Citi Private Bank and Hildebrandt Consulting have issued a Client Advisory with chilling projections for many lawyers and would-be lawyers. The advisory draws primarily on data from 89 of the AmLaw top 100 firms; 51 of the firms in the next AmLaw 100; and 65 other law firms. The participating firms are part of Citi's "Law Watch" database.
So what's so worrisome? First, the advisory bluntly declares that "it is time to let go of any lingering notion that the industry will revert to the boom years before the Great Recession any time soon," and that "the current state of the industry will remain the norm for the foreseeable future." The advisory even concludes that "the boom years (roughly 2001-2007) were the aberration, and what we are experiencing now is more characteristic of the legal market before the boom years." If lawyers, professors, and prospective students haven't gotten the message yet, there it is.
Second, the advisory acknowledges the cut-throat nature of law firm tenure these days. It notes that de-equitization of partners continues, although that rate has slowed. The advisory also counsels law firms to toughen up and weed out unproductive income partners. Those partners, Citi and Hildebrandt observe disapprovingly, are "consistently much less productive than either equity partners or associates, averaging about 150 fewer hours per year over the last decade." At the same time, they're more expensive than associates.
What to do about these burdensome income partners? Just get rid of them. Discard unwanted equity partners entirely, Citi and Hildebrandt advise; don't let them hang on in the income partner tier. For those who remain as income partners, impose an up-or-out policy that will limit the group to "senior associates and lateral partners on track to become equity partners." Those folks "tend to be highly motivated to perform."
Like it or not, this is the environment in which big firm lawyers perform. Advisers like Citi and Hildebrandt chastise them for "continuing reluctance to weed out unproductive income partners or other pockets of excess capacity." Given the blood baths we've seen so far, I'd say this reluctance hasn't been too widespread. But the message of Citi/Hildebrandt's 2013 advisory is clear: If you want to maintain anything like profits from the 1990s (forget about 2001-2007), you better start weeding out those unproductive lawyers.
Third, the advisory acknowledges--and encourages--further "transformative changes in law firm structure." Firms are still cautious about outsourcing legal work; just 29% of the reporting firms are doing so. But a whopping 72% of firms are already using "lower cost associates" for their legal work. "Firms have been reexamining the mix of timekeepers in a bid to better manage cost, and we have seen a significant uptick in the use of nonpartner-track attorneys." This approach, naturally, has "reduced associate hires."
These trends, as Citi and Hildebrandt suggest, seem integral to any firm's attempt to continue growing profit per partner. As a result, conventional associate positions will stagnate or decline, and we will see more stratification at large law firms. The report doesn't explore the latter impact in detail, although it notes that "small associate classes . . . may mean improved development opportunities," which will improve firm loyalty and retention for the chosen few.
The flip side, however, is the increasing number of staff attorneys who will not get those development opportunities. Citi and Hildebrandt paint a picture of an increasingly segmented profession in which a small number of lawyers (the equity partners and a few favored associates who might one day join them) develop professionally and reap great rewards. The other lawyers, it seems, exist to support those benefits for the few.
The advisory concludes with a warning that lawyers, prospective lawyers, and law schools should take to heart: "Law firm leaders . . . can no longer rely on a rising tide that lifts all boats. In fact, the tide is out. And to paraphrase Warren Buffett, it's only when the tide goes out that you discover who's been swimming naked. Don't get caught swimming naked."
Sunday, January 20, 2013
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first.... even though I think it is annoying to post first. haha.ReplyDelete
I have a neighbor who was de-equitized in 2012. He just listed his 4,000 sq. ft. estate on the market. Apparently, he cannot find a new firm as he has a small book of business. I heard he could not afford to pay the property taxes anymore. It's a good time to look into buying property of distressed former biglaw partners who are being de-equitized.ReplyDelete
You live next door to him. How much ARE the property taxes there?Delete
As slow and unresponsive as firms have been, they are 100x more nimble than law faculties. In the firm setting, we can always console ourselves (or criticize ourselves) by referring to the impersonal mechanics of the market.ReplyDelete
God help the law faculties. As this bubble burst continues to help them, they will view it all as the result of sinister politics and evil-doers. It's going to get really, really ugly in academia. And as the faculty get tossed overboard or thrown under the bus, they will face the reality that they have no marketable skills. All the best and brightest graduating from Yale will realize that the academic world doesn't want many new academics either, even if they have fancy interdisciplinary degrees.
Winter is coming.
The difference is that the law schools created and greatly benefited from this scam and over supply of lawyers. I don't feel sorry for them in the least. I will enjoy the shock they feel when they finally understand that everything about the scam was real. And they will be victims of it too.Delete
Ann, but will they? Will the students stop applying? Nondischargeagle debt= payment stream guarantee. They may not get all of it back, but they will get some.Delete
That's why it is so important to keep this site and similar sites alive. There will be too many applicants because of easy credit and irrational optimism. The only thing that has had any effect is the exposure of the real statistics.Delete
I'm glad you posted about this report. I was shocked when I read it. I have been following the citi reports for the past few years and I do not recall them ever advising such drastic methods.ReplyDelete
I hope everyone carefully reads this report.
I particularly hope it convinces 0Ls that hiring is going to be picking up any time soon, or possibly ever. Firms have greater pressure than ever to cut costs and the off track, off site associates will be adopted by more and more firms.
This post, and the report it references, ought to be sent to anyone who's registered to take the LSAT.ReplyDelete
Agreed. I think the previous two reports should be read as well, if only to clarify the stunning abrupt nature of the advice here.Delete
And the abandonment of pretense things will improve. Instead, firms need to recast single digit growth as a positive result. That will be a bitter pill to swallow.
I'm very glad I don't have to face OCI this year. How much of a bloodbath will it be?
Note too that the number of associates has dropped to 61% of salaried attorneys. In 2001 associates were 84%.ReplyDelete
Clearly the leverage model is failing. The answer is not to hire more associates- they already have overcapacity. And it was easier to fire associates than partners.
Income partners are the next group on the chopping block due to their lower incentives to perform, while associates who feel equity partnership might be within grasp, will work forever.
This is a microcosm of what is going on in American society generally. Rich equity partners are getting richer. They are not creating good paying jobs for others, despite what Mitt Romney and his ilk think.ReplyDelete
How do they create demand for jobs in a market filled with oversupply and clients cutting fees. The report says clients wont even pay legal research fees. How is that even a reasonable request? The firm has to do specific research for your specific problem . But clients want to cut that expense and make firms eat the cost.Delete
This report makes clear that to get to even single digit growth, a lot more trimming of deadwood is needed.
Yeah alright, so what exactly do you think it has/does do for the common man to have your gov't add 4T to the debt to buy bonds through the intermediary of pre-defined private banks? Record-high bank reserves. Banks can borrow from the government for about 1/4 of a percent, but students can borrow money for school in a market where the product is inflated by a price-fixing cartel for a mere 3100% the rate charged B of A. Obama - what a hero.Delete
Well why WOULD anyone "create good paying jobs for others?" How many jobs have YOU created? Hmmm?
The problem is that American labor is FAR too expensive, and most of the potential "customers" these days expect to be served for FREE.
Your comment makes no sense.
"The problem is that American labor is FAR too expensive, and most of the potential 'customers' these days expect to be served for FREE."Delete
Don't the labels "labor" and "customers" often apply to the same people? If wages are cut, cut, and cut again, shouldn't we expect these people to look for reduced-rate (or free) products and services?
Sure they will.
If you look at the COMEX price for most commodities, the difference between the bid price and the ask price is often less than a penny. Now THERE's an efficient market for you.
If American labor is also a commodity, what is the difference between ITS bid and ask prices? When you're tallying the ask price, don't forget to include taxes, liability insurance, retirement benefits, Obamacare, EO compliance, OSHA compliance, etc., etc. Just makes you want to RUN right out and hire some Americans, doesn't it?
Solo here. I wish my clients knew that more than a third of their retainers goes directly to federal income and payroll taxes.Delete
Too bad our government is literally giving away free loans for anyone that has a SSN and a heartbeat.ReplyDelete
In fact, I wonder if the law school scammers could get away with taking out loans for people with SSN's but are deceased? You know...enroll "dead people" for the tuition money?
If I was a law school scammer, I would certainly look into that.
The gravy train continues for these scam artists.
Agreed. No wonder the Indiana tech guys are so thrilled. They can count the dollars rolling in.Delete
When the rate on Sallie Mae & other loans is 8%, and when interest starts accruing from the date of loan disbursement [even though payments are delayed while the student is in school], and particularly when those loans AREN'T DISCHARGEABLE in bankruptcy, I don't know how you can call such loans "free."Delete
The "payment date" and burden of the loans may be delayed, but it's still there, and in an ever-increasing amount.
BTW, why is there so little attention here to the outrageous interest rate being charged on these "debtors will never get free of them" loans?
It costs to walk on the campus of Worcester State University.
A “parking/pedestrian access fee” — part of the welter of mandatory and optional student fees that make up the bulk of the cost of a public higher education in the state and the only one at a Central Massachusetts public college or university — has for the last few years been tacked onto WSU students’ bills, whether they drive or walk to school.
Yikes. Worcester should pay people to walk into the city; it's an armpit of the state (though not as bad as, say, Lawrence or Fall River).Delete
I can't believe that flies here. Worcesterites are notoriously cheap, even the law school racket has passed us by for lack of marks!Delete
What has happened is that Biglaw hires back a small number of older lawyers that were once associates but cannot get jobs by way of temp or sometimes staff attorney positions that do not last long and put these lawyers right back out on the street.ReplyDelete
I know also former partners put out on the street by biglaw. They did not find other jobs after being fired.
I wonder when banks are going to stop giving nortgages to lawyers because of the high risk of job loss.
One of the problems of the legal profession is this dog eat dog attitude where only profits matter. The midsized collegial law firms are dead. These monster firms which are much fewer in number and employ very limited numbers of experienced lawyers in long term jobs have replaced them. There are zero employment options for most experienced lawyers from the top schools.ReplyDelete
Hildebrandt is at the heart of everything that is wrong with the legal profession today. It was Hildebrant (alomng with the American lawyer until Skaddenomics) that pressed law firms in the 80s to introduce minimum hours, make the photocopier a profit center, leverage-leverage-leverage away, load up cases with paralegals who charge by the hour to do secretarial work while still pricing lawyers by their hourly ate as if they had secretaries doing this work (aka double dipping). Every slimy billing practice that ever made a client issue billing guidelines came from Hildebrant. Indeed to my knowledge they explained to firms in the 1990s that associate churn was not a bad thing, because it justified additional billable hours (as in the associate getting up to speed on client matters.)ReplyDelete
In the 1990s I used a Hildebrant report to write billing guidelines used by major Asian corporations - a long list of prohibitions all culled from Hildebrant - including imposing a fee credit for a lost associate on a matter, not using paralegals as secretaries, not marking up disbursement, internal and external and requiring firms to disclose minimum billing policies. Continued it as a GC in two big corporations and hinted strongly to firms that if they used Hildebrant they might lose our business. I continue to recommend things in billing guidelines that are anti-Hildebrant and to warn clients that if a firm they use is a Hildebrant client they will get screwed on fees.
I get a revenue share and I am a rainmaker for my firm, but I do a lot of the work. However, I fail to see the logic in Hildebrandt's advice. What clients want is seasoned and experienced lawyers on their matter - and that means the mid-level partners and senior associates that Hildebrant pushes the firm to get rid of. There are a lot of practices that are cyclical - bankruptcy, dumping, M&A, antitrust - and other that take a lot of experience and knowledge to be effective (IP, employment, commercial arbitration, litigation, arbitration.) Clients used to go to large firms for that deep bench - now they go to boutiques and simply use the big firms for the fungible volume work and heavily bargained prices - those boutiques inter alia do not respond to Hildebrant surveys.
Moreover, Hildebrant's approach is what gets you Howrey, Dewey, etc., that is to say firms heavily dependent on a small number of productive (i.e., rainmaking) partners, firms that pay out too much for rainmaker laterals. Howrey died when Cecilia Gonzalez died, it just took a while for them to realise that she was what attracted so much business (and she did the work too), in part because the idiots did not promote her associates. Dewey died when too many partners split. In each case the firms were seen as not having a deep bench that did the work. If you have a deep bench it turns out that clients do not necessarily follow rainmaking partners.
For god's sake would more people see Hildebrant as the toxic advisory that it is. That they would talk about firms needing a culture while having advised firms to do everything feasible to destroy their cultures is the height of hypocrisy.
This is true. They seem to value attorneys for only what they made that year- not what they know and how they add expertise to a deal.Delete
My feeling is that firms do understand this and that is why they haven't fired more people.
Or maybe the clients have got wise ... and started putting pressure on firms to cut the lawyer/associate churn on their matters.Delete
A lot of clients in say IP litigation maintain panels of firms for their different technologies - the advantage being that the lawyers, including the associates, get very familiar with the technology hand the internal corporate organisation, who is a good witness, who is a good deponent. Thos clients make it clear, they expect the lawyers familiar with their cases to stick around. A major firm has lost a bunch of these people lately, thinking gotta keep big rainmaker happy - and the clients moved eventually too.
"I used a Hildebrant report to write billing guidelines"Delete
I would be interested in purchasing a set of guidelines like that. It would probably really help my company.
Can someone link me to the product?
Whatever it means for firms and partners, it isn't good news for students hoping to get jobs.Delete
Read a few Hildebrant pubs especially from the go-go years (90s and noughts)Delete
A few hints:
For all billing lawyers + paralegals a resumé to be provided
Non-billable support staff including secretaries assigned to each timekeeper identified, also indicating how many others they are assigned to.
if the firm has a “minimum billable hours,” “target billable hours” or “voluntary target minimum hours” what the target numbers are and the date on which they are calculated - both formal and informal policies (when you do this you see how the associate hours always surge in the 6 weeks before the end of the year.)
Hourly billing rates may not be changed during the course of a matter without consent.
If a lawyer assigned to a matter leaves the firm or is transferred, replacement's fees to be discounted to reflect the loss of knowledge of the departing lawyer by between 10-33% of the fees already billed by that lawyer.
Billable hours for very junior associates (first year to eighteen months of practice) to be written down (not necessarily 100%) to reflect relative inefficiency and training.
Associates in their third year of practice and higher should have specialized experience in areas to which they have been assigned - IP should normally have some IP&S background
Attorneys’ hourly fees normally incorporate the cost of secretarial, clerical and support staff. Maximum secretary to lawyer ratio set (2-3).
Generally no junior associate senior partner secretary sharing (because that means junior does not have a secretary in reality.)
Paralegals are not secretaries - using of a paralegal as a secretary is billing through the lawyer’s hourly rate for a secretary, and double billing through the paralegal’s rate. So no preparing transmittal letters, inserting edits in documents, making travel arrangements, filing, routine copying. Usually paralegal serves a specialised function, e.g., docket management, database specialist, technical specialist. National Federation of Paralegal Associations Ethics Opinion 95-4 recommends that attorneys not bill clerical and non professional tasks a paralegal performs or bill those tasks at a lower rate and that the paralegals' work must be “legally substantive in nature and normally performed by attorneys.”
Missouri v. Jenkins, 491 U.S. 274 (1989), noted that “purely clerical or secretarial tasks should not be billed at a paralegal [or lawyer’s] rate, regardless of who performs them . . . [The] dollar value [of such nonlegal work] is not enhanced just because a lawyer does it.”
“charges which are part of the cost of operating overhead are not properly chargeable to the bankruptcy estate. Overhead expenses typically include rent, insurance, taxes, utilities, secretarial and clerical pay, library, computer costs, office supplies, local telephone charges, meals, and local travel.”32 F.3d 1370
From Hildebrandt quoted in The National Law Journal:
The point is that when paralegals can be used, it is wise to do so. The relationship between paralegal fees billed and paralegal salaries is much more favorable to firm profits than the relationship between attorney fees billed and attorney salaries.
No marking up of disbursements - there is an ABA opinion on this Formal Opinion 93-379 at pages 9-10:
"in the absence of an agreement to the contrary, it is impermissible for a lawyer to create an additional source of profit for the law firm beyond that which is contained in the provision of legal services themselves. The lawyer's stock in trade is the sale of legal services, not photocopy paper, tuna fish sandwiches, computer time or messenger services."
Multi-office staffing to be avoided - law firm covers the cost.
Standard project team is maximum 5-6 timekeepers.
Thanks for posting this. Very helpful. Please post more if you have anymore tips. Is it published somewhere?Delete
"if the firm has a “minimum billable hours,” “target billable hours” or “voluntary target minimum hours” what the target numbers are and the date on which they are calculated - both formal and informal policies (when you do this you see how the associate hours always surge in the 6 weeks before the end of the year.)"Delete
Can someone give me an illustration of how this one works? So firms have calculation dates all over the place? (Some in September while others in December?)
You even know how many square ft. you neighbors house is?
What a petty neighborhood gossip and shit you are.
It is probably listed on the real estate ad.Delete
It's not just the mega firms. I worked for a mid-sized, regional firm in FL, and got canned in the downturn. Hildebrandt's model was implemented 100%. Several people promoted to partner at the time of my departure have been dropped down to "Of Counsel", which is what this firm does before tossing people.ReplyDelete
Luckily, my clients followed me, much to my old firm's dismay, and I'm a partner at my new firm. It couldn't have worked out better for me. My skills were overlooked by the productivity metrics used by the firm managers, who failed to take into account my legal skills and - most critically - ability to bring in business.
I have tossed the billable hour in favor of fees for stages and results. But I would never have gone into law had I truly grasped the business model. The absurdities of "billing hours" rewards activity, not results. Any client who permits hourly work needs to ask the GC some tough questions; likely, the answer is that the GC wants to keep all options "open" in case he or she heads back to a firm.
In any event, the bottom line is that there are too many firms chasing too little work. The excess capacity will get squeezed out. And we have the ABA to thank for all this, since, as O'Brien out it, the appropriate number of schools and lawyers is not something in the ABA wheelhouse.
This model clearly hurts big firms now. It is not clear though that there is room for new boutiques to come in and take over where the big firms are leaving clients dissatisfied. There is oversaturation. A lot of legal work may quite simply be done without in a so so economy.ReplyDelete
The billable hour method really lives clients at risk of being unfairly charged humongous amounts of money. Anything and everything can happen to jack up the number of hours. The risk here should not all be on the client, mostly on the law firm, which can be efficient and provide fixed fees for specific work.
Don't forget the courts vindicated the law schools and therefore what the law schools did was entirely correct with no fraud whatsoever just the offshoot of the worst global recession ever and my students do just as well as their number-peers at Stanford because I AM GOG AND MAGOG AND I WILL SLAY THEE WITH DEBT TO PAY MY SALARY.ReplyDelete
The Hildebrandt report reminded me of a George Orwell quote that out to be applied to the law firm partners that hire them and take their advice:ReplyDelete
“Reading Mr. Malcolm Muggeridge's brilliant and depressing book, "The Thirties", I thought of a rather cruel trick I once played on a wasp. He was sucking jam on my plate, and I cut him in half. Hr paid no attention, merely went on with his meal, while a tiny stream of jam tricked out of his oesophagus. Only when he tried to fly away did he grasp the dreadful thing that had happened to him. It is the same with modern man. The thing that has been cut away is his soul, and there was a period - twenty years, perhaps - during which he did not notice it.”
LOL that anyone looks to Citibank to forecast the future. I think in 2010 they predicted the 2008 crash.ReplyDelete
Citi private bank is the major lender to law firms. They are basing his report on data they collect from firms.Delete
I wouldn't laugh off the idea that flat or small percentage growth is the future for firms.
I believe CIti, as a lender, is very attuned to the business models of Law Firms.Delete
In a parallel to the restaurant industry, "if you want to know how likely a restaurant will survive, ask the restaurant's supplier of fish and meats how much credit they are offering."
I believe that informing the Law School lenders of the chicanery going on at places like american, and the collapsing applicant pool, will quicken the death of scam schools faster than any reform movement.
If payroll checks start bouncing at schools like American before the next round of sweet sweet student loan monies hit the accounts, the end is near.
Anon January 21, 2013 at 8:40 AM is correct. Citi has all the good data from the creditor side, but they also convinced the big firms to share benchmarking data which gets shared back to the firms with the names of other firms removed. Citi knows exactly what's going on.ReplyDelete
Not every law firm uses Citi for loans. There are lots of other banks that play in the law firm marketReplyDelete
And thus Citi's analysis is flawed? The BigLaw model is doomed. It doesn't take a genius to see that. But it's helpful to have a major player like Citi spell it out so clearly.Delete
Interesting. But this report is completely [irrelevant to 99% of the lawyers out there. Any law student who thinks this is in any way relevant to himself is counting his chickens before they hatch.ReplyDelete
Ayoung lawyer has a greater chance of being hit by lightening than making big money in biglaw.
while only relatively small percentage of overall students get biglaw, this report is important to all students because of the cascade effects - if the top of the class can't get biglaw jobs, they have to go somewhere - so they will be taking jobs further down the totem pole, pushing out the people just below them; the current mid level people will force out the tier below them and so on until a lot of people get pushed out altogether
This Hildebrandt Citibank report institutionalizes age discrimination. Older lawyers cannot work in jobs in the larger or even mid-sized law firms unless they are partners. The Citibank Hildebrandt group has created a huge underclass of older lawyers from top schools, many of them women and minorities, whose Harvard, Yale and Columbia law degrees are useless. These degrees produce no income because older lawyers cannot get hire and are not retained, even with good hours, based on the Citibank Hildebrandt report.ReplyDelete
Why not rush to a T4 law school? What do you think your chances of not being unemployed or a solo are after 20 years? If you already went to a top law school and are effectively unemployed, thank Citibank and Hildebrandt for their contribution to the structure of the legal profession.
Older lawyers are the new minority group that it is acceptable to discriminate against in the legal profession.
The casecade effect is minimal because the number of lawyers playing the big law game is small.ReplyDelete
Generally one has to be in the top 10% of their class to even play the big law game. The numbers are even grimmer for the lesser schools.
Then figure that the aerage tenure of a biglaw associate is 18 months -- and that was 20 years ago! Maybe 1 in 36 biglaw associates will make partner. Of those, only a handful will be making the big bucks.
To really make money, you have to generate enough business to keep a half dozen associates working full time. You don't get the big bucks simply by showing up to work and putting in 80 hour workweeks. Most lawyers cannot generate enough business to keep themselves fully employed.
All in all, when it comes to the biglaw game, we are talking about less than 1% of the lawyers.
The problem is that law schools have been minting twice as many lawyers than the economy can absorb for over a generation. There simply is not enough legal work to go around.
Law students and young lawyers like to indulge in fantasies about winning the big law lotto. But that's all they are: fantasies.
The cascade effect is not minimal at top law schools. Effectively top law schools are selling a high unemployment rate several years down the road but are not disclosing it. There would be many fewer people attending law school but for the Citibank Hildebrandt debacale. If large law firms right sized age wise instead of spitting 95% of their lawyers onto the street, the top law schools would not be able to sell high 9 month employment rates at high salaries. They would be selling 8% or 12% employment at high salaries. The rest of the class - maybe 75% would be left with nothing that pays back a law school loan. If the actual mature employment statistics for lawyers were there for first years, law schools would shrink pretty quickly.ReplyDelete
You can than Citibank and Hildrebrandt for putting fuel into the oversupply of lawyers that the law schools are churning out.
Nice blog. It's good to read that there has been so much of surveys regarding scams. Strict law enforcements can stop crime rate up to some satisfactory extent.ReplyDelete
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