Each fall the new associate classes arrive at the nation's large law firms. They come in humming the refrain from the John Fogarty song Centerfield: "Put me in coach, I'm ready to play - today." Their enthusiasm is built on summer associate classes filled with softball games, crab and shrimp buffets and amusement park outings. How hard can it all be? Then, of course, reality sets in.
That reality was highlighted in a recent article in The Wall Street Journal: associates at major law firms are highly dissatisfied with their lot in life. The associates are cynical, with a prevalent attitude of, "This is a dysfunctional system, and it's not my fault." When I read this, another article in another publication came immediately to mind. In The American Lawyer magazine's 2006 "AmLaw 100" listing of America's most profitable law firms, the average profit per partner at these firms passed the $1 million mark for the first time last year, with the top 10 firms booking profit per partner of $2 million or more. I believe that, on several levels, one can draw some definite correlations between low associate satisfaction and soaring profitability at the major firms.
Flawed business model
The first level is organizational, and goes directly to the business model of large firms. It is really irrelevant whether one large firm scores a little better than another on the various satisfaction surveys; very few associates from any of the large law firms are satisfied. The current business model of these firms "eats 'em up and spits 'em out." This "culling process" gets cheap labor (yes, even despite what seem to be high salaries for the young talent) for five, six or seven years. Then, if they don't make partner, they're asked to leave to make way for the next group of young "unwashed" law school graduates. This is not the way Corporate America chooses to do business. Until law firms understand that there can be a better model of running a law firm, associates' satisfaction with their workplace will remain unfulfilled.
One might argue that the associates know what they're letting themselves in for when they join a large firm. I'm sure many new law school graduates participate in the charade with hopes of becoming one of the small group of attorneys that earns more than $1 million a year. Some may even be aware of the large psychological and social cost (such as the sacrifice of marriages and family time) to get there. But most human beings are optimists (until they conclude otherwise), and I suspect most young associates believe the sacrifices are worth it because they will be among the select few - right up until the moment that they are shown the door.
Flawed financial focus
Even if associates do make partner at a large firm, the lack of true business understanding (even in the highly profitable ones) can create a negative situation. Today, ascension to the partnership is still an event, but partnership itself may be less of an achievement. Despite being called partnerships (or LLPs or PCs), the governance of large law firms has fallen to a very few in the organization ("the management committee"). The remaining "partners" have begun to look, act and think like employees, not owners.
I wonder how many "partners" in large firms have access to such data as client retention and loss rates, cost of a billable hour, or realization rates? More to the point, how many partners, even if they had access, would possess the business literacy to calculate, or even understand, the traditional key measures of law firm performance: realization, utilization, leverage and expenses? How many know, or understand, the firm's collection rate - or their personal one?
And if partners are in such a position, why expect different from the firm's associates - potential partners of the future? When I was practicing as an associate, I had a conversation with the managing partner. I showed him what percentage my billings were of the firm, what my expense to the firm was and what my "profit" to the firm was (though I had no clue about the realization rate of my billings by the firm). After getting over the shock that I would attempt to have that information, he asked me why I created my own profit and loss statement. I told him that I enjoyed my job, wanted to keep it and knew that the firm could/would not keep me if I were not profitable for them. I didn't need to be profitable every month, but I needed to be profitable for the year. Shortly after that discussion I was invited to become a partner.
Ideally, the information should be available for associates to educate themselves in "The Business of Law,"® determining their own P&L in order to determine and enhance their worth to the firm. The calculation is a basic one: Billings - [Associate's Total Compensation + Direct and Indirect Expenses] = Net Profit. Few associates at large firms have access to the numbers for this calculation; fewer associates today still would be able to do it. If these lawyers start to believe that they will never become "partners," they will lack a sense of either management or financial ownership. That is a recipe for dissatisfaction.
Flawed human resource strategies
Take a look at the lawyer bios on a typical Wall Street firm's Web site, and you'll quickly notice a disconnect: partner and special counsel bios are as extensive as ever, but associates often have nothing more than name and practice area. They virtually are treated as non-persons. A number of these firms give as the reason for this the fact that their associates are highly recruited by other firms, and that to publicize them as being valuable just puts the firm at a disadvantage.
The fact is that these associates are going to be recruited anyway. Failing to give them their due is a sure-fire way to build their dissatisfaction and to lose them - and the cost to the firm is enormous. Consider a departing associate who makes $160,000 a year. That person likely was the product of a $135,000 investment: $25,000 in partner recruiting time (50 hours at a billable rate of $500/hour), $40,000 in search consultant charges (25 percent of annual salary) and $70,000 in training (100 hours of associate time at $200/hour, plus an equal amount of time for the $500/ hour partners who gave the training). That is $135,000 lost every time a lawyer leaves the firm.
Without considering additional items of reduced productivity in the beginning when the lawyer new to the firm first gets started and the cost to the firm of disruption, retraining and client concern/nervousness when another lawyer is assigned to his matter in the "middle of the stream," the cost to the firm during the first year of employment is already $295,000. Most managing partners with whom I’ve discussed these issues have said that the average cost/loss is $200,000 to $400,000 per departing lawyer. The real bottom line For all these reasons, it only makes practical business sense for law firms to treat associates with the same care that they use in hiring them. If firms want to strengthen their performance, hiring the right person the first time for the right job will create more profits. The most effective tool to do that is to provide extensive education for that person to improve their skills and then involve them in the financial and organizational life of the firm so that they understand and appreciate their role and look forward to the future. That's the path to personal satisfaction - and firm profitability.
© 2016 Edward Poll & Associates, Inc. All rights reserved.