Why do law firms operate like this? Forum

[ahnhub]

The more I learn about how law firms operate, the more they confuse me. Here's some common TLS knowledge which confuses me :

A) Law firms are obsessed with "ties" to an area and highly interested in keeping associates around for more than a couple of years, because associates are essentially worthless the first couple of years and only add value once they have a few years of experience under their belts. Presumably this would make mid-and-senior associates (5-8 yrs) the most valuable.

BUT

B) Law firms make life so hellish that 50-80% (depending on market) of associates leave in a couple of years anyways. For those who do become mid-and-senior level associates, they are quietly forced out if they don't make partner.

Anyone care to explain how this works?

[Cupidity]

The whole, "associates are worthless" the first couple of years is actually highly misleading. They work you until you bleed and bill ungodly amounts for it. Even if the partners are rainmakers, they generally average a lower return rate because they are so highly compensated.

While hourly rates vary per firm, consider this: if you do 2100 billables, which is moderate at some firms, and the firm bills the client $300 an hour (which is far lower than many vault firms), that is $630,000 gross profit. Sure they pay you a nice fat $160,000k and lets liberally round up to $200k to capture all the silly perks, you are still making them a 3X return on investment.

Most BigLaw partners bill in the $700-1000 range, but draw salaries in the $500,000+ range. Sure, there are other factors at work there, like ability to bring in clients, etc., but still....

Associates are the profit model.

[ahnhub]

I know associates are generating crazy $$ for the firm, but I would presume they're way behind mid-levels in actual productivity. I guess part of the answer lies in the fact that rich clients are willing to be billed $400/hr for a fresh graduate's work at Cravath. Something still bothers me about the model--it seems less than efficient.

I still don't know why law firms would want to get rid of senior associates, though. They're making what, 220-280K a year, billing high rates, and already know everything. They would seem to be the most valuable pieces.

[Bobby Jones]

I doubt most TLSers would want to admit this, but here's the answer to your question:

An associate's value to a biglaw firm is that associate's ability to bill a bunch of hours. The more hours an associate bills, the more the firm can charge clients. The quality of an associate's work is a distant second on the biglaw priority list. That means that training at biglaw firms is a notorious joke.

Biglaw firms don't want an associate to have ties because of the "investment" the firm makes in the associate's training, they want ties because that means the associate will quit later rather than sooner. The longer an associate sticks with a firm, the more that firm can profit off of that associate’s work (because it DOES cost a firm a lot of money to recruit new attorneys).

So, you get competing interests - keep the associates longer, and work them harder. The harder you work them, the less time they’ll last. It’s a tight rope every firm has to walk.

[Bobby Jones]

I still don't know why law firms would want to get rid of senior associates, though. They're making what, 220-280K a year, billing high rates, and already know everything. They would seem to be the most valuable pieces.

They don't want to get rid of them. They just want to limit the number of people who make partner, because that's the golden goose. Senior associates can stay as long as they want, as long as they are still billing high hours.

[Tiago Splitter]

I still don't know why law firms would want to get rid of senior associates, though. They're making what, 220-280K a year, billing high rates, and already know everything. They would seem to be the most valuable pieces.

They don't want to get rid of them. They just want to limit the number of people who make partner, because that's the golden goose. Senior associates can stay as long as they want, as long as they are still billing high hours.

Really? So the up or out model is just a myth?

I've had a BigLaw partner tell me that associates don't make money for the firm for 3-4 years. This may not be true for all firms, especially those where associates bill huge hours, but I think an important point is being missed: not all billable hours get billed to the client. The BigLaw partner I talked to said new associates will often bill several hours for something that should have taken only one or two.

[AreJay711]

Ties matter more for smaller firms / smaller offices in big firms because they keep fewer associates and don't have a huge class every year.