Ivey Files

January 19, 2007

Law Firm Brain Drain

Hat tip to the blog "Paragon to Pieces," which drew my attention to this recent article in the New York Post about the flight of Gen Xers from top New York law firms:

Young, Gen-X lawyers in their third to fifth year in the business are walking away from their $200,000-a-year positions in record numbers -- at times without another job in view.

 

The reason? They are unhappy with their Blackberry lifestyle - being tethered to the job 24/7 and having to rush back to the office at a moment's notice when e-mail orders pop up on the ubiquitous PDA.

 

The exodus of law firm associates is unprecedented, according to the National Association of Law Placement, or NALP, which found that 37 percent of associates leave large firms within the first three years.

 

A whopping 77 percent of associates leave within five years, according to NALP's latest survey.

Ponder that for a second. Over a third of associates leave within the first three years, before a good number of them will have paid off their law school loans.  And close to four fifths leave before they come up for partner, meaning they bail after putting in five years of grunt work but before making the really big bucks. That's quite a measure of how miserable they are. Been there, done that -- I've been part of that exodus, so it's not news to me, but apparently the ranks have swelled. (I recall whispers about a honeymoon being canceled for some deal. Because that's what you'll remember on your deathbed: that deal you worked on back in 199X.)

The article also quotes an anonymous law firm partner who fears for his business model:

It's the mid-levels, the third through fifth years that are leaving, so you're losing people you've spent lots of money on training, and just as they start to run things, they leave, and firms become less profitable.

So I wonder, what does that exodus mean for the law firm business model? That model is a pyramid structure, where the folks at the top make money by billing out the hours of young associates while paying them more or less a fixed salary. More hours per associate means more money per partner and diminishing hourly incomes for those associates. (A lawyer I know once calculated that his yearly bonus — the carrot firms dangle in front of associates to encourage more billing — amounted to something like $20 for each hour he worked above the yearly minimum. Big whoop.) Does that model fall apart without a self-replenishing pool of law school graduates eager to take a heap of abuse in exchange for a shot at the brass ring of partnership? It's a big topic, one that deserves a longer post.

I asked a consultant (and former lawyer) who advises in-house counsel at big corporations (the really big ones, the kind that hire fancypants New York law firms). He tracks law firm business models, HR practices, and law firm value propositions very carefully and had some interesting observations to share. I found them very persuasive, so rather than paraphrase, I'll let his words speak for themselves.

Is Gen X/Y a real threat to the business model? Nope.

Empirically, the big law firms have made more money per partner every year, year over year, for the last decade. The increases have been dramatically greater than CPI, inflation, or any other metric of cost increase. The claim that the law firm model is in any way in jeopardy is so disconnected from their financial performance that it has no real weight. As long as the money continues to flow as intensely as it does to the top 100 or 200 law firms, there's just no basis for them to change.

Is associate attrition bad for law firms? Nope.

The business model depends on winnowing out the vast majority of those people and not making them partner, because new partners dilute the profits of current partners. If associates don't quit on their own, you have to tell them to go or not make them partner. It's better for the firm to keep them as long as possible — senior associates are very profitable — and then not make them partner, but the pain and inconvenience of that probably makes the self-initiated departure of 77% of them almost as good.

Are law school loans traps? Yes.

The oversupply of law students with substantial loans has, as you know, prevented any exodus from being a real problem — firms have a massive pool to choose from.

Is Gen X/Y really so special? Nope.

My firm does a huge amount of empirical work on employee preferences, and one thing the studies have shown time and time again is that all generations behave the same where money is concerned. Money is money is money, and Gen X, Gen Y, Baby Boomers, etc. behave the same with respect to it. Some percentage of every generation is willing to do nearly anything for money, and the breakdown of the generations just doesn't vary that much. Managers like to bitch about Gen X or Gen Y. Whatever. I can tell you that they are "cosmetically" different, but they are not different in the hard money choices they make. And that's backed up by the fact that, in this context, law firms are making more money every year than in every prior year.

Are in-house legal jobs the holy grail that law firm associates assume they are? Nope.

General counsel are always going on about the problem of talent management, needing to create a compelling career path for lawyers, needing to retain them, fearing they will leave, talking about the new generation, etc. Here's the fact of the matter. Unlike law firms, in-house legal departments — however surly their lawyers might be — have incredibly low turnover. The lawyers stay; they stay at much higher rates than employees in other parts of the company. In-house lawyers are unhappy, yes. They are bitching. They are working as many hours as they did at their firms. But they are not leaving because they have nowhere to go, which means that talent management/career advancement/retention efforts at companies that may be targeted at in-house lawyers have exceedingly low return on investment, since there is not a retention problem to begin with. In-house lawyers won't even take other jobs within the same company because it invariably involves a very serious pay cut.

His bottom line: "Lawyers: Your lives suck. And you're still making money."

I also received interesting feedback from a very astute acquaintance who recently graduated from a top law school and bypassed the big-firm track entirely to work in public service. (One summer at a big firm during law school was enough to make him head for the hills.) His take:

I think the doomsday scenario offered by a lot of people is over-stated. Law firms don't want 80% retention because they don't want to be considering 8 out of every 10 associates for partnership later on (at least the "big" law firms).  Using 85% of the associates for "grunt work" will continue to make tons of cash for the law firms, and will allow a "natural" culling of the ranks in anticipation of partnership consideration.

Even more sadistic: I think many partners view the dramatic drop-off as part of the "testing" of associates.  By their logic, if you can survive the years of misery when 8 out of 10 of your friends are fleeing like the building is on fire, then you are the sort of person fit for partnership at the firm.  They would never admit this, of course, but I think that's the thought process for some of the worst partners.

In that way, I consider the big law firm to be like a stereotypical fraternity from a huge public school.  They have thousands of students to choose from during rush period, and they ask a very small percentage of those students to pledge.  What are they offering? Hazing and status.  That's it.  Status is the right to say you're in "the frat," to walk into the frat house during parties like you're a member and brag to other undergraduates that you belong there (i.e. "I work for Cravath..."). The hazing? The most foul, degrading stuff you can imagine being done to other humans short of actual criminal behavior.  Examples? I'd happily fill you in about the friend of mine who was asked to keep his Crackberry on him and respond to discovery problems while his wife was in labor, and the phone call he received from his partner/boss during his son's circumcision asking him to get back to the office to look something over (and yes, his boss knew exactly what was going on with his personal life at the time). [Reality at Big Firms is so easy to parody -- see Anonymous Lawyer's contribution here. - Anna]

The reason it's like a fraternity is that each new entering class comes into the house and says, "This hazing sucks, I can't believe I'm doing this, I will never do this to people if I'm in charge."  Sure enough, 2 years later as seniors, they're running the hazing just like their predecessors.  So while the HUGE percentage of first year associates that experience law firm life end up leaving in droves, they never made it into the fraternity.  But by the time the next hiring/recruiting cycle ends, a brand-spanking new 8th year associate turned junior partner is in charge of assignments or work schedules, and he has just suffered through a divorce, a receding hairline, an ulcer, and way too many vacations interrupted by phone calls and texts.  [I remember a partner's retina detaching, and he wasn't doing anything about it because of some deal. Yuck. - Anna] You think he's going to let up? No way--so he continues the cycle of miserable treatment of associates, even though he was once in their shoes.

That's the firm/partner end of things.  From the student/associate perspective, the law firm model will also be able to survive because no matter how badly you are treated at these places, there are always at least a few of your friends, classmates, and colleagues willing to persevere through all the hazing to climb the ranks to that coveted junior partner position.

As for the grunt work, so long as student loans are a part of the education process, there will be fresh meat to build widgets at the enormous law firms.  As you pointed out, the associates may be leaving before all of their loans are completely paid off, and that does demonstrate how unbearable the law firm life can be.  But if you have $100,000 in loans and can throw $25,000 a year toward those loans for 3 years by working for "Big Firm," it's a lot easier to "go public service" in year four.  $25,000 in loans is manageable when you're in public service, especially if you have a solid job after Big Firm (because of the status that entry on your resume can offer).

Bottom line is this: the traditional pool of associates may shift over the next 10-20 years, and you may actually see more 2nd and 3rd tier students being courted by top firms, but the overall power dynamic and business model of the law firm will survive.  The changes in the law firm labor pool are not going to be dramatic enough to threaten the pyramid.  As much as I wish it weren't the case, the "Big Firm" is going to survive, I think, because there are enough jackasses graduating law school to fill the partner ranks each year (the "gunners"), and a healthy supply of students who will still need to take a bite out of their loans before moving on to greener pastures.

Whew.

When I counsel prospective law school applicants and give talks at colleges around the country, I talk to a lot of people who

•    are certain they want to work at big law firms without having spent a single day experiencing one  (kudos to the paralegals and case clerks -- at least they know what they're getting themselves into when they apply) or
•    think it's easy to go into public interest work right out of law school or
•    think nothing of spending five years at Big Firm before going off to do what they really want to do, when they have no earthly idea what that might be, or whether it even requires law school + firm experience to get there.

I do my best to give them a sense of what they're in for, and in response I encounter various levels of resistance and faces that say, "This is too much cognitive dissonance, so I'm going to pretend I didn't hear that." Not always, but often. Maybe the message will sink in eventually, but a lot of people have to learn the truth the hard way, after three years of law school and another three to five years at a firm that they will likely want to flee. And mind you, most law school graduates aren't even in the running for those top firms; those are considered the plum firm jobs. At least those associates get paid well.

The fact is that most of these folks have no idea what law school is like, what legal practice is like, whether it's something they'll enjoy, whether BigLaw is a good move for them, or what they want to do after their time "inside." Those are an awful lot of unknowns, and yet thousands and thousands of people go jumping on that very expensive, very time-consuming bandwagon year after year, usually because they lack the courage or are too lazy to think hard about other options or are being pushed into it by their parents. It's not a mistake for everyone, but there's a reason there are so many miserable lawyers out there. (On that subject, see the last paragraph of my other post here.)

Michael, thank you for your thoughtful comment. My own reply started morphing into a longer post, so I've continued the conversation in a new blog posting, here: http://www.annaivey.com/iveyfiles/2007/01/law_firm_brain__1.html

This is a great piece, recommended to my Legal Ethics class by one of my students. I think almost everything you wrote, and everything your sources claimed, is on target. [One quibble is below.]

One thing you don't mention is that state law schools really do facilitate ethical lawyering, because the much smaller student loan with which one graduates is a much smaller trap. I have spent my career at a state law school in no small part because I don't know how I could look myself in the mirror were I in a private law school.

The quibble: I do get lots of emails from public interest firms and think-tanks every year, looking for young lawyers. It is simply not true that you have to have sold your soul at White Shoe firm in order to get a life eventually. Other excellent ways to break in are with a prosecutor's office, with government, and with the JAG corps. All these involve public service (in which I deeply believe) and allow the young lawyer to have a life.

Thanks again!

this is an absolutely incredible post. i am so glad i subscribed to your rss feed. it has changed my perspective on going to law school and pursuing corporate law. i read double billing, and im an avid reader of anon. lawyer, however, i still wanted to go to law school, i thought i would be able to handle that miserable life before pursuing something else. but after reading it in a "non-fiction" setting has opened my eyes, and I think I am not going to pursue that career, it is not for me.

I couldn't agree more with the firm-fraternity analogy.

This is an amazing post. Sure, it's long, but this one post has more good inside information and insight than some books on law school. Well, done. And thanks for keeping us well-informed!!