Law Professor William D. Henderson (click on photo for bio)
Managing Partners and law firm H.R. Executives should contemplate the meaning of Indiana University School of Law’s Prof. Bill Henderson’s post: "How the ‘Cravath System’ Created the Bi-Modal Distribution."
Professor Henderson builds on the work of NALP (The National Association for Law Placement®, founded in 1971) who published this graph in 2007 referencing 2006 salaries their article called "A Picture Worth 1,000 Words":
Note how meaningless the Median is in helping any form set associate salaries.
Professor Henderson asks, among other things: "Are We Selling Results or Résumés?" which is the title of one of his papers in this area. Here is a related excerpt:
"The Results or Résumés paper draws upon two pieces of market data to demonstrate that a large proportion of large corporate law firms have to re-evaluate their business models: (1) stunning uniformity of associate entry level salaries amidst large, growing disparities in profits per partner; and (2) evidence that firms are becoming stratified by premium versus non-premium practice areas."
Professor Henderson also draws our attention to the unbelievable burden taken on by firms that are not the most profitable by showing a comparison between associate salaries and per partner profits as you move up the profitability curve:
Professor Henderson then explores the lateral partner mobility within the Am Law 2000 and in his words "teases out a relative hierarchy of practice areas" According to Professor Henderson, the table below, which covers the 2000 to 2005 time period, orders legal specialty by differential profits per equity partner (PPP) between the firm a partner left and the firm he or she joined.
I strongly recommend that you read Professor Henderson’s entire post but I think the best is yet to come as evidenced by the final paragraph in his post:
"Fortunately, the Results or Résumés paper lays out a solution for any law firm willing to try something new. The psychological barriers, however, are much larger than the logistical or financial. I will blog on this topic in a subsequent post."
Thank you also to my friend Bruce MacEwen of Adam Smith, Esq. for his excellent post on this topic: THE BI-MODAL STARTING SALARY DISTRIBUTION and the ABA post: ‘Cravath Model’ that Created Have and Have-Not Law Grads Could Implode
PUNCHLINE: The legal profession resists change for good reasons and bad. As always, it won’t be the legal profession initiating the change – our clients will do that for us. The fundamental question is whether your firm will be among those to first respond to these issues and from that gain well-deserved competitive advantage. Stay tuned.