Milbank Tweed created an industry-wide stir when it announced recently a bump in first-year associate salary to $190K per year. The firm will also award $10K-$15K raises to incumbent associates. This comes at a time when many clients are openly revolting against the use of high-priced, inexperienced associates. Mark Smolik, the general counsel of DHL Supply Chain Americas, for example, announced publicly he would no longer subsidize on-the-job-training of law firm associates. Many other GC’s are less outspoken but are redirecting work once shipped to green associates at white shoe firms.
The Milbank increase has raised the hackles of legal buyers and the angst level of managing partners pondering whether to match it. Milbank’s announcement came nearly two years to the day after Cravath raised starting associate pay to $180K, the first increase since the global financial crisis. So far, the new $190K ceiling has been matched by eight other firms–a far cry from two years ago when 93 firms–including 76 of the AmLaw 100–followed Cravath.
In another associate-related development, Weil Gotshal revealed it is shortening the partnership track from 9 ½ to 7 1/2 years. The move goes into effect next year and is intended to shore up associate retention– a systemic problem among large firms– and attract new talent. The catch: associates that stay the course will become fixed-income–not equity–partners or counsel. Attractive as the “partner” moniker might be, not sharing firm profits substantially diminishes the prize. Barry Wolf, an executive partner at Weil, explained the move’s cost-neutral impact on the firm: “because we expect to retain significantly more senior-level associates, which will clearly improve leverage, increase revenue, decrease the cost of hiring laterally.”
The Milbank and Weil announcements are good news for a small band of already well-paid associates, but will have no material impact on the market. This is especially so for legal buyers. At best, these are internal steps taken to mollify young lawyers with gilded credentials–most with huge education debt to retire. They come at a time when associate morale is low due to high turnover, escalating internal competition to meet billable hour quotas, and the statistical longshot of becoming an equity partner. The steady migration of work from firms to corporate legal departments and law companies and the viability of the traditional partnership model are also concerns that the Milbank and Weil announcements do not quell.
The real issue raised by the pay hikes and shortened partnership path is how is it moves the needle for clients? Short answer: not at all. The firm rationale is they must pay top dollar for elite talent. Maybe so, but do all firms need elite talent–especially at the entry level where paper credentials do not always translate to marketplace excellence? A more newsworthy story–and sounder investment–would be for firms to retrain existing talent. How? A good start would be to hone practice skills as well as business of law training that includes project management, data analytics, client management, business basics, technology, and other “contemporarily relevant” topics that augment knowledge of the law. For most lawyers, simply “knowing the law” does not cut it anymore– especially when it comes with exorbitant hourly rates. Firms would be wise to focus double down on personnel and resources that enhance delivery and consumer satisfaction.
While it’s great that associates have shortened paths to partnership–albeit faux partnership–the more important question is where will most firms be in 7 ½ years? It’s anyone’s guess, but the five-year-and-counting flat demand for law firm services during a period of rising demand for legal services is an ominous omen. So too is the competition from the Big Four, in-house departments, and well capitalized, tech and process enabled-global legal service providers. My advice to managing partners: differentiate. That means taking a hard look in the existential mirror and resolve to: (1) engage in regulated practice activities in industries/practice areas where the firm has differentiated expertise; (2) build, buy, or lease delivery excellence; and (3) provide exceptional service and build the trust and loyalty of legal buyers.
ALM Intelligence’s Corporate Counsel 2018 Agenda confirms the breadth and depth of client dissatisfaction with law firms. Failure to consider business objectives when rendering “legal” opinions and overstaffing top the list of beefs–but there are others, notably lack of responsiveness and cost. These findings are consistent with other studies including one by LexisNexis/Judge Business School, Cambridge University that found only 25% of general counsel surveyed said they would recommend their go-to firm.
The recent moves by Milbank and Weil do nothing to remedy these concerns and, if anything, reinforce law firm indifference to buyer frustration. Most firms continue to focus on internal measures to preserve profit-per-partner (PPP), brand recognition, and bragging rights. This might be fodder for the industry’s media, but it is anathema to legal buyers and a market opportunity for new competitors, notably the Big Four and well-capitalized law companies.
New Collaboration, Leadership, and Alignment
UnitedLex, Dentons, and Deloitte have recently unveiled moves that have far-reaching implications for the global legal industry. In contrast to the intramural nature of the Milbank and Weil announcements, these initiatives will have a direct impact upon legal buyers as well as incumbent legal culture.
UnitedLex, a global enterprise legal services provider with over 2,700 employees in 26 countries, announced the launch of “ULX Partners” with LeClair Ryan as its inaugural member. ULX Partners serves as a central source from which member law firms access dedicated tools, resources, and capital essential to addressing sharply increasing client demands around improving cost and pricing flexibility, deepening client relationships and providing “better, faster, cheaper” solutions for legal buyers. ULX Partners derives its technology and professional resources from UnitedLex and each member law firm. More than 300 professionals from LeClairRyan will be “rebadged” and join over 130 professionals deployed by UnitedLex to comprise the initial talent pool within ULX Partners. Each subsequent firm that joins the “constellation” will be supported by dedicated staff and technology to avoid confidentiality or conflict issues.
UnitedLex closed similar large-scale arrangements with two corporate legal departments, GE and DXC. Those blockbuster deals resemble “ULX Partners” because they involve “rebadging,” training, and integration of hundreds of corporate legal professionals that leverage the expertise, infrastructure, and global resources of UnitedLex. The initial results of those innovative arrangements have been extremely positive–substantial reduction of corporate legal spend with improved efficiency and customer satisfaction. UnitedLex’s adaptation of this successful model to law firms evidences not only the strength of its delivery capability and capacity but also its fluidity to collaborate successfully with different provider sources to create quantifiable, impactful returns for participants and legal buyers.
Dentons, a legal conglomerate that includes the world’s largest law firm, a legal network, and a legal tech incubator, announced that it has appointed Lisa Sewell as its new U.K. and Middle East managing director. Ms. Sewell, who joined the mega-firm after serving as shared operations director at Royal Bank of Scotland (RBS), is a legal professional who does not hold a law license. Her elevation to the senior leadership role at Dentons, where she replaces a lawyer, confirms that Dentons not only values her experience and expertise (not to mention contacts–RBS is a large Dentons client) but also the firm’s recognition that legal services is no longer solely about lawyers and that legal leadership roles need not be filled by them. The firm stressed that Ms. Sewell’s new management role is functionally and politically the same as her predecessor whose title was “managing partner.” This signifies–at least at Dentons–parity among legal professionals with different expertise.
Some might suggest that Dentons is simply shoring up an important relationship by the hire, but there would certainly be other ways to achieve that objective. Financial service companies are the largest consumer of legal services, and much of their “legal” spend does not involve regulated practice activities. That means it can be handled by legal service professionals–and machines–other than lawyers. Ms. Sewell’s skillsets and leadership position will position Dentons for more financial service business. Her appointment is another indication that the legal guild is morphing into a diverse, inter-disciplinary, and customer-centric global industry.
Deloitte, the last of the Big Four to secure a UK alternative business structures (ABS) license, is putting it to creative use in the U.S. The British arm of the global behemoth announced a “first of its kind” tie-up with Berry Appleman & Leiden (BAL), a U.S.-based immigration law firm. In addition to the alliance with BAL in the U.S. that provides the firm access to Deloitte’s global brand, infrastructure, and deep C-Suite access, Deloitte will acquire the law firm’s non-U.S. business, that includes operations in eight countries.
Deloitte is already–rather quietly–the largest provider of legal services in the world, and the BAL arrangement is another sign that it–and the other members of the Big Four–will continue to compete with law firms for business. When current U.S. regulation of the U.S. legal industry, by far the largest market in the world, is eased to allow ABS-type structures, the Big Four–and other non-traditional law firm providers– will be well-positioned for market dominance. Meantime, their circumnavigation of U.S. regulatory barriers is garnering them increased market share, particularly since legal practice is shrinking while the business of delivering legal services is expanding.
Conclusion
Legal buyers are calling the shots now. They have leverage, internal capability, and delivery options not previously available. They are demanding “more with less” and rewarding those that deliver it. Providers like UnitedLex, Dentons, and Deloitte–among others–are reshaping the industry by providing broad expertise, the appropriate resources for the task, efficient, rapid and reliable delivery, scale, risk mitigation, global coverage, and measurable, impactful results. Most law firms are focused on PPP, associate raises, and shortening the road to partnership, even as the sustainability of the traditional partnership model and its rewards are diminishing. Harry Selfridge’s words come to mind: “The customer is always right.”
