Sunday, December 8, 2013

Did the Market for Law Firm Associates Peak 25 Years Ago?

Based on the chart below, which reflects 35 years of large law firm data, the answer appears to be yes.  The chart enables us to compare two very simple trendlines: the percentage of lawyers in NLJ 250 law firms who have the title of Associates versus the percentage with the title of Partner. 

Figure1

The chart above was generated by my colleague, Evan Parker-Stephen, who is Director of Analytics at Lawyer Metrics.  I asked Evan to crunch these data after some of research I was working on revealed a 50% decline in Summer Associate hiring between 2002 and 2012 at the ~600 law firms listed in the NALP Directory (11,302 to 5,584). In other words, 2008 is the wrong reference point. See Sea Change, NALP Bulletin (Aug 2013).  Something more substantial was (is) happening.

Indeed, the 35-year graphic above provides a true wide-angle view, which in turn reveals an absolutely remarkable story.  Associates were most integral to the large law firm model over 25 years ago.  Although large law firms went on a hirng spree at various points during the 1990s and 2000s, the firms themselves were simultaneously adding a new layer of human capital that was neither associate or partner/owner.  And in the process, associates were gradually being marginalized. The graph below (also NLJ 250 data) reveals the growing middle section of the so-called Diamond Model:

Figure2_highres

So what does all this mean?  

My best analysis is set forth in a short research monograph I wrote with Evan, entitled "The Diamond Law Firm: A New Model or the Pyramid Unraveling?"  The punchline is that large law firms appear to be chasing short-term profits at the expense of longer-term sustainability.  It would not be the first industry sector to lose its competitive advantage through myopic strategy -- as the saying goes, nothing fails like success.  See Henderson, Three Generations of U.S. Lawyers: Generalist, Specialist, Project Manager.  Large firms are not going extinct.  But as a matter of demographics, they are greying.  If BigLaw were trading on the Nasdaq, the analysts would be very critical of this trend.  

http://lawprofessors.typepad.com/legalwhiteboard/2013/12/did-the-market-for-law-firm-associates-peak-25-years-ago-1.html

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Comments

May I post a copy of the chart on my blog with a link to your posting? Your related article provides a very insightful and profound conclusion about the history and future of legal services. My own description of the shift, with a description of my own experience, appears here: http://the-red-velvet-lawyer.blogspot.com/2013/12/new-grads-technology-and-law.html
I plan to reproduce the discussion of Novus Law from the Three Generations article in my blog today.
And, I sent the link to my best friend, who served as a managing partner of a BigLaw firm. I am waiting to learn if she has seen this trend so dramatically depicted.

Posted by: Paula Marie Young | Dec 11, 2013 5:18:42 AM

Seems pretty clear that these trends are correlated with the aging out of the baby boomer generation. 25 years ago, there was a surplus of associates, so firms could leverage for profits at expense of less-productive partners or in lieu of bumping to partner. As those associates became partner, firms became top heavy. With many partners nearing retirement, and with recent economic instability, partners are holding on as long as possible to bolster their nest eggs. These trends will likely reverse sometime in the next 5-10 years.

Posted by: Tom | Dec 11, 2013 10:58:57 AM

(Posted this over at TaxProf too – re: Proposed ABA Audits)
***
Hmmm…just a thought to speed this (whole ABA proposed Audit) thing up and expand the reviewed universe greatly…why not have the ABA/NALP/etc. pay for the small expense of having Martindale and/or other law firm directory providers provide a market-wide *census* matching law schools to current firm placement?

Sure, not all “employed” lawyers are in the directories – but a *lot* are.

The information that a systematic analysis of data that the directory companies already have in their possession would be of immense utility and come at an infinitely faster rate than what the terminally conflicted ABA and NALP are likely to cough up.

If someone can do this for free – Martindale et al can do it much better/broader for a small fee…

Mr. Parker-Stephen at Lawyer Metrics might be able to talk to Martindale, etc. and generate a cumulative law school-to-firm (and firm characteristic) census in *an afternoon* if Martindale, etc. will provide free, open access to their underlying database.

I imagine a limited number of SQL searches could yield the total number of grads, by school, by year who are employed by directory listed firms (by state, by associate/partner status, etc).

The employment outcome crosstabs could be immense and detailed far beyond anything published to date.

The law firm directories already have a *ton* of data on outcomes in the profession.

Let’s use it – **now**.
***
I think something like the above would beat the living h*ll out of S&M’s SIPP data and whatever the ABA meanders its way into.

Year-by-year data is better than the nothing that the profession has had to work with to date.

But why not make an effort towards a much more complete census of the profession?
Martindale, etc. have a ton of data – it just seems to be off limits to public global/SQL-type queries.

Martindale, etc. isn’t really giving anything up by permitting global, aggregated analysis by school, by firm – people will still pay to be posted in the directory/directories.

Of course there is a bit of a bias problem (not everybody is in a directory) but a *lot* of lawyers are – and the treasure trove of individualized profile information (undergrad school, law school, firm, associate status, etc.) beats the h*ll out of anything the ABA or the BLS has.

Reporting outcomes for new grads is one thing.

Reporting outcomes for nearly *everybody* is something much better.

Posted by: cas127 | Dec 12, 2013 9:14:14 AM

Will the trend reverse itself? Or will overall demand for legal services decline? If the overall demand declines, and if it continues to be possible to outsource traditional associate level work elsewhere, then I don't see "Sprintime for Associates" in the future.

Posted by: Comanche Voter | Jan 2, 2014 3:18:03 PM

It would be interesting to see the same analysis done with paralegal hiring added to the mix. Are firms farming out associate work to non-attorneys?

Posted by: Just Wondering | Jan 2, 2014 4:32:54 PM

"the firms themselves were simultaneously adding a new layer of human capital that was neither associate or partner/owner."

Is this not accounted for by the contract lawyer trend?

Posted by: Rick Caird | Jan 2, 2014 4:49:22 PM

Looks like the bigger trend is the increase in non-equity or "income" partners. Once attorneys gain 7 to 10 years of experience they can be represented to clients and the rest of the world as "partners," and the firms can charge partner rates for their work, without actually making them partners. These "income" partners are not in fact partners and calling them partners is a big lie. The firms, by calling these people "partners," give indication that these attorneys are of sufficient quality, character, etc., to merit the risk of taking them on and incorporating them into the firm in a more complete manner, and not just paying them a salary. Partners invest their own money in the enterprise and share the risks and rewards. "Income partners" don't do this. Suggesting otherwise to clients and the general public is dishonest.

Posted by: Esteban | Jan 3, 2014 4:35:10 AM

This piece really resonates and is accurate, at least based on my anecdotal experience. I graduated law school 25 years ago in 1988. After our second year, our class experienced the after-effects of Black Monday where at least one law firm shut down and two others rescinded summer offers. Our class was also one of the first to experience a 10-11 partnership track rather than the 7-8 year track that had existed before hand. Eventually, many of my classmates did become partners at large city firms - but even more in second cities like Richmond, Seattle and Minneapolis. Others took stints at the SEC or other government agencies and then returned to the firm as partners. Even that track doesn't necessarily work today. One thing that lawyers of 15 years ago had, however, was the "security" of contract work. Back before offshoring and e-discovery, an unemployed lawyer could easily make six figures doing contract work - but that safety net is also gone.

Posted by: Carolyn Elefant | Jan 3, 2014 11:07:32 AM

"Per me si va ne la citta dolente,
per me si va ne l'etterno dolore,
per me si va tra la perduta gente.
Giustizia mosse il mio alto fattore;
fecemi la divina podestate,
la somma sapienza e 'l primo amore.
Dinanzi a me non fuor cose create
se non etterne, e io etterno duro.
Lasciate ogne speranza, voi ch'intrate."

"Through me the way to the city of woe,
through me the way to everlasting pain,
through me the way among the lost.
Justice moved my maker on high.
Divine power made me,
wisdom supreme, and primal love.
Before me nothing was but things eternal,
and eternal I endure.
Abandon all hope, you who enter here."

Posted by: Walter Sobchak | Jan 3, 2014 3:04:30 PM

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