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."