change in the firm business would be ignoring all of the countervailing evidence and all of the history of American legal practice. It does, however, grab attention and make snazy headlines.

[gabbagabba]

^ Something I'd add to the above post - biglaw salaries are based as much on a desire to hire talent as it is a desire to have the biggest e-peen. It's seen as a mark of prestige if you're paying the largest starting salaries., so as not to be "1-upped" by a competing biglaw firm.

EDIT - another thing I'd add is that a lot of the pressure on biglaw is coming from their own clients, who are well aware they're being charged $250/hr for a 1-yr to be trained. They aren't happy, and they're putting pressure on biglaw to reduce prices

[vamedic03]

^ Something I'd add to the above post - biglaw salaries are based as much on a desire to hire talent as it is a desire to have the biggest e-peen. It's seen as a mark of prestige if you're paying the largest starting salaries., so as not to be "1-upped" by a competing biglaw firm.

EDIT - another thing I'd add is that a lot of the pressure on biglaw is coming from their own clients, who are well aware they're being charged $250/hr for a 1-yr to be trained. They aren't happy, and they're putting pressure on biglaw to reduce prices

But, the pressure from clients is nothing new. The truth of the matter is that they're going to get billed for the 1st year one way or another. I.e., the firms will account for write-offs when they set the partners' hourly rates.

[Jessep]

Big law is not going anywhere. PPP are up at many firms, summer classes are expanding again, and most firms are very busy. The whole "big law is going to die" schtick is played out.

Major rainmakers can pull in more money at big law because they can cross-sell across practice groups. You cannot get referral fees from other firms, but you can take a cut of the work if you dish it off to one of your partners. This fact alone will keep big law alive.

[Jessep]

^ Something I'd add to the above post - biglaw salaries are based as much on a desire to hire talent as it is a desire to have the biggest e-peen. It's seen as a mark of prestige if you're paying the largest starting salaries., so as not to be "1-upped" by a competing biglaw firm.

EDIT - another thing I'd add is that a lot of the pressure on biglaw is coming from their own clients, who are well aware they're being charged $250/hr for a 1-yr to be trained. They aren't happy, and they're putting pressure on biglaw to reduce prices

But, the pressure from clients is nothing new. The truth of the matter is that they're going to get billed for the 1st year one way or another. I.e., the firms will account for write-offs when they set the partners' hourly rates.

This is also not true. Talk to 1st year associates. If much of their time is being written off, they are bad associates or were staffed on crappy assignments. Plenty of 1st year associates have near 100% realization.

[Kohinoor]

^ Something I'd add to the above post - biglaw salaries are based as much on a desire to hire talent as it is a desire to have the biggest e-peen. It's seen as a mark of prestige if you're paying the largest starting salaries., so as not to be "1-upped" by a competing biglaw firm.

EDIT - another thing I'd add is that a lot of the pressure on biglaw is coming from their own clients, who are well aware they're being charged $250/hr for a 1-yr to be trained. They aren't happy, and they're putting pressure on biglaw to reduce prices

But, the pressure from clients is nothing new. The truth of the matter is that they're going to get billed for the 1st year one way or another. I.e., the firms will account for write-offs when they set the partners' hourly rates.

This is also not true. Talk to 1st year associates. If much of their time is being written off, they are bad associates or were staffed on crappy assignments. Plenty of 1st year associates have near 100% realization.

You didn't actually disagree.

[Jessep]

^ Something I'd add to the above post - biglaw salaries are based as much on a desire to hire talent as it is a desire to have the biggest e-peen. It's seen as a mark of prestige if you're paying the largest starting salaries., so as not to be "1-upped" by a competing biglaw firm.

EDIT - another thing I'd add is that a lot of the pressure on biglaw is coming from their own clients, who are well aware they're being charged $250/hr for a 1-yr to be trained. They aren't happy, and they're putting pressure on biglaw to reduce prices

But, the pressure from clients is nothing new. The truth of the matter is that they're going to get billed for the 1st year one way or another. I.e., the firms will account for write-offs when they set the partners' hourly rates.

This is also not true. Talk to 1st year associates. If much of their time is being written off, they are bad associates or were staffed on crappy assignments. Plenty of 1st year associates have near 100% realization.

You didn't actually disagree.

Hah. My mistake. Long day and reading too quick led to a reading comprehension fail on my part.

[2LLLL]

BigLaw's demise has been greatly exaggerated.

However, I think we will start to see lower levels of leverage (associate:partner ratio) as firms outsource things like document review, and clients start farming out more routine work to cheaper firms.

The benefit of BigLaw's recovery will flow to partners in the form of higher PPP, and I think that we are looking at a "new normal" of reduced associate hiring.

[SOCRATiC]

BigLaw's demise has been greatly exaggerated.

However, I think we will start to see lower levels of leverage (associate:partner ratio) as firms outsource things like document review, and clients start farming out more routine work to cheaper firms.

The benefit of BigLaw's recovery will flow to partners in the form of higher PPP, and I think that we are looking at a "new normal" of reduced associate hiring.

I think what you've said makes a lot of sense; it somewhat seems like that'll be the new "normal" for biglaw; things'll just slow down and hiring sprees will never be as continuous as the ten years ago... But just like some people troll about the IT industry being a terrible place to work because of outsourcing to India, I think it makes sense that the legal outsourcing shannanigans is a little over-exaggerated too (But I'm also sure that the legal sector is hit a little bit harder than the software world).

But I do think that there is a very slight advantage to the outsourcing part of biglaw - namely that associates could probably spend less time on document review and perhaps work on more substantive tasks.

[englawyer]

I have talked to some law firm people about this. Apparently the big drivers of change are clients who are sick of paying 1st years crazy rates.

#1) Increased use of "contract" attorneys. Rather than try to hire an army of associates who will do doc-review, etc. as much of the work as possible will be given to contract attorneys. Those are the types of jobs that pay OK but have nothing to do with the farm and are obviously not partner tracked. This will allow the firms to lower their hourly rates.

#2) Smaller number of associates. An inevitable effect of #1 is a decrease in class size. However, the associates that do get jobs will be doing more important/interesting work to justify the higher rates. These folks will also be in a better position to advance in the firm (less competition, etc)

#3) Alternative fee arrangements. Some think that billable hour is on the way out. This should change the metrics/evaluation of associates, as someone that does reasonable quality efficient work will be better than someone that spends a bagillion hours to get it perfect.

[FiveSermon]

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