Tuesday, July 10, 2007

The Associate Crisis

Canada's Globe and Mail ran a story last week about skyrocketing US associate salaries and their effect on clients. Much of what the story has to say is not new, although it is interesting to see the same concerns being voiced from a Canadian perspective, and to see discussion of how these salary increases are spreading to other countries as well. Everything's global these days.

Several points the article makes are very good, and they tie into subjects of previous posts on this blog (relevant earlier posts are listed at the end of this post).

First, who foots the bill for associate pay increases? In direct terms, the clients do--but associates pay a hefty indirect cost in terms of additional demands on them, as well as the death of mentoring (as projects become more high-stakes). As the article notes, in-house counsel are more likely to say, "If a firm wants to give us a green, first-year attorney who charges out at $300 an hour, well, sorry. We'd rather have someone more senior who charges $525 an hour but can do the work in a third the time because they know what they're doing." Can you blame the clients? Of course not.

A significant side effect is that associates have less work to cut their chops on, and the senior people are busier doing that billable work, so there is a disincentive to mentor the juniors. And if a junior associate does get the work, there is far less margin for error, and often no safety net.

I once was told by a senior partner that in the "old days," meaning the 1970s, clients were far more willing to pay for junior associates to accompany/assist senior attorneys on projects for that client, because (a) the billing rates were not as high, and (b) because those junior associates would be inheriting this client's business. In other words, the clients were paying to train their future lawyers, which made some economic sense. Yet in today's market, that's a more expensive proposition--and even more importantly, those junior attorneys are likely to jump ship to another firm before they ever inherit that business. In the 1970s, lawyers were far more likely to stay with a single firm for their career than today, when inter-firm mobility is the norm.

Plus, clients are less loyal to their law firms than they used to be, and with good reason. There's more competition out there from firms who can do the work, and there's more opportunity to shop around (and even play law firms off one another). So, why would a company pay to train a very expensive junior associate who is unlikely to ever be in charge of the company's work? Rhetorical question, of course.

Second, we are seeing "a fundamental shift in the traditional law firm paradigm." According to the Globe and Mail article, Susan Hackett of the DC-based Association of Corporate Counsel believes that "general counsel will stick with long-standing advisers for bet-the-company work, but increasingly look to firms with lower cost structures for everything else." In other words, a multi-tier market for legal work is--indeed has--emerged. I experienced this first-hand in practice. Between the time I started law practice in the mid 1990s and when left for academia in the mid 2000s, my overall workload got much, much harder. This happened because clients pushed the easier work to smaller firms, and even in some cases to non-law firm consultants. And if these competitors could do the work for less, well, why not? So, we now have a legal market in the US in which many of the more standard areas of practice are experiencing growing competition (which hopefully keeps prices down to an extent), and only that work which is most difficult can be billed out at top rates.

The silver lining for top-end practitioners, of course, is that the work can be phenomenally interesting and challenging. I practiced international trade regulation in practice, and in my last several years of practice I confess to never being bored--and not just because I was overloaded with work. The issues and problems were fascinating, enormously challenging and intellectual. The easier work had melted away, and all that was left was a core of really tough projects. Once I was able to get myself inserted into the work stream (that is, once clients were willing to have me working on the project on a daily basis instead of a senior partner), that made things quite fun. Of course, I saw a number of associates who never got over that "no work" hurdle, and they fell by the wayside. And they were all smart people who could do the work.

I could go on and on about this subject, but I will stop here for now. Read the Globe and Mail article, and check out some of my previous posts related to this subject:

And as always, I look forward to any comments from readers.


Anonymous said...

Having recently read yet another article pointing out the dearth of lawyers available to serve the poor, and just having finished "Executed on a Technicality" (FANTASTIC book by David Dow, a formerly pro-death penalty guy), I'm scratching my head trying to figure out what the problem is here ...

The more smart people "fall by the wayside" (your terms) in this fashion, the more smart people will be available to do the work that the Constitution requires be done.

Anonymous said...

As a rising 2L that will have a mountain of debt at graduation, I applaude everyone that has made it possible for me to make over a 100k in the next two years. Does it really matter who "flips the bill"??? If I am puttin myself through law school, I should be rewarded for my hardships by charging 200+ an hour.

Anonymous said...

I assume the 2d comment was facetious -- otherwise, "What hardship? Air conditioning break in your classroom?"

Hardship is having your house burn down or a serious disability. If you think you deserve some kind of reward for the "hardships" [sic] of law school -- other than a chance to take the bar -- you are the victim of a seriously overactive sense of entitlement. Good luck with that.

Anonymous said...

The thing that I like most about this blog: Everyone who tries to post things acts like that are way smarter than they really are. Like the previous comment. The Second comment was just that; a comment. Don't try to bash the guy/girl because you think you know them, maybe their house did burn down and maybe he/she does have a disability. Either way that is his/her opinon and don't try to give them the definition of hardship, after all I have had hardships and my house is fine and I don't seemed to be disabled. And I would appreciate the 3rd commentor not bashing me for this, but whatever, they will. You watch.

Anonymous said...

Excluding the two major markets where all salaries sky rocket, I would love to see a study on the correlation between salary (because I assume the high salaries are defense firms) and tort reform. I live in a state to where tort reform is very unpopular amongst the citizens, but super popular amongst the businesses (go figure). The news paper run two articles a week, mostly Op/Eds from out of state advocacy groups, claiming we're a "tort hell." If my state is so business unfriendly, I marvel, then why do we keep getting new majory companies building in our state left and right. I'm sure business expect results from their high fee. I'm just afraind it will result in deforming more of our laws.

Gregory W. Bowman said...

The last commenter makes a good point--nothing like having data to back up your argument.

As for new companies and tort reform, however, in the South such new companies are often big manufacturing concerns that locate new operations here. Often they bring in many, many new jobs--but their on the job injuries are governed by workers compensation. Which means that those companies are largely outside the tort law system. So I would not necessarily view an influx of manufacturing concerns as evidence against tort reform.

Phaedrus said...
This comment has been removed by the author.
Sir Francis Drake said...

Reading these comments remind me of Monty Python when they read letters written by viewers about how they don't like what was just aired on their televisions.

"Dear Concerned Law Twit,

I very much disagree with the comments written my Mr. Anon. I would like to see these comments cease before it becomes a tragic event, such as those who suffer from the disadvantages of MS.

Yours, very truly,

Sir Francis Drake

P.S. Anyone want to buy an Albatros?

Anonymous said...

Future MC 1Ls,

If you find yourself in section Y and you have Professor Bowman, be prepared to be beaten like a roach that he will likely use as a demonstration on your first day of contracts. I wish I would have had this 1L advice last year. Just run now while you still can. I am sure you all think I am full of it and that you will be different, I can't wait to talk to you a year from now. Have fun!

biff said...

I believe the reason that Simpson Thatcher first raised salaries is to stem the flow of mid-level corporate associates to investment banks and private equity firms. These lawyers are just as smart, hard-working, and capable as their business counterparts, who make more. The pay differental is unjustified. So the raise is simply a matter of the labor market sorting itself out.

If companies are complaining about the fees they pay for legal services, they ought to *really* complain about the fees they pay for financial services.

Anonymous said...

Well, while the marquee hires' salaries go to the stratosphere, everyone else is going to get a dose of reality, with curry.


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