October 23, 2012

The “New” Leverage and Other Selections from the Trends Medley

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May/June 2010 Issue | Volume 36 Number 3 | Page 8


The “New” Leverage and Other Selections from the Trends Medley

With so many challenges and changes affecting the legal profession these days, it’s sometimes difficult to pick just one trend to cover in this column. So here is a snapshot of several trends chosen from among the broad medley that are taking place in law firms today.

Back in the 1930s through the 1950s, there was a popular radio show called “Fibber McGee and Molly.” The husband, Fibber, was given to making outlandish comments, to which Molly often responded, “‘Tain’t so, McGee.” And “t’ain’t so” is my reply to the legal pundits who emphatically state that leverage in law firms is dead.

Instead, the old form of leverage—a high ratio of associates to partners—has now evolved into a “new” leverage, which includes all types of timekeepers: associates, contract lawyers, paralegals and of counsel, as well as nonequity partners in firms that have them. Outsourcing is also a component of the new leverage. But the most important factor of all is now technology, utilized to its maximum. Seen in this light, it is clear that leverage is far from dead. In its new and more comprehensive definition, leverage is more important than ever.

Associate Development
The first of two compelling trends in this area is the ongoing abandonment of lockstep promotion and compensation. This is the result of firms recognizing (finally) that young lawyers do not all develop at the same rate. Therefore, after their first or second year, associates should be evaluated, promoted and compensated individually, based on their mastering certain legal skills and procedures, rather than on their “class” (i.e., the year they joined the firm).

While a growing number of firms have abandoned lockstep in favor of this so-called “competency model,” it should be noted there are many skeptics who see this merely as an effort by firms to cut associate costs. Supporters, on the other hand, say it will more quickly raise the level of work produced by associates and also reduce the rate of attrition.

A related trend, although in just a few firms so far, is the creation of apprenticeships for first- and even second-year associates. It is based on the same principle as internships and residencies for newly minted doctors (but not for as long). The firms that have instituted these programs pay the young associates lower salaries but also remove, or considerably reduce, billable-hours requirements while providing extensive on-the-job training.

Like the abandonment of lockstep systems, the apprenticeship concept has its critics. In my opinion, though, both these trends are good, and I hope they become widespread. But it must be recognized that, to be successful, they require law firms to invest the time and resources needed to individually monitor and evaluate each associate’s progress and development.

Alternative Fee Arrangements
In addition to predicting the demise of leverage, many continue to state that the billable hour is dead, using the American Corporate Counsel Association’s ACC Value Challenge to support their position. Nonetheless, the billable hour is still the most frequently used form of billing and preferred by a high percentage of general counsel. It would seem Mark Twain’s statement that “The reports of my death are greatly exaggerated” applies to the billable hour as well.

At the same time, the use of other types of fee structures is certainly increasing. One particular alternative being used more frequently is the fixed fee, especially for routine or “commodity” work. However, for firms to make a profit under this arrangement, they must know and control their costs and manage the work efficiently. Another structure that’s growing to some degree is the billable hour with a cap, which is really a version of the fixed fee.

The main impetus for the move to alternative fee arrangements is, of course, the oft-stated pronouncement by clients, usually major corporations, that they want more “value” for their legal dollars. But, while few general counsel will admit it, what they really mean is that they want firms to reduce their fees. Only time will tell if the increased use of alternative billing continues at the same pace as the economy continues its recovery.

Firm and Management Structure
Although a few firms have recently discontinued nonequity partnerships, other firms continue to create them. One recent report estimated that 35 percent of BigLaw partners are now nonequity, the highest percentage ever. Plus, there are reports that multitier partnerships now exist in more than half of all U.S. law firms.

And lastly, while it can’t be called a “trend” (at least not yet), it is noteworthy that Foley Hoag recently appointed co-managing partners. The only other firm I’m aware of that has this structure is Schwabe, Williamson & Wyatt, where the co-managing partners (Dave Bartz and Mark Long) have held those positions since 2001 and were recently re-elected. As leadership of a law firm continues to become more challenging, it will also be interesting to see if this co-Mps structure spreads to other firms.

About the Author

Bob Denney , President of Robert Denney Associates, Inc., has been providing management and marketing counsel to law firms throughout North America for over 30 years. He can be reached at (610) 644-7020.