May 20, 2015 Articles

A Tale of Two Cities: Honolulu and San Francisco

Why are "Big Law" lawyers so young compared with top firms in smaller markets?

by Nick Kacprowski

For the first nine years of my career in private practice, I was a litigation associate and then a partner in the San Francisco office of Kirkland & Ellis LLP. Last year, I made a large change and moved to Hawaii for family reasons. I'm now a litigator at Alston Hunt Floyd & Ing, one of Hawaii's top law firms. One of the most fascinating aspects of this change was seeing the radically different legal markets in a huge versus midsized U.S. metropolitan area.

One difference that immediately struck me was the level of experience and age of my colleagues at the top firms in Hawaii. I graduated law school in 2004, and when I left Kirkland I considered myself one of the more senior attorneys both in San Francisco and the firm generally. I did not have the impression that this was unique to Kirkland. Among the top "Big Law" firms in the United States, it seemed like an attorney with 10 years of experience would be at least in the top half of the firm's attorneys in the number of years out of law school. Practicing in Hawaii, however, I learned that among the top firms an attorney with 11 years of experience is still considered young.

Until recently, my theory about the difference in the amount of legal experience between Hawaii firms and Big Law firms was a qualitative observation. So I decided to look at data and see if what I thought I was seeing was correct, and if so, try to explain why this distinction exists. I determined that I was right. The median attorney at one of the largest four law firms in Hawaii has more than twice the years of experience as the median attorney at the four Am Law 100 firms I studied. Below I discuss some of the interesting statistics I found. I have some theories, which I also discuss below, as to why the market has produced such a difference.

At the outset, I should provide some basic information on the Hawaii legal market versus the legal market in San Francisco. Readers that practice in a large U.S. city or in an Am Law 100 firm will probably be familiar with markets similar to San Francisco. I don't have direct data, but the market is smaller than New York or D.C., and likely comparable to Los Angeles and Chicago. The highest paying law firm jobs in these cities (i.e., firms where entry level associates can start with a base salary of $160,000) tend to be in Am Law 100 firms, a large number of which have San Francisco offices.

Hawaii, by contrast, does not host the office of a single Am Law 100 firm. Hawaii-based firms dominate the legal market, few of which have any lawyers practicing outside the state. The four largest firms are roughly the same size, and all have between 57 and 64 attorneys practicing in Hawaii. Most of these attorneys are located in Honolulu. The Honolulu metro area has a population of just under one million, which is about 70 percent of the state's residents. It encompasses the entire island of Oahu, which has about the same land area as Los Angeles.

The Data
I compared the four largest law firms in the United States by revenue according to American Lawyer (my old law firm, Kirkland, as the fifth largest firm, just missed the cut) to the four largest in Hawaii by number of lawyers. There is no available data on the largest firms in Hawaii by revenue. The four Big Law firms are Baker & McKenzie; DLA Piper; Latham & Watkins; and Skadden Arps. The four Hawaii firms are Cades Schutte; Goodsill Anderson Quinn & Stifel; Carlsmith Ball; and my firm, Alston Hunt Floyd & Ing. These firms, with perhaps a handful of others, would be considered the elite firms in Hawaii—the firms that pay their associates the most, have the biggest clients, the largest matters, highest rates, etc. For the Am Law 100 firms, I looked only at the lawyers in the firms' San Francisco offices. For Skadden Arps, which no longer has a San Francisco office, I used the Palo Alto office. Based on my experience as a Big Law partner in the Bay Area, I do not think that makes a material difference. The sample size for each market ended up being relatively similar: 241 attorneys in Hawaii, and 277 attorneys in San Francisco. Here is what I found:

 

Hawaii

San Francisco

Number of Attorneys

241

277

Average Law School Graduation Year

1993

2001

Median Law School Graduation Year

1994

2005

25%–75% Range of Law School Graduation Years

1981–2006

1997–2011

The huge difference in experience level is apparent from the table, but I offer a few observations. The average lawyer in a Hawaii elite firm has eight years more experience than the average in the largest Am Law 100 firms. Averages, however, can be misleading. They can be skewed if, for example, a firm has no mandatory retirement policy and allows partners who graduated law school in 1940 to stay on their letterhead until they die. So I looked at medians as well. The median showed a starker contrast. The median lawyer at the Hawaii firms has 11 years more experience—over twice as much—than the average in an Am Law 100 firm. Looking at the 25/75 range of experience, in the Big Law firms, only 25 percent of the attorneys graduated law school before 1997 (compared with Hawaii, where the most experienced 25 percent all graduated in 1981 or earlier). In other words, the average and median attorney in Hawaii has several years more experience than over three quarters of the attorneys in the Big Law firms. And it is not just a matter of the old partners staying around skewing the data: the least experienced quartile has much more experience in Hawaii. In the Big Law firms, 25 percent of the attorneys have four years of experience or fewer, while in Hawaii, the least experienced quartile still has up to nine years of practice.

Neither the Hawaii nor the Big Law firms had any really significant outlier firms. All four Hawaii firms had an average within two years of the state average. The Big Law firms were all within three years of the average. All the Big Law firms had medians within three years of the median for the four combined. Hawaii had one outlier on the median: the Carlsmith firm. Although the average was only two years lower than the state average, the median was seven years lower. However, removing the Carlsmith firm from the Hawaii analysis does not materially affect the average and median. The median and average are each only about one year higher after removing Carlsmith, and the 25/75 range is 1982–2006 instead of 1981–2006. It is hard to deny my observation that the typical lawyer at a top firm in Hawaii is substantially more experienced than a counterpart in a Big Law firm.

I also looked at the law schools attended by the Big Law lawyers and the Hawaii lawyers. This issue is not really related to the level of experience discussion, but it was another observation that seemed interesting to me. In San Francisco, despite the proximity of two top nationally recognized law schools (Stanford and the University of California at Berkeley), it did not seem that they individually or together dominated the local market. In Hawaii, however, it seems like half the top lawyers attended the University of Hawaii. So I also noted the law schools the lawyers at the firms studied attended. This is what I found:

San Francisco


School

Percentage of Big Law Lawyers Attending

UC Berkeley

16%

UC Hastings

12%

Harvard

9%

Stanford

6%

UCLA

5%

Hawaii


School

Percentage of "Big Four" Hawaii Firm Lawyers Attending

University of Hawaii

33%

Georgetown

5%

UCLA

5%

Harvard

5%

UC Hastings

5%

Thus, graduates of one law school dominate the Hawaii legal market to a much larger extent than the San Francisco market. I would be very surprised if any of the large markets in other major U.S. cities have such a large proportion of graduates of one law school at the top firms.

The Analysis
So why do the lawyers at the major firms in Hawaii have so much more experience than the Big Law lawyers? Does it say something about the Hawaii market, the Big Law business model, or both? I think it has more to do with the Big Law business model. After all, surely the median graduation year for lawyers practicing in the United States is earlier than 2005, and thus Big Law is out of sync with the U.S. legal market in general. But, there may be some factors present in smaller legal markets (i.e., not unique to Hawaii) at play, as well as some factors particular to Hawaii.

It has been widely reported how the major law firms have become more and more obsessed with the profits per equity partner statistic that American Lawyer publishes. For a law firm to keep its profits per equity partner up, and with it the prestige that purportedly confers, a firm either must raise profits or limit the number of equity partners. Limiting the equity partners is by far the easier of the two. Moreover, most firms have an "up or out" culture, meaning that if a person is not made an equity partner, which includes the vast majority of the firm's lawyers, after a certain time, he or she is expected to leave. This system effectively creates a demographic where a firm has a relatively small echelon of senior lawyers who are equity partners, and a much larger group of less experienced lawyers. Latham & Watkins is a prime example of that. The median law school graduation year for the lawyers in its San Francisco office is 2008. Only 25 percent of the lawyers graduated law school before the year 2000, and more than 25 percent graduated in 2012 or later.

The high salaries and billing expectations in Big Law are also a factor. A Big Law firm associate will rarely survive very long billing less than 2,000 hours a year. Many firms either require more or will not pay bonuses to associates billing less. Most firms have an unwritten expectation about what an associate really needs to bill to avoid being pushed out, and I would guess that it is 2,200 hours at the very minimum. These hours are not sustainable for many people in the long run, and it leads to massive attrition, particularly after the third and fourth years. In other words, people simply leave Big Law before they become experienced attorneys. This is all consistent with what anyone who works a long time at a Big Law firm observes: every year a crop of say 100 first-year associates come in. Five years later, perhaps a quarter of them are still there. This is not a shock to firm management at Big Law firms: This attrition is expected and integrated into the hiring plans.

The high salaries help make career adjustments a more viable option as well. Associates who work for four years at most of the Am Law 100 firms (particularly the top 50) will make close to $1 million in base salary and bonuses. Unless their lifestyles are completely profligate, they can make enough to pay down student loans and build up a decent nest egg before moving on to less exacting work. And the high salaries can keep the number of highly experienced attorneys in Big Law firms down as well, because many partners retire early. With profits per partner well over $2 million a year at both Skadden and Latham, it is not uncommon for partners to retire in their 50s.

There are other factors involved, too. The majority of Big Law legal work is being performed by lawyers with less than 10 years of experience simply because much Big Law legal work does not require much experience. Young litigation associates can spend massive amounts of time on huge document review projects. Even with the push toward moving that work to contract attorneys with far lower rates, it is not unusual for associates to spend weeks on end doing nothing else but reviewing documents. The mind-numbing nature of this work further makes the associates doing it eager to leave Big Law.

None of these factors are really present at the major Hawaii law firms. Although associates come and go, there is a much greater expectation that hires are made for the long term. An associate who bills over 2,000 hours a year would be considered a fairly hard worker rather than a slacker. The expectation that associates will stay longer and the less punishing lifestyle translates to fewer brand new lawyers starting each year and thus a more experienced overall population. There is no published profit per equity partner statistic, and thus no fixation with it. Rather than obsess about only taking on partners who can bring in $5 million in business so as not to erode the profits per partner metric, the business generation requirements are substantially less. If people don't bring in much business, they'll just be partners who make less. There isn't an expectation that 95 percent of the attorneys will have to leave before they have 15 years of legal experience because they cannot generate the millions of dollars of business necessary to stay. Profits of over $2 million per partner, as Skadden and Latham have (and they are not even in the top 10!), are an obscene amount of money for a Hawaii attorney, only really attainable by truly a handful of the top, top rainmakers. So it is considerably rarer for partners to retire at 50.

I don't think these observations are unique to the Hawaii and San Francisco markets. I think the results would be similar if you compared another big market (say New York or D.C.) to the market in a similarly sized city as Honolulu, particularly one that is rather isolated geographically (e.g., Omaha, Oklahoma City, or Albuquerque). The only factor that seems to be unique to San Francisco and Hawaii is the general perspective I have seen on the importance of age and experience in the business community. I would say that in the business culture of Hawaii there is a far greater deference to age and an expectation that business leaders will be older than in most locations in the country. San Francisco is at the opposite end of the spectrum. Any young professional is likely to count among his or her acquaintances several people in their 30s (or even in their 20s) who are multimillionaires from the tech industry, and/or who have been senior executives. In some businesses, there is even a bias that older executives will not understand new technologies as quickly or relate to the young engineers and designers that drive product development. This culture affects the lawyers these businesses hire. There are major companies in the Bay Area where older partners at Big Law firms have been not hired as outside counsel, been fired, or had their roles on teams reduced because their interactions are too awkward with their clients' youthful executives. I do not know whether these cultural observations really affect the data on experience level at the law firms and set the San Francisco and Hawaii legal markets apart from others of similar size. Comparisons of other markets would again be helpful.

Finally, the data on law schools attended is also consistent with the differences discussed above in Big Law/big city versus midsized, isolated city legal markets. Two observations about law schools jumped out at me. First, 33 percent of the lawyers at the top four firms in Hawaii went to one law school, compared with only 16 percent from the most popular law school among San Francisco firms. That is not necessarily surprising, considering that there is only one law school within 2,000 miles of Hawaii, and its purpose is to produce lawyers who want to practice in Hawaii. Once again, it would be interesting to compare Honolulu to another isolated city with only one law school.

Second, although there are lawyers who went to "elite" schools in the top Hawaii firms, they are mostly older lawyers. For example, 11 lawyers went to Harvard. All of them have been out of law school more than 10 years. Eight have been out of law school more than 20 years. Seven have been out of law school for more than 30 years. The same trends can be seen at other top national schools. Of our six University of California at Berkeley graduates, the youngest graduated in 1988. We have five Columbia graduates, and the youngest is class of 2000. We do have a class of 2011 graduate among our 13 Georgetown Law graduates. The other 12 all graduated in 1997 or earlier (with nine of the 13 graduating before 1987). Stanford has a similar story: one graduate from 2010, the other four before 1982. I won't go into the details from San Francisco, other than to say that it is nothing like this.

There is a fairly simple answer as to why there are so few graduates of elite national law schools in Hawaii: they can make so much more by beginning their careers in a large market. Among the top 10–15 schools as ranked by U.S. News and World Report, over the last 20 years the large majority of them have been able to find a Big Law job, the recession years notwithstanding. A first-year associate at most Big Law firms usually has a starting salary of $160,000. By the seventh year, the standard scale for base salary rises to about $250,000, with average bonuses among the top firms providing an additional $100,000. Associates in Hawaii make a fraction of that. The "price of paradise," as we say here, is pretty high, and not many Harvard, Stanford, Columbia, and Berkeley graduates have been willing to pay it recently.

Keywords: litigation, commercial, business, experience, legal market, business model, attrition


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