The Associate Crisis

Canada's Globe and Mail ran a story last week about skyrocketing US associate salaries and their effect on clients. Much of what the story has to say is not new, although it is interesting to see the same concerns being voiced from a Canadian perspective, and to see discussion of how these salary increases are spreading to other countries as well. Everything's global these days.

Several points the article makes are very good, and they tie into subjects of previous posts on this blog (relevant earlier posts are listed at the end of this post).

First, who foots the bill for associate pay increases? In direct terms, the clients do--but associates pay a hefty indirect cost in terms of additional demands on them, as well as the death of mentoring (as projects become more high-stakes). As the article notes, in-house counsel are more likely to say, "If a firm wants to give us a green, first-year attorney who charges out at $300 an hour, well, sorry. We'd rather have someone more senior who charges $525 an hour but can do the work in a third the time because they know what they're doing." Can you blame the clients? Of course not.

A significant side effect is that associates have less work to cut their chops on, and the senior people are busier doing that billable work, so there is a disincentive to mentor the juniors. And if a junior associate does get the work, there is far less margin for error, and often no safety net.

I once was told by a senior partner that in the "old days," meaning the 1970s, clients were far more willing to pay for junior associates to accompany/assist senior attorneys on projects for that client, because (a) the billing rates were not as high, and (b) because those junior associates would be inheriting this client's business. In other words, the clients were paying to train their future lawyers, which made some economic sense. Yet in today's market, that's a more expensive proposition--and even more importantly, those junior attorneys are likely to jump ship to another firm before they ever inherit that business. In the 1970s, lawyers were far more likely to stay with a single firm for their career than today, when inter-firm mobility is the norm.

Plus, clients are less loyal to their law firms than they used to be, and with good reason. There's more competition out there from firms who can do the work, and there's more opportunity to shop around (and even play law firms off one another). So, why would a company pay to train a very expensive junior associate who is unlikely to ever be in charge of the company's work? Rhetorical question, of course.

Second, we are seeing "a fundamental shift in the traditional law firm paradigm." According to the Globe and Mail article, Susan Hackett of the DC-based Association of Corporate Counsel believes that "general counsel will stick with long-standing advisers for bet-the-company work, but increasingly look to firms with lower cost structures for everything else." In other words, a multi-tier market for legal work is--indeed has--emerged. I experienced this first-hand in practice. Between the time I started law practice in the mid 1990s and when left for academia in the mid 2000s, my overall workload got much, much harder. This happened because clients pushed the easier work to smaller firms, and even in some cases to non-law firm consultants. And if these competitors could do the work for less, well, why not? So, we now have a legal market in the US in which many of the more standard areas of practice are experiencing growing competition (which hopefully keeps prices down to an extent), and only that work which is most difficult can be billed out at top rates.

The silver lining for top-end practitioners, of course, is that the work can be phenomenally interesting and challenging. I practiced international trade regulation in practice, and in my last several years of practice I confess to never being bored--and not just because I was overloaded with work. The issues and problems were fascinating, enormously challenging and intellectual. The easier work had melted away, and all that was left was a core of really tough projects. Once I was able to get myself inserted into the work stream (that is, once clients were willing to have me working on the project on a daily basis instead of a senior partner), that made things quite fun. Of course, I saw a number of associates who never got over that "no work" hurdle, and they fell by the wayside. And they were all smart people who could do the work.

I could go on and on about this subject, but I will stop here for now. Read the Globe and Mail article, and check out some of my previous posts related to this subject:

• Law Firm Salaries from the Client's Perspective
• Baumol's Cost Disease and the Practice of Law
• Baumol's Cost Disease and Lawyers, Part 2
• Beauty Contests and Legal Fees
• The Advantages of Flat Rate Billing
• Big Firm Salaries Going Up (Again)
• Why Associates Have More Stress Than Partners
• Law Firm Salary Wars
• Of Law Firm Culture and Compensation Schemes
• Why Law Firms Play "Hide the Associate"
• Law Firm Training is a Sham
  

And as always, I look forward to any comments from readers.