5 ms·

The Big Law model (in which I worked for four years some time back and with which I have dealt repeatedly over the years from one angle or another) depends heav

by grellas 16y ago

The Big Law model (in which I worked for four years some time back and with which I have dealt repeatedly over the years from one angle or another) depends heavily on highly leveraged relationships within the firm, typically with something like a 1 to 3 ratio between the equity partners and the young associates who do the bulk of the actual hourly billing. It also depends on the firm's having the capacity to do highly sophisticated legal work while consistently adhering to standards of excellence. Finally, it depends upon the firm's ability to induce the associates to adhere to wildly oppressive work hours as part of their normal schedule, such that, for example, when FB broadened its disclosure of user information there came popping out a whole series of attorneys who had (in the former cover of darkness) described themselves as "Slaves of xxx," or some variation thereof (which FB automatically designated as company names). These firms will pay the associates anywhere from $165K/yr to start up to the high $200s, often with large bonuses tacked on to the base salary. Why? Because it is basically a vast money-making machine for the partners who lead and manage those firms and who pull in multi-million dollar annual incomes. And the key to it is to have lots of talented bodies consistently pulling all-nighters on major pieces of litigation and major deals that such firms handle. Thus, whenever you read about a headline deal ("Skype to offer shares in IPO at $1B valuation"), you can assume that there is a small legal army at work in the background doing an orgy of billing. For their part, the associates toil and slave in such systems for as much as 8 to 10 years in hopes of making partner so that they can one day be on the receiving end of this money-making machine. This system works well only if highly talented young attorneys can consistently be recruited to handle the vast bulk of the billable hours involved in such work. Thus, the most precious asset belonging to such firms is precisely this pool of young talent, and they will pay dearly to get it. What is more, such associates are paid in lockstep, meaning that if one of these large firms "adjusts," the others will be quick to follow. For a nearly unbroken period over the past 25 years, those adjustments have consistently been upward. The craziness peaked in the bubble years of the late 1990s, during which the associates themselves set up "greedy associates" websites and compared notes on every dollar paid and every perk provided by their respective firms. Of course, if any firm began to be seen as out of step with what these young lawyers came to see as their entirely legitimate demands, this would be suicide for the firm involved because the top talent would no longer go there. Thus, one saw the spectacle of the most elite law partners in the nation cravenly bowing and scraping to green new grads, all for the purpose of continuing to curry favor with them for recruiting purposes. It goes without saying, then, that the firms would easily shell out for the sorts of things described in this piece - for expensive and luxurious flights, hotel stays, cab fares, dinners out, etc. It was all part of the game, and not a particularly costly part given what the firms would ultimately derive from this labor-pool asset within their business models. During their summer internships, they would be wined and dined as law students and would be repeatedly told what a great place to work the firm was. Once recruited as associates after graduation, they were introduced to the "slave system" in spades, and the naive perceptions they had as students would often be deflated in light of a sometimes harsh reality of endless, long hours and of often harsh taskmasters who drove them with an unkind hand. A significant part of this has to do with grabbing the students from the elite schools but the real goal was to grab the talented attorneys from each graduating class (this meant those from top schools and those from the top 10% or so of second-tier schools). The practice of law in such environments is truly demanding, and the goal was to find attorneys who worked hard, who knew how to think, and who comported themselves with the highest standards of discipline and excellence. Very few young attorneys can do all this consistently, and they are in great demand. In one sense, however, this piece reads like it must have been written a couple of years ago. In reality, Big Law is still reeling from the latest economic collapse and the latest crop of 3Ls is still largely unemployed, with no serious prospects for improvement in sight for this particular labor market. Even the Harvard 3Ls have largely had to settle for the types of positions that, until recently, they would not even have begun to consider. This truly is an artificial world and there is some doubt today whether it can continue to operate in its accustomed manner. Time will tell on this. I personally doubt it.

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sbaqai 16y ago
grellas, insightful post as always. Do you mind elaborating further on your last sentence/point? There was an article earlier on HN about the growth of legal outsourcing in places like India, as well as the prevalence of four tiers of law schools overcrowding the marketplace. In your opinion, is the current state of the law labor market a reflection of recent economic shock, or do you think there is a paradigm shift occurring to some degree?
- grellas 16y ago
  The recent economic collapse has caused a general revulsion against the billable fee structure that has been routinely used in large firms. At their peak in 2008 before the collapse, fee structures had gotten to the point where first year associates were being billed at about $500 per hour, with senior associate rates reaching into $600/hr plus and partners ranging anywhere from $700 to $1,000/hr (even paralegals would be billed at as much as $350/hr plus, not to mention the summer clerks, who also would be billed at such rates). Even more, the standard practice in such firms is to travel in packs. Several lawyers and a team of paralegals would be assigned to a typical project that comes to the firm and every one of them bills time on the matter whenever they talk to each other about it. Thus, a "team meeting" may wind up costing the client thousands of dollars per hour, as the lawyers and paralegals ruminate over the strategy of a case or the details of a discovery strategy, etc. Now it is not the norm to have everyone globally assembled even for a large matter, but even the routine, day-to-day handling of a matter winds up being double- or even triple-billed, e.g., a court hearing at which a partner shows up to do the argument with two associates in tow carrying the bags. All in all, not a very efficient system. But, as noted in the article, there is an incestuous network in place between the big firms and the general counsel and other senior in-house counsel who effectively determine to which outside law firms they will farm out the company's most complex matters. Not only do the lawyers on the client have relationships with the big-firm lawyers but they also operate under the "I can't be fired for using IBM" principle - and this has led over the years to strong ties within this network that have assured a steady and growing stream of work for the big firms from the most prominent companies with the most complex legal needs, all in spite of any inefficiency in billing or even overt billing abuses. For a while, when all was still well, these same in-house counsel, under pressure from management, began to assert themselves by questioning the overbillings, etc. and this led to a pattern by which initial billings in a matter became, in effect, akin to opening offers. Such billings would be scrutinized and returned with complaints about this or that, would be cut back, and would then be paid in what was generally regarded as still-inflated form. The downturn did change all this, with companies having had enough of this billing model. In today's environment, the large firms have had to adapt and have been forced to temper the old abuses with reduced hourly rates, fixed-fee arrangement, caps, etc. It is still the same old machine but much humbled when it comes to routine billing matters involving the in-house network. Very large and very complex matters still command the old rates and the old multiple-billing mechanisms, and that is why large firms salivate over the prospect, e.g., of getting a prominent role in the Lehman bankruptcy or in defending a prominent class action, etc. The problem is that there are only so many matters of this type, and certainly not enough to support the range of large firms in the manner to which they had historically been accustomed. Thus, today, the field is much more varied even for the larger legal matters that have traditionally gone to large firms. For discrete issues, such as complex discovery, much of the work is being outsourced, e.g., to the Indian companies you mention. Instead of having a team of U.S. lawyers and paralegals poring over millions of documents at rates of $500 and up, you have a much less expensive labor pool overseas doing this sort of mind-numbing work. You also have a proliferation of smaller, boutique firms throughout the country doing the same work as the larger firms generally do, by comparably qualified lawyers, at half the billing rates. Some are set up "virtually" to enable themselves to compete on price even more effectively. And, in response, as noted above, the big firms themselves are adapting and discounting rates, etc. All this represents a major change from historical patterns. I would go so far as to say that it has left the large firms "reeling," if that term is not too strong. Will it result in a paradigm shift? In some ways, no. The network upon which the large firms feed is firmly intact and it does not appear that anything will change the basic ways in which the work is generated for such firms, i.e., they will continue to get the prestige big-company work and this will continue to support the existing structures. To that extent, the downturn has basically caused a short-term shift in the relative bargaining power between the company clients and the large firms. I expect this will shift back over time because law more and more affects large companies, with ever-expanding government regulatory frameworks, etc. in place, not to mention ever-expanding theories of legal liability. In this sense, Big Law will continue to be a "growth" business, albeit one that is temporarily in a slump. In other ways, yes, however. Modern technology has indeed transformed the way law works and it is far easier today for clients to find good law firms of varying types to compete for their projects. Thus, at this level (which certainly includes the bulk of the startup world), clients have a far broader range of choices and this means more competition among the lawyers and better billing arrangements for the clients. Clients in such cases do not need to put up with things such a double-billing, or paying extensively for the learning time of all those young attorneys who are part of the 3-to-1 ratio on which the Big Law model depends. In these respects, I think the change is permanent. Clients are more knowledgeable and the information is now out there to give them good choices. This will not change going forward and is a good thing from the client side. The ultimate institutional constraint, though, that will continue to support the current system is the guild system under which lawyers operate. Owing to the force of the law regulating the field, one can only practice law in a jurisdiction in which one is licensed and one who is not licensed can't offer any form of legal services to the public. This system, though intended to be protective of clients, acts much as the old guilds of the middle ages did in making sure that only the licensed artisans get the work. This in turn creates artificial scarcity, leaves it impossible for enterprising people to solve legal problems through creative means, and generally leaves the client with fewer choices and little ability to bargain over price. As long as this system generally prevails, there will be no fundamental changes in the field. Sorry to go on and on, but I do hope this helps give you an insight into the broader patterns in the field.

by grellas 16y ago

deleted 16y ago

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sbaqai 16y ago

grellas, insightful post as always. Do you mind elaborating further on your last sentence/point? There was an article earlier on HN about the growth of legal outsourcing in places like India, as well as the prevalence of four tiers of law schools overcrowding the marketplace. In your opinion, is the current state of the law labor market a reflection of recent economic shock, or do you think there is a paradigm shift occurring to some degree?

grellas 16y ago
The recent economic collapse has caused a general revulsion against the billable fee structure that has been routinely used in large firms. At their peak in 2008 before the collapse, fee structures had gotten to the point where first year associates were being billed at about $500 per hour, with senior associate rates reaching into $600/hr plus and partners ranging anywhere from $700 to $1,000/hr (even paralegals would be billed at as much as $350/hr plus, not to mention the summer clerks, who also would be billed at such rates). Even more, the standard practice in such firms is to travel in packs. Several lawyers and a team of paralegals would be assigned to a typical project that comes to the firm and every one of them bills time on the matter whenever they talk to each other about it. Thus, a "team meeting" may wind up costing the client thousands of dollars per hour, as the lawyers and paralegals ruminate over the strategy of a case or the details of a discovery strategy, etc. Now it is not the norm to have everyone globally assembled even for a large matter, but even the routine, day-to-day handling of a matter winds up being double- or even triple-billed, e.g., a court hearing at which a partner shows up to do the argument with two associates in tow carrying the bags. All in all, not a very efficient system. But, as noted in the article, there is an incestuous network in place between the big firms and the general counsel and other senior in-house counsel who effectively determine to which outside law firms they will farm out the company's most complex matters. Not only do the lawyers on the client have relationships with the big-firm lawyers but they also operate under the "I can't be fired for using IBM" principle - and this has led over the years to strong ties within this network that have assured a steady and growing stream of work for the big firms from the most prominent companies with the most complex legal needs, all in spite of any inefficiency in billing or even overt billing abuses. For a while, when all was still well, these same in-house counsel, under pressure from management, began to assert themselves by questioning the overbillings, etc. and this led to a pattern by which initial billings in a matter became, in effect, akin to opening offers. Such billings would be scrutinized and returned with complaints about this or that, would be cut back, and would then be paid in what was generally regarded as still-inflated form. The downturn did change all this, with companies having had enough of this billing model. In today's environment, the large firms have had to adapt and have been forced to temper the old abuses with reduced hourly rates, fixed-fee arrangement, caps, etc. It is still the same old machine but much humbled when it comes to routine billing matters involving the in-house network. Very large and very complex matters still command the old rates and the old multiple-billing mechanisms, and that is why large firms salivate over the prospect, e.g., of getting a prominent role in the Lehman bankruptcy or in defending a prominent class action, etc. The problem is that there are only so many matters of this type, and certainly not enough to support the range of large firms in the manner to which they had historically been accustomed. Thus, today, the field is much more varied even for the larger legal matters that have traditionally gone to large firms. For discrete issues, such as complex discovery, much of the work is being outsourced, e.g., to the Indian companies you mention. Instead of having a team of U.S. lawyers and paralegals poring over millions of documents at rates of $500 and up, you have a much less expensive labor pool overseas doing this sort of mind-numbing work. You also have a proliferation of smaller, boutique firms throughout the country doing the same work as the larger firms generally do, by comparably qualified lawyers, at half the billing rates. Some are set up "virtually" to enable themselves to compete on price even more effectively. And, in response, as noted above, the big firms themselves are adapting and discounting rates, etc. All this represents a major change from historical patterns. I would go so far as to say that it has left the large firms "reeling," if that term is not too strong. Will it result in a paradigm shift? In some ways, no. The network upon which the large firms feed is firmly intact and it does not appear that anything will change the basic ways in which the work is generated for such firms, i.e., they will continue to get the prestige big-company work and this will continue to support the existing structures. To that extent, the downturn has basically caused a short-term shift in the relative bargaining power between the company clients and the large firms. I expect this will shift back over time because law more and more affects large companies, with ever-expanding government regulatory frameworks, etc. in place, not to mention ever-expanding theories of legal liability. In this sense, Big Law will continue to be a "growth" business, albeit one that is temporarily in a slump. In other ways, yes, however. Modern technology has indeed transformed the way law works and it is far easier today for clients to find good law firms of varying types to compete for their projects. Thus, at this level (which certainly includes the bulk of the startup world), clients have a far broader range of choices and this means more competition among the lawyers and better billing arrangements for the clients. Clients in such cases do not need to put up with things such a double-billing, or paying extensively for the learning time of all those young attorneys who are part of the 3-to-1 ratio on which the Big Law model depends. In these respects, I think the change is permanent. Clients are more knowledgeable and the information is now out there to give them good choices. This will not change going forward and is a good thing from the client side. The ultimate institutional constraint, though, that will continue to support the current system is the guild system under which lawyers operate. Owing to the force of the law regulating the field, one can only practice law in a jurisdiction in which one is licensed and one who is not licensed can't offer any form of legal services to the public. This system, though intended to be protective of clients, acts much as the old guilds of the middle ages did in making sure that only the licensed artisans get the work. This in turn creates artificial scarcity, leaves it impossible for enterprising people to solve legal problems through creative means, and generally leaves the client with fewer choices and little ability to bargain over price. As long as this system generally prevails, there will be no fundamental changes in the field. Sorry to go on and on, but I do hope this helps give you an insight into the broader patterns in the field.