In this week’s Law Firm Disrupted, we learn about an associate who bills $1,000 an hour, and why that means most associates shouldn’t be paid so much.
I’m Roy Strom, the author of this weekly briefing on the changing Big Law market, and if you are an associate who disagrees with me, tell me at: firstname.lastname@example.org
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Will Milbank’s Raise Burst the Big Law Prestige Bubble?
It is a wild time to be a Big Law associate. Your firm’s clients may be bemoaning your very existence; refusing to pay for your time. Your law firm may be admitting that a portion of your work is or is on the verge of being done by the computers.
You may feel helpless. Listless. Dare I say unwanted? Don’t fret.
One day your firm may promise you a week’s worth of time with partners and business school professors to make you valuable to clients. And the next day you could even get a nice raise and a summer bonus to boot.
That is actually a real-life scenario. Simpson Thacher & Bartlett announced Tuesdaythat it was partnering with Columbia Business School to provide business training to first-year lawyers in an effort to make them more valuable. The move is, in part, a response to technology taking away the work young lawyers have done.
On Wednesday, Simpson Thacher announced that those same lawyers are going to be paid $10,000 more in their first year at the firm. What a world.
With all the cross-current of signals lately, I’d excuse any young lawyer who finds themselves asking: “What the hell is going on here?” To be frank, I’d wager that’s a question many managing partners are asking themselves. At a time when the value proposition of young associates seems more endangered than ever, many are poised to make more money than ever.
Don’t misread this: I don’t begrudge associates their raises. They work hard. Many firms can afford to pay them more.
But there are still at least two questions to sort out: How should firms respond to market changes affecting the type of work that young associates can do and the value they provide? And which firms should pay their associates more?
Start with the raises, because I would suggest that not all firms should match the new scale set by Milbank, Tweed, Hadley & McCloy. Probably far from it.
Around here, we often talk discuss the various inhibitors to change among the Big Law management set. One such inhibitor we haven’t discussed all that much is the element of prestige. But make no mistake: Big Law’s continuous prestige play (and pricing methods) is a big inhibitor to change.
The rush to match associate salary hikes is one of the more obvious illustrations of the ongoing delusion at many large firms that they are just as prestigious as the richest New York firms. Listen to your clients. They will tell you whether or not you fit in that club. Or you could look at associate billing rates at New York firms and decide for yourself.
It wasn’t that long ago that $1,000-an-hour rates for partners were making national headlines. Today, Paul, Weiss, Rifkind, Wharton & Garrison has an associate, class of 2010, billing $1,015 an hour in a New York bankruptcy case.
Kirkland & Ellis has a 2014 graduate billing $905 an hour. A 2015 law graduate at Milbank is charging $925 an hour. What are your associates making?
The new Milbank salary scale would pay $330,000 (plus a bonus) to a 2010 law school graduate. At 2,000 hours a year, the $1,015-an-hour associate would bring in just over $2 million in revenue to their law firm. Even if the firm’s overhead figure is as high as that lawyer’s salary, the associate is an immensely profitable business unto themselves. Pay them.
But many Am Law 100 firms are not Paul Weiss, Milbank or Kirkland—they don’t have a big billing New York bankruptcy practice and they would struggle to bill clients $500 an hour for a 2010 graduate. Those firms are probably already in over their heads paying what was once considered the Cravath, Swaine & Moore scale.
As the richest firms continue to operate in a much different market than the rest of the Am Law 100, it seems like only a matter of time until a second (or third) pay scale should arise. Now is as good a time as any to pull away from the prestige game. It would be a good start to an honest conversation about what market your firm is truly competing in.
As for what to do about training new associates in a world where artificial intelligence can perform due diligence in a fraction of the time?
I would say Simpson Thacher is actually on the right track. I’ve written before about the need to train associates about how Big Law practice is changing. And more should be done on that front. But I’ll leave a bigger answer to that question for another day. Possibly next week. Let me know what you think, so I can include your comments.
Roy’s Reading Corner
An Actual Analysis: Shortly after I finished my musings above, The American Lawyer posted a more detailed financial analysis of who should be matching Milbank. (Apologies to my editors.) So read that, too. Nice work by Hugh Simons.
On Diversifying Your Business: One of the more innovative firms to have taken money from outside investors since the U.K.’s creation of so-called alternative business structures has announced one of its affiliated companies has raised more money. Wiggin, a media-focused firm, co-founded a tech company called INCOPRO in 2011 that protects brands on the internet. That company has now raised $21 million to expand into China.
From The Artificial Lawyer: “INCOPRO, whose clients include Reckitt Benckiser, NBC Universal, BBC Studios and Harley-Davidson, is one of several peripheral businesses set up by partners from the U.K. law firm Wiggin where it saw a crossover between its legal expertise in its niche areas and other related services, in this case using NLP and machine learning tech to power an IP tool that would help companies clamp down on piracy and brand abuse.”
On Diversifying Your Bonds: So, you’re one of the lucky ones to be making $190,000 out of law school. MP McQueen of The American Lawyer has some advice for you on how to spend that cash. I won’t dispense that knowledge here, but I will pluck one of her analogies to scare you straight.
From McQueen: “A career in Big Law is looking more like a career in pro sports, with the prospect of high earnings at the start, but also the possibility of peaking fairly early, and the endgame increasingly unpredictable. Yours could be the major league career with huge lifetime earnings and a lucrative retirement. But there’s also a chance of being sent back to the minors, displaced by a lateral star, or cut from the league. That’s not to mention disability, a possibility for everyone. Or even being replaced one day by a robot.”