A 'Big Law' Revolution? Not Likely

Top firms will always use their reputations to maximize profit.

Don't expect Big Law to man the barricades.

Photographer: Jean-Sebastein Evrard/AFP/Getty Images

“Big Law” is in its death throes. Everyone says so. The partnership model used by the large corporate law firm is out of date. Overworked associates, who already face “soul-crushing” pressures, are commanded not to waste valuable time saying thank you. Neither clients nor partners are loyal, which is just as well because virtual law firms like Axiom are going to steal their business.

Benjamin Barton, a law professor at the University of Tennessee, wants us to know that things aren’t all that bad. As implied by the title of his provocative and enjoyable new book, “Glass Half Full: The Decline and Rebirth of the Legal Profession,” he has a somewhat different point of view. Yes, lawyers are in trouble. But brighter days lie ahead.

First, the bad news. The legal profession, he tells us, faces “death from above” (the drive to maximize profits per partner), “death from below” (technological change), “death from the state” (regulation, particularly restrictions on tort damages and a rise in legal work by non-lawyers), and “death from the side” (the sharp decline in earnings of small firms and solo practitioners). 1 Although the organizational schema is new, the ideas aren’t. All of this has been predicted before.

What’s unexpected is the sunnier side of Barton’s analysis. The shakeout is long overdue, he insists, and what emerges on the other side will be better. Wage scales will moderate. Firms will return to a professional model in which they strive to build greater comity around common values.

These are Barton’s two bugaboos: money and values. In their pursuit of profit-per-partner, firms are destroying the culture that makes them special.

Let’s start at the bottom. Because, as Barton tells us, “no one ever got rich working by the hour,” the corporate firms need associates. Lots of associates. Leverage -- the ratio of associates to partners -- was 1.45 as recently as 1985. That year, the single most leveraged firm was at 2.86 In 2012, leverage averaged 4.5. In 2011, one Big Law firm was at an astonishing 10.7.

Big Law associates are very well compensated, with starting salaries in 2014 of around $160,000 plus a bonus. And while some argue that they are also exploited -- a question I will take up in another column -- Barton’s main point is that the associates are made unhappy by the stress and the hours. He wonders why more Big Law firms don’t compete by offering more interesting work with more flexible hours in exchange for a lower salary. He also hints at the answer: fear of being considered second-rate. If he’s right, there’s a sad irony in the notion of a profession where bosses worry about loss of reputational capital should they suddenly start treating their employees better.

Law firm culture matters to Barton. He admires firms that grow their own partners, arguing that they are more stable and can work within a core of shared values. But he hates lateral partners hires. Really hates them. Overpaying lateral partners brought down Dewey & LeBoeuf, he tells us, and threatens other titans as well.

Yet the titans can’t help themselves. Between 2007 and 2011, lateral partner moves among Big Law firms rose by 10 percent while promotions of associates to partner fell by 21 percent. And even during the recession, as corporations reported spending less on outside counsel, law firms continued to raise billing rates. No contradiction, Barton explains: The increase was driven by the top firms. In the highest quartile during the period 2009-2011, partner billing rates increased by 8 percent, and associate rates by an astonishing 18 percent.

Why do clients pay? Barton points to reputation as key, even as he worries that the drive for profit will “erode firm quality control” and in the long run squander reputational capital. Reward for specialization is also obviously a part of it. So is the market for superstars, the way that small differences in talent can lead to large differences in demand for services, and therefore in income.

Another likely factor is the inefficiency of the market for information about which law firms do which things well. Marko Tervio of the Haas School of Business at the University of California at Berkeley argues that the high incomes earned by the few at the top of any profession may result from difficulties in determining the level of talent of potential alternative hires. In other words, prices are being bid up for the few known to be excellent because it is expensive to find out who else is every bit as good.

None of this is sustainable, Barton says, and he’s glad. He envisions a future in which legal help is more accessible and cheaper, and firms are smaller and built around “decency” and common cultures. (No more pesky laterals!) We’ll screen out the people who are in it for the money, and rebuild around a new generation for whom law will be a profession not a business. As changes in technology and demand roil the industry, many of the very lawyers whom he sees locked in a relentless competition for reputation and income “will enjoy the challenge of responding to shifting market forces.”

It’s a lovely vision. But I’m not sure it’s borne out by his argument.

For example, although the middle of the book is devoted to a scathing critique of legal education, Barton does “not believe that the current crisis will result in a fundamental or thoughtful redesign of American law schools, regardless of how badly one is needed.”

The entire profession, Barton warns, is caught up in a combination of hierarchical thinking and path dependence. Law schools use roughly the same entrance criteria, 2 the law firms are structured the same way and use the same hiring criteria (even if they can’t draw the same associates), and so on. This isn’t the portrait of an industry eager to grapple with change. Barton may be right that the Big Law model isn’t sustainable. But most of the firms at the top of the heap are likely to go on maximizing profit anyway. That’s what businesses do.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

  1. Barton's discussion of earnings omits government and public interest practice, but, as he reminds us, heavily indebted law school graduates can scarcely afford to take the few jobs available in those areas. He does point out that loan forgiveness programs make those jobs more accessible.

  2. Part of the problem is that the American Bar Association continues its ridiculous insistence that accredited law schools use the LSAT as an admission criterion. Last month, the ABA abandoned its year-old experiment in allowing flexibility.

To contact the author on this story:
Stephen L Carter at scarter01@bloomberg.net

To contact the editor on this story:
Stacey Shick at sshick@bloomberg.net

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