legal blog watch

The Cravath System and the Demise of Large Firm Business as We Know It

Professor Bill Henderson of the Empirical Legal Studies Blog has opened an interesting discussion with his recent analysis of the bimodal distribution of law firm starting salaries.  Essentially, Henderson's salary charts reflect the current "winner take all" nature of the law firm marketplace, with a small percentage of talent collecting enormous salaries.  While this type of distribution is typical for industries like professional sports or celebrity entertainment, Henderson says that he's never seen this type of distribution for "a normal labor market involving tens of thousands of people and not just a handful of superstars."

But what's more interesting is Henderson's observation that law firms still have no interest in deviating from "the Cravath model" of paying top dollar for elite grads, even where they lack the mix of business to support it.  Henderson's research shows that:

Partners in marquee practices like white collar crime, securities enforcement, M&A, private equity, emerging markets, and intellectual property litigation are disproportionately moving upstream to more profitable firms. Partners specializing in regulatory compliance, real estate, public finance, project finance, and trust & estates are disproportionately moving downstream....In the long-run, firms without an optimal mix of premium practice areas will have a hard time sticking with the Cravath system.  Increasingly, corporate clients are refusing to have their cases staffed by expensive first- or second-year associates who don't know very much and tend to leave.  Hence, the training the clients are allegedly paying for has little or no future payoff.   

In other words, for many large law firms, the wheels of their hallowed business model are falling off.  During this period of denial, every firm's short term strategy is to work harder, promote fewer lawyers to equity partner, and de-equitize as needed.

Bruce MacEwen offers this take on Henderson's data:

The bimodal distribution of starting lawyer salaries is not, economically speaking, an equilibrium condition. It will change.

The last great associate salary spike, from $125Kto $160K, took place roughly 18 months ago when times were flush. Even then, some firms began panting at the effort to keep up. (Recall that the instigator of that spike was Simpson Thacher, which didn't have to raise its resting pulse to manage the spike.)

The next spike—I won't predict when it will be but I will predict it will be to $200K—will leave a lot of firms crying "Uncle." They will stop struggling to keep up with the receding red lights moving on down the highway. And it will be economically rational, geographically defensible, and culturally unifying.

At the end of the day, perhaps it's not discontent with the lack of meaningful work or work/life balance that will bring change to -- or the demise of -- the current large firm business model. Yet again, it's the economy, stupid.

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Posted by Carolyn Elefant on July 21, 2008 at 01:16 PM | Permalink | Comments (0)

Presidential Campaign Roundup

With the Democratic and Republican party conventions fast approaching, it's time for another presidential campaign roundup.

Summary of Campaign Positions -- Not sure of who to vote for yet?  Then take a look at this summary from Reuters on each candidate's position on legal issues like the death penalty, immigration enforcement, the Supreme Court, wiretapping and civil rights.  Not surprisingly, the candidates are farthest apart on the question of who they'd nominate to the Supreme Court.  Throughout the campaign, McCain has promised that if given the opportunity, he would select jurists in the mold of Roberts or Alito, while Senator Obama voted against these two appointees.

Preferential Press Treatment for Obama? -- Drudge Report says the New York Times rejected an editorial written by McCain as a rebuttal to Obama's op-ed article entitled, My Plan for Iraq, published by the Times less than a week earlier.  Does the Times' decision reflect  media bias, as many top Republicans charge, or what the Times claims is a reasonable exercise of editorial discretion? (H/T to Volokh.)

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Posted by Carolyn Elefant on July 21, 2008 at 01:12 PM | Permalink | Comments (0)

Lawyer Translator Helps Associates Understand How Firm Is Different

Minneapolis law firm Halleland Lewis Niland & Johnson wants to make absolutely sure that its prospective hires understand how the firm differs from its competitors... so much so that the firm has created The Lawyer Translator, an online recruitment Web site that translates the jargon behind law firms' promises of hefty salaries and meaningful work.   From the firm's press release:

[T]he Lawyer Job Interview Translator features an online "talking head" law firm interviewer who provides pat answers to questions on topics ranging from work environment to professional development to salaries. Using this tool, Halleland Lewis distinguishes its own competitive compensation program, for example, from other firms' salary-matching practices by emphasizing its own opportunities for significant performance-based bonuses.  After the virtual interviewer has given his jargonistic response, viewers of the site can click a "Translate" button to decode the jargon, then learn about the "Halleland Way" of responding to these same questions directly.

The press release also notes that the firm's associates played a significant role in developing the Translator recruitment campaign.

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Posted by Carolyn Elefant on July 21, 2008 at 12:56 PM | Permalink | Comments (0)

Microsoft Willing to Pay for Diversity

Well, if law firms won't increase the number of women and minority hires because it's the right thing to do or even because it's what clients want, then by golly, maybe they'll do it for cash.  That's apparently the theory behind Microsoft's new diversity initiative that will award bonuses to outside counsel based on their inclusion of minority and women attorneys, reports the National Law Journal.  Firms that participate in the diversity initiative can earn an extra two percent bonus on top of the three percent increases that all seventeen of Microsoft's preferred firms are eligible to receive in FY 2009. 

Firms that choose to participate in Microsoft's diversity initiative -- which is strictly voluntary -- must agree to allow Microsoft to track diversity progress.  Firms can demonstrate improvement and qualify for bonuses by either (1)showing a two percent increase in hours worked by diverse attorneys on Microsoft matters over the previous year; or (2)showing a .5 percent increase in total diverse attorneys as a percentage of the firms' total attorneys.  Oh, and by the way, firms can't use contract attorneys, whose ranks are  disproportionately comprised of minorities,to meet diversity requirements.

Microsoft's diversity goals don't seem very demanding but then again, firms may not find a two percent bonus worth changing business as usual.  What do you think? Will the Microsoft initiative succeed?  Or are firms better off achieving diversity not by extending a golden carrot but by wielding a big stick and dumping those firms that fail to meet diversity requirements.

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Posted by Carolyn Elefant on July 21, 2008 at 11:50 AM | Permalink | Comments (0)

Sending Judges to Medical School

Marcia Oddi at Indiana Law Blog shares this interesting piece from the AMA Med News about the National Judges' Medical School, a program designed to equip judges with better knowledge of medical science to help them interpret complex health care cases. 

This year's 2008 program focused on medical malpractice, where judges observed staged trials, reviewed clinical studies and learned about the differences between "standard of care" and "medical necessity."  Judges are also offered training to help them ask the right questions about an expert's qualifications or a peer-reivewed study, so that they can cull irrelevant evidence from the record and determine whether evidence is scientifically reliable and ultimately helpful to juries. 

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Posted by Carolyn Elefant

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