Tag Archives: first-year dilemma

Modest Rate Increases Predicted For 2012

Posted on December 21, 2011 by | Leave a comment

The National Law Journal released its annual billing rate survey this week and for the third year in a row, billing rates showed modest increases.  For the 62 firms in the NLJ 250 ranking that provided billing rate data, the average firm-wide hourly billing rate, which combines partner and associate rates, increased by 4.4% during 2011 from $390 to $407. That increase followed on a 2.7% increase in 2010 and a 2.5% increase in 2009, all much lower than the routine six to eight percent increases seen in the pre-recession years when a seller’s market was being driven by high demand for law firm services.

While firms may have been reluctant to increase rates too much in the early years of the economic downturn, as clients’ prospects have improved somewhat this past year, firms have felt freer to boost rates.  However, in today’s buyer’s market, clients are still pressing for more control over pricing and staffing decisions, which continues to put a ceiling on rate hikes.

The Hildebrandt Institute’s Peer Monitor Index (PMI) tells a similar story, indicating that rates firmed up slightly for the third quarter of 2011, rising 3.5% compared with the same period a year ago.  “The story hasn’t changed a whole lot in the past year,” Peer Monitor director Mark Medice told the NLJ.  “And I suspect that we’ll see a similar story in 2012, which is that rates will increase about 3 or 3.5 percent.”

The PMI report also points out that for the overall market, 2011 third quarter rate growth is the strongest rate performance in over a year.   However, one size does not fit all.  Peer data also suggests that while many firms are achieving better‐than‐average rate growth this year, other firms are not faring as well and are seeing flat or even slightly negative rate growth.  Some firms are being more strategic and are targeting key practice areas and attorneys that will bear rate increases, while leaving others alone, says Medice.

 Medice also believes that the rate increases reflect some shifting of work to more senior attorneys in response to the “first-year dilemma,” a topic that we’ve written about before.  “We’re starting to get some information that firms are taking a harder look at associates,” Medice said. “The use of first- and second-year associates has declined, and there’s a stronger mix of senior associates in the pool.”

 Under increasing client pressure for greater value and lower costs as well as fiercer competition for legal market share, according to Medice, “[the] question now becomes, ‘How do we grow revenue?’”  He added, “I think we’re on a relatively steady path to change in the pricing and relationship model, even though alternative fee arrangements are still only about 10 to 12 percent of business. I think we’ll see a lot of law firm mergers as well.”

 Posted by Marianne Purzycki

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Are Law Schools “Allergic to the Practical”?

Posted on November 23, 2011 by | 2 Comments

We’ve written before about legal education reform as well as the “first-year dilemma,” the thorny issue of how to train new associates to become good lawyers while clients are objecting to those same associates staffing their matters for as much as $300 an hour.  All of which is really asking, “Why don’t they teach this stuff in law schools?”

A front-page article in this week’s Sunday New York Times has raised the question again, but shines some light on a couple of additional points.  The author, David Segal, writes that “Law schools have long emphasized the theoretical over the useful” and that “[p]rofessors are rewarded for chin-stroking scholarship.”  While many schools have used legal clinics as a way to provide practical training, the nuts-and-bolts practice of law is something that many law school professors know little about. 

“The fundamental issue is that law schools are producing people who are not capable of being counselors,” says Jeffrey W. Carr, the general counsel of FMC Technologies, a Houston company that makes oil drilling equipment. “They are lawyers in the sense that they have law degrees, but they aren’t ready to be a provider of services.”

Segal argues that the upper echelon of the legal academy is valued more for its volume of law review articles than real world experience.  There are more than 600 law reviews in the U.S., a number that has doubled since 1985, and they publish about 10,000 articles per year, few of which are considered noteworthy and citable.

Law school hiring also plays an important role, with schools chasing “superstars” that are often former Supreme Court clerks or candidates with both a J.D. and a Ph.D. in another discipline, such as economics.  And having no experience actually practicing law is perceived as an attractive quality.  Segal writes:

This might seem a paradox — experienced people need not apply — but the academy views seasoned pros with a certain suspicion. In fact, a number of veterans of legal practice who failed to land tenure-track jobs say that experience was a stigma they could not beat.

So what does this mean for recent graduates, many of whom have spent up to $150,000 to get their degree?  The legal landscape has changed in the last few years and there is not going to be a return to business as usual.  It’s a buyer’s market and the market is awash in JDs.  Big Law associate positions are fewer than they were a few years ago, while there appears to be increased demand for contract and staff attorneys.  To be successful, according to Segal, law school graduates will need “entrepreneurial skills, management ability and some expertise in landing clients. They will need to know less about Contracts and more about contracts.”

Posted by Marianne Purzycki

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Highlights from the CFO & COO Forum

Posted on October 21, 2011 by | 1 Comment

This week, the Hildebrandt Institute and West LegalEdcenter are hosting the 10th Annual CFO & COO Forum in New York.  We’ve previewed some of the topics for this event here, here, and here.  We will be discussing the conference in greater detail in the coming weeks, but some of the highlights from Day One are worth mentioning today:

  • Dan DiPietro, chairman of Citi Private Bank’s Law Firm Group, reported that firms are projecting a decrease in recruitment of first-year associates, as many firms focus instead on lateral recruitment.  Yet, it’s not clear that lateral recruitment pays off – DiPietro also reports that for the AmLaw 50, laterals hired between 2005 and 2010 generated only 68% more revenue than their compensation.  Steve Campbell, COO of Dykema Gossett, noted that in terms of return on investment, mergers may be more successful than lateral recruitment.  Dykema has found that firms are more likely to import a book of business through a merger than via lateral recruitment.
  • Speaking of first-year associates, the “first-year dilemma” was raised by a number of panelists on Day One.  Several panelists remarked that they are receiving directives from clients to avoid staffing matters with young associates, a trend reported earlier this week in the Wall Street Journal and discussed here on the blog.  Interestingly, Larry Kleinberg, CFO for Munger Tolles & Olson, observed that even judges are looking for clerks with at least a year of experience.  Which raises the question: if law firms are curbing recruitment of first-year associates, clients do not want first-years to gain experience by working on their matters, and judges are looking for clerks with some real-world experience, just who is going to step in and help train new lawyers?  Large firms like Latham & Watkins and SNR Denton are still hiring and training recent law school graduates, but even at these firms, first-year classes are significantly smaller than they once were.
  • On Thursday, Harvard Business School Professor Emeritus Jack Gabarro led a case study on the skills required for change management.  It’s an important issue for law firm COOs and CFOs making strategic shifts in response to the changing economy.  One difficulty facing firms is the challenge of obtaining “buy-in” from partners, an essential component for making meaningful changes.  This morning, the Chief Strategic Innovations Office for Seyfarth Shaw, Carla Goldstein, demonstrated how it can be done.  Goldstein faced resistance from partners in implementing a process management infrastructure to improve firm efficiency and become more price competitive.  The firm’s M&A group didn’t believe process management would work with them: “Every deal is different.”  But Goldstein and her team pushed through these objections, and asked the group to simply walk them through a deal.  At the end of four hours, with 180 Post-its on the wall describing every task, the M&A lawyers understood the value of the process.  With that buy-in, Goldstein was able to change the way Seyfarth does business for the better.

Posted by Emily Fisher

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