In my last post I discussed a Wall Street Journal article covering the difficulties of partnership at big law firms. Now I will discuss why making partner in a big firm does not mean what it did 40-50 years ago. This is a brief overview. A book could be written on this subject.

The article touches on the answer:

Being named a partner once meant joining a band of lawyers who jointly tended to longtime clients and took home comfortable, and roughly equal, paychecks….

Many firms have expanded rapidly to mirror the growth of their corporate clients….

Today, making partner can take more than a decade and still requires scraping for new business….

In the 1980s, the most elite law firms were small and leaned on close ties to a few marquee clients passed down from one generation of partners to the next….

Mr. Greenwald realized the firm needed to operate less like a law firm partnership and more like the investment bank he’d just left, if it wanted to survive….

A handful of law firms still operate under a lockstep compensation system, which pays partners in a relatively tight band based on seniority, rather than how much revenue they bring in….

“Many law firms have become so focused on the next client, the next matter, the next dollar, that they have failed to notice the gradual, but inexorable, disintegration of their cultural glue,”…

My Take:

Law firms changed because the world changed around them. Change was more about survival than paying some partners more than others. That was a byproduct, not the cause.

Before law firms changed, their institutional clients changed. The Greatest Generation were ‘company men.’ They joined a company and worked at it for their whole lives.

Law firms serving companies mirrored their clients. New lawyers joined firms with plans to stay their entire careers.

Things began changing around the time the Baby Boomers started joining the workforce. Many stodgy institutional companies began to be passed, go out of business or merged into competitors. For a variety of reasons, executives in particular moved to other companies with regularity. For a brief overview of this phenomena, see chapter one of the book Barbarians at the Gate.

That had a profound impact on law firms dedicated to a few institutional clients. The company men knew one law firm–their law firm. A new executive from outside the company probably doesn’t care that the institution has always used a particular firm. The executive could just as easily want to use a firm he knows and that is loyal to him.

Suddenly, the law firm was at risk of losing the institutional client. And even if it didn’t happen, it could happen. Law firms realized that. It meant they could not safely rely on a few clients to support an entire firm.

Any by the way, the executive leaving and a new one coming in was not a one time event. It often repeated itself every few years. This meant that the institutional firms had to worry about retaining the institutional client every few years.

Institutional clients also started bringing lawyers in-house to save money. Joining the institution’s expanding legal department was an option for some lawyers who worked at the institutional-serving firms. Many did. But for most, that move traded income for job security. For lawyers living paycheck to paycheck, it wasn’t an option financially.

By the 1990’s, most power companies, phone companies, car manufacturers, insurance companies and other traditional institutional clients were expanding their legal departments and using outside firms less.

On this last point, I’m speaking from personal experience. I had an insurance company client that was a reliable source of defense work that was a great backstop to my contingency fee cases. But in the late 2000’s, the company decided to hire an in-house lawyer to work on their Mississippi cases. The projection was that it would save the company around $500,000 a year in Mississippi alone (I was not the only Mississippi attorney affected). I was asked to apply for the job, but passed.

Today, institutional clients have virtually no loyalty to law firms. It’s even accelerating as millennials move into leadership positions in businesses. More than one of the dying breed of company men have complained to me about how different things are with millennials beginning to call shots. Experience is valued less because of, in a word, Google. Steve Millennial feels like he doesn’t need Sarah, who has worked at the company for 30 years, when he thinks Google is a match for Sarah’s 30 years of experience (it’s not, by the way).

Lawyers can relate. There isn’t a lawyer alive who hasn’t had to deal with a client who considers himself an expert by Google. Appellate judges who can still live in a world of a record and precedent don’t know how good they have it. Maybe next time in an appellate oral argument a judge asks me a question I can’t answer, I should respond: “can’t you just Google it”?

Law firms are hyper-focused on the next client because finding that next client only means firm survival. On a related point, plaintiff attorneys who serve one-off clients are often too critical of defense lawyering. They need to understand that many of the tactics they don’t like are client driven. It’s dangerous to tell an institutional client “no.” For high and mighty plaintiff lawyers who claim they are above such chicanery, it’s a bit like telling me what you would do in a foxhole. You really can’t say unless you have been there.

In short, the business world changed around law firms. Most firms simply couldn’t survive using the lock-step partner model. I realize a few have and continue to thrive. But for every one that has, someone could point to 10 that had to change to survive.

The highest paid lawyers at most big firms might be some of the best attorneys at the firm, but that isn’t why they are the highest paid. It’s about rainmaking.

Rainmaking is job security and power. The rainmaker can leave today and start her own firm or make a lateral move. She knows it, the firm knows it and other firms know it. There is an entire industry devoted to recruiting lawyers to switch firms.

Whatever a law firm is doing is almost always a lagging indicator of what is going on around the firm. If the world hadn’t changed, law firms wouldn’t have changed. If firms could still rely on longtime institutional clients, the firm itself would be the rainmaker. Pay would be tied to seniority.

In summary, big law firms changed because the business world they served changed. Lawyers are conservative by nature and slow to change. You know when law firms started putting computers in everyone’s office? When the clients started asking for their email addresses.

Don’t blame law firms for their top heavy compensation systems and cultural changes. Firms had to change in response to a changing world.

I could write more on this topic, but I better go see if I can make it rain.

  • Macy Hanson

    Great posts. Very thoughtful and timely. I hope the rain comes for you!