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An associate from California fondly remembers landing at her first firm. After law school and a clerkship, she finally had the chance to be in the trenches with real clients. The work was specialized and plentiful. She liked her partners, and they liked her. Happy or not, she walked out the door a year later. Sticking around just wasn’t an option for an associate who wanted to appear upwardly mobile. “I had stayed at least a year. . . . It seemed timely to move on,” says the associate, now a midlevel at Reed Smith. Frustration isn’t always the motivating factor when associates jump ship. Instead, they increasingly see changing firms as a fundamental career milestone. “It is the expectation now,” says one associate who moved to Dechert after a year at her previous firm. “It is extremely easy to leave firms and move if you have decent credentials and the market is good. I can’t tell you the number of phone calls I get from headhunters � three to five a day. I could have another job in a week.” (Like all of the associates in this article, the Dechert lawyer would speak only on condition of anonymity.) The message: Associates who see their future in law see it at a different firm. Firm managers, in particular, say they are concerned about retention. Nationally, the average leverage at firms is slipping, and managers are worried about a talent drain among their senior-associate ranks. But they’re ambivalent. The law firm business model encourages departures. After all, not everyone can make partner. And attrition has been a constant in law firms for years. The primary question for firm managers: At what point does associate turnover transform from an irritant into a crisis? Attrition “is cyclical, but you see industry statistics going up over time,” says Thomas Coleman, a partner at the San Francisco office of Orrick, Herrington & Sutcliffe who is in charge of lawyer development. “We think we’re better than the industry average,” he says, “but it’s higher than we would like.” An all-time high Orrick and others rely heavily on statistics from the NALP Foundation for Law Career Research and Education to judge how their firms measure up against national averages. In its most recent survey, NALP found that the annual attrition rate at U.S. law firms is now 19 percent, the highest ever documented. Even more striking, NALP found that 80 percent of associates leave their firm by the end of five years. The NALP survey focuses on firms of all sizes, not just The American Lawyer’s ranking of the 200 top-grossing firms in the nation. But Danilo DiPietro at the Citigroup Private Bank, who tracks attrition trends for client firms, says “attrition levels are up” among the AmLaw 200 as well: “They started inching up last year and are up again this year.” Ron Beard, former managing partner of Gibson, Dunn & Crutcher and a consultant with the Zeughauser Group, estimates that firms of 250 lawyers or more are losing 20 percent of their associates a year. That, he says, is about 5-10 percent higher than where most firms would prefer to maintain their desired leverage. Average leverage, when calculated as the ratio of associates and nonequity partners to equity partners in the firm, has declined from 2-to-1 in 2002 to 1.91-to-1 in 2005. The number applies to the nation’s 250 largest firms and comes from statistics compiled by Legal Times’ sibling publication The National Law Journal. Take nonequity partners out of the equation, and the average leverage slips from 1.76-to-1 in 2002 to 1.62-to-1 in 2005. As a rule of thumb, Beard says, large firms are aiming for a leverage of 3-to-1 or better. Highly profitable firms clock in with leverage of 4-to-1 or 5-to-1. There are exceptions to the rule, of course. Wachtell, Lipton, Rosen & Katz grossed $443 million and had the highest profits per partner among the AmLaw 200 last year with nearly flat leverage. But most firms start to worry, Beard says, if leverage slips below 1.75-to-1. Firms also worry if head count gets too high. When it comes to staffing, a deluge can cut into profitability just as severely as a drought can. That point was driven home recently when firms found themselves grossly overstaffed after the tech bubble burst in 2001. Managers subsequently restricted associate class sizes and reduced growth in the equity partnership. And profits per partner and revenue per lawyer rose accordingly from 2002 to 2005. But firms might have gone a bit too far. As the total number of associates in the largest 250 firms fell from from 58,718 in 2002 to 56,391 in 2004, according to The National Law Journal, attrition rates started inching up. Higher attrition, a more limited midlevel labor pool, and flat law school class sizes are combining to make it tougher for firms to maintain the right mix of associate talent. “You need people at different levels of experience to deliver work cost-effectively to clients,” says Peter Zeughauser of the Zeughauser Group. “A firm has problems if it doesn’t have the right-sized associate work force.” Firms are trying to stop the imbalance from spiraling into future profit loss by increasing the number of summer and first-year associates in the 2006 classes and focusing intensely on recruiting young lawyers who will be a good fit and want to stick around. “We have doubled our investment in recruiting,” says Greenberg Traurig President and Chief Executive Officer Cesar Alvarez. “The attrition rate at large firms is about 20 percent every year. The first piece is, let’s get the right people in the door and then give them the right training. The goal is that in five or six years we are not turning over 20 percent. If you can change it by three or four percentage points, you can make a big difference.” A generation gap? Firms face a number of challenges if they hope to slow turnover. One key problem: Associates seem increasingly aware of their place in the law firm business model. They know, for instance, that their chances of making equity partner at a large firm are diminishing � a fact which takes away a big incentive to stay on the associate track. As one Kirkland & Ellis midlevel puts it: “Anyone who goes into big law thinking they are going to make equity partner is a fool.” Bruce Tulgan, a management consultant and former lawyer at Carter Ledyard & Milburn, says associates view their relationship to the firm as a marriage of convenience that can be easily annulled as circumstances change. “I know a lot of people who come into firms with exit strategies in place,” says an Arnold & Porter associate. “It’s not a matter of saying, I’ll do this for a while and see, but rather already knowing what is next.” Adds a former Cravath, Swaine & Moore associate: “They have a business model. They operate on a partner-centric model, and associates are pretty fungible. I don’t fault them, and there really wasn’t a lot of deceit about that.” Firms are also encountering a generational shift in attitudes about work in general. “For one thing, associates are constantly re-evaluating whether to stay or go. “It’s a year-by-year relationship now,” says Richard Palmer, associate development director for Wildman Harrold in Chicago. “I’m 49, and that seems really weird to me, but to a 23-year-old, it doesn’t. It’s the generational change in expectations.” Tulgan, whose consulting firm, RainmakerThinking Inc., bears the tag line “the experts on young talent,” has done a number of interviews and polls in the past 13 years to help employers better understand social trends among young workers. He argues that the latest crop of associates, most of whom were born between 1971 and 1981, have little institutional trust and are more likely to view themselves as independent contractors to a company, even if they are technically on staff. As one Allen & Overy associate explains, “I view it as a contract. I need the salary, the experience, the name on my r�sum�. In exchange, [the firm] needs cheap labor, manpower, and our complete availability. As long as I am not a free rider and the firm meets its obligations, it is a good deal. When I am ready to go, I go.” Firms, too, have to contend with greater competition for lawyers outside the law. Demographers and human resources specialists have written extensively about the coming war for workers in all professional sectors. A number of forces are at work, including the move to an information-based economy and the impending retirement of baby boomers. “We have moved into a knowledge economy. Everybody wants knowledgeable and intelligent employees,” says consultant David Maister. “The notion that you are competing against people just in your own field is an illusion.” Keeping associates on board Some partners, however, are hard-pressed to see how they can persuade associates to stay in the law if they make up their minds to do something else. “To the extent an associate goes to a peer firm,” says Richard Bohm, chair of the associate-liaison committee at Debevoise & Plimpton, “you could say that we failed. But if they go to do something else entirely, you don’t take it as personally.” Or, as Bryan Cave partner Robert Ebert says, “If the practice of law is not for them, there is nothing we can do about that.” Clearly, however, keeping talent on board is a concern for firms. When The American Lawyer surveyed law firm leaders last year and asked them to name their biggest disappointment, poor associate retention was among the most common responses. And many firms are expanding their training and mentoring programs to boost retention. “We are investing in everyone we hire,” says Bohm. “The New York legal market is extraordinarily competitive, and you need to get the best lawyers and get them trained as quickly as possible. We think that if we invest in them, they will do good work and stay longer.” Howrey caught the bug four years ago. With attrition climbing and training “dead in the water,” Howrey chair Robert Ruyak tapped one of the firm’s top antitrust and commercial litigators, Martin Cunniff, to head Howrey’s training and professional development committee and to revive the firm’s floundering retention efforts. In the past, Cunniff says, “we would have a nonlawyer run some nice programs for associates. But you put a partner in charge, and it makes it higher-profile. It is a firm priority.” The firm, in 2005, launched Howrey U, an online program that trains lawyers in a set of 16 core competencies, from legal research to leadership. In combination with other mentoring, training, and evaluation programs, Cunniff says, Howrey U is offering associates tailored learning experiences. The increased attention to training has helped: Howrey associates gave the firm a 3.61 for its training and guidance, up from 2.92 in 2004. Howrey is not unique in its use of the competency-based training. Most professional-development programs are heading in this direction. They aim to give associates clearer benchmarks, detailing the work experiences, technical knowledge, and people skills they should have at different stages in their career and the necessary training to improve. A few firms have taken professional development a step farther. Some firms, such as Latham & Watkins and Davis Polk & Wardwell, also run annual academies for midlevel associates to lay out in detail what is expected of partnership-track attorneys. At a retreat for fourth-year associates in May, WilmerHale even hosted a panel discussion about alternative career paths that featured four former associates, only one of whom stayed at the firm throughout his career. The firm also pays for associates to have one session with an outside career planner. “Part of it was simply to say that it’s okay to talk about these things,” says Stephen Armstrong, the firm’s director of career development. “Everyone here has lots of options, and that should not be the invisible elephant in the room. And since our goal is really retention, one of the things I’ve discovered is that when there is a conversation about their future, [associates] tend to want to stay.” It’s hard to say, however, if firms are getting a return on their investment. Sharon Abrahams, director of professional development for McDermott, Will & Emery, which launched its own McDermott University in 2004, says her firm won’t know if it is still losing the same number of fourth-year associates for several years. Even then, it’ll be hard to determine how much the retention programs were a factor. The NALP Foundation is currently working on a methodology for gauging the impact of professional-development programs, but cautions that its success will depend entirely on firms’ willingness to share sensitive information. What’s the real cost? Regardless of chatter about turnover, a few firms still have their doubts. Lee Miller, joint chief executive officer at DLA Piper Rudnick Gray Cary, agrees that it is more common now for associates to spend a few years with a big firm and then leave. But, he says, the firm’s attrition rate is “reasonable.” H. Rodgin Cohen, managing partner at Sullivan & Cromwell, says his firm always has a lot of turnover and he hasn’t noticed much change of late. And others question whether the monetary costs of attrition are exaggerated. The standard industry line is that the loss of one associate costs $300,000-$400,000. But there is good reason to be skeptical about that math, says Keith Wetmore, chair of Morrison & Foerster. “The arguments about the high costs of attrition are somewhat misleading,” he says, “because they load the entire cost of the recruiting machine onto the backs of associate departures.” Even so, attrition does cost money in lost productivity, time, and office resources. And the more attrition there is, the higher the cost to the firm � especially when the departures are unplanned. “It’s something law firms are thinking more about,” says Joseph Altonji, a consultant at Hildebrandt International. “They don’t expect to keep them all, but the [associates] that are a good fit are a very expensive loss.” This is particularly true as associates gain experience and are able to bill more hours at higher rates, Altonji says. Even keeping someone an additional six months to a year can have a big payoff. And losing too many low-billing novices can have an effect on the firm’s ability to recruit. News of high turnover among the younger associates usually gets around law schools, says consultant Zeughauser. Associates back that up, saying law students make it their business to know the skinny about firms and often ask about attrition during campus recruiting visits. As firms grapple with getting to the right size � one with comfortable leverage and an appropriate level of associate attrition � they may be forced to rethink some of their traditional business practices. The growth of the multitiered partnership has helped add some flexibility. But that may not be enough. “I’ve been saying to firms that they need to look at a more flexible business model,” says Citigroup’s DiPietro. “Instead of having these rigid titles, either a partner or not, accounting firms and consulting firms have alternative titles that recognize different roles and skill sets.” According to a recent study by the American Institute of Certified Public Accountants, accounting firms started introducing nonpartnership career tracks and variations on the partnership in the early 1990s. By 2004, 35 percent of the largest accounting firms offered alternative arrangements. In some cases, career senior managers have an agreement with the firm that they will not progress upward to partnership. These roles may entail some form of profit sharing or nondiscretionary bonuses that are based on the firm’s overall success. Orrick’s Coleman, who is leading a conversation at the firm about creating greater flexibility to accommodate and retain associates, says, “Everything is on the table, in a sense.” In Orrick’s case, he adds, “we are early in the process, but we want to work with associates to find a point of balance.” Until then, associates may be productive, but they are still going to be searching for a way out. “The quality of the work is good,” says a fourth-year at Gibson, Dunn. “People are very friendly. The pay has historically been much better than market. They have pretty good benefits, and they seem to value their employees. But you stay at your own peril. If I am going to make the move, I need to do it by next year, at the latest.” Elizabeth Goldberg is a reporter for The American Lawyer, an ALM publication in which a version of this article first appeared.

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