Amazing Firms, Amazing Practices

Here’s the actual quote: 

Lawyers are smart, but this herd mentality seems absolutely irrational, economically speaking — and not because the compensation is too high. The top law firms have been stuck in copycat mode for years. As soon as one of them raises salaries for associates, the others fall in line almost immediately.

Later in the article NYT asks: 

But think about this for a moment: Is there any other business in which every competitor matches salaries and bonuses almost identically?

In response to:

Evan R. Chesler, Cravath’s presiding partner, told The New York Times last month that the firm had originally wanted to “thank our lawyers for the hard work this year and the good year we’ve had.”

NYT offered:

It’s a nice thought but somewhat specious. Partners at law firms are a notoriously greedy bunch — that’s why they accept so few new partners — making it hard to believe that they are willing to part with their money so easily. I suggest there is something else at play: Law firms match bonuses to secure bragging rights.

My View:  Given the economic challenges the legal profession is about to face I believe large salary increases and bonuses are risky…  a handful of firms can play the game because they have spectacular revenues to encroach upon but if the main stream gets caught in this game we are going to see casualties.  Over my many years of working with law firms globally there is a season you want to avoid like the plague – that’s “shrinking pie” season (when the cycle leaves less for partners to share).  Everything becomes more painful – rewarding stars means starving others and laying partners off (or de-equitizing) requires more courage because the world is a lot tougher for those who are being disenfranchised.  Somehow when the pie shrinks, a very negative game of dominos ensues.  Huge associate salaries and bonuses accelerate the shrinking of the partner pie which I argue has its perils.

Read the entire article: Lawyers Compete, Except in Bonuses

Supplemental to my post "Sharp Pin Approaching Associate Salary Balloon", my friend and Edge colleague Robert Millard has created a post which may impacts the context for discussing associate salaries.  He explains his title: America's Two Legal Professions with the graphic above.  Read his post for a detailed explanation.  Sometimes critical change is too subtle to notice - I think Robert has illuminated it for us.  (Click on image to increase size - here or in Robert's post)

Today's front page Wall Street Journal Online article is compulsory reading for all law firm Managing Partners and H.R. professionals:

Hard Case: Job Market ?Wanes for U.S. Lawyers - Growth of Legal Sector Lags Broader Economy; Law Schools Proliferate
By AMIR EFRATI, September 24, 2007; Page A1

While the article admittedly says:

“For graduates of elite law schools, prospects have never been better.  Big law firms this year boosted their starting salaries to as high as $160,000.”

It goes on to say:

“But the majority of law-school graduates are suffering from a supply-and-demand imbalance that's suppressing pay and job growth. The result: Graduates who don't score at the top of their class are struggling to find well-paying jobs to make payments on law-school debts that can exceed $100,000. Some are taking temporary contract work, reviewing documents for as little as $20 an hour, without benefits. And many are blaming their law schools for failing to warn them about the dark side of the job market.”

PUNCHLINE:  My pre-law was comprised of a business degree which included a healthy dose of economics – it doesn't mean I am right but here are my views (you decide what they are worth):

1)      The balloon of increasing salaries at top firms (and "top firm wannabees") is going to SHRINK if not BURST.  Fewer firms will compete with the top tier starting salaries and therefore average starting salaries will fall (in real terms -  adjusted for inflation).

2)      Mainstream firms (including many if not most of the AMLAW 200 and other major firms around the world) will find their appetite for enormous associate salaries waning in favor of dipping slightly deeper into the pool of candidates and offering top-third students in good schools much more than they might otherwise make (but  less than recruits at the firms who continue to compete in the perceived feeding frenzy).

3)      It’s not just the money!  It’s the student loan!  Students want respect, training, good work, a chance to know the names of their children, future prospects and a way to service their enormous public and private debt.  So pay well (but not like you are trying to hire Angelina Jolie for the lead in your next movie), find a creative way to “help them with their student loan” and return your focus to where it has always belonged – making your firm a great place to practice law.  (The following illustration relating to student loans is one of nine very useful illustrations included in the article - click on image to enlarge):

Footnote:  How quickly things change:  A three-month economic history on this blog site:

(I've got a song lyrics stuck in my head "What goes up must come down" from Spinning Wheel by David Clayton Thomas of Blood Sweat and Tears (click for full original lyrics and you can get it stuck in your head too)