I love it when the legal profession whips itself into a frenzy. All that emoting. The shock. The awe. The outrage.
And it doesn’t take a seismic event to get the profession all hot and bothered. This year, it was spurred by Milbank, Tweed, Hadley & McCloy, which bumped its first-year salary from $180,000 to $190,000. Immediately, there was breathless speculation: What would other firms do? Will Milbank end up as the lone wolf?
As if any of this was a mystery. Was there any doubt that most “major” firms—or those with pretense of being so—would fall in line like docile sheep? But once firms bumped salaries, the rite of indignation started. And it was the clients who were supposedly miffed.
“The tone deafness is astounding,” blared the headline on Law.com, in a post that got a ton of attention. (The quote was from a livid client who was worried about the effect of the salary increase on legal fees.)
The subtext was unmistakable: What the hell are you arrogant law firms doing by paying know-nothing associates so much? Did you forget about consulting us, your clients who pay the bills?
Some might see all this as a wake-up call of sorts for law firms, a rebuke to the foolish ways Big Law takes action without listening to its clients. But I think all the fuss is a big nothing burger. The reality is that clients couldn’t care less about what firms pay associates—and why should they?
“As a gadfly, I’d like to be consulted,” says John Kuo, general counsel of Varian Medical Systems, about the pay bumps. “But as a consumer, I’ll let you decide.”
Clients are agnostic about these matters because they have the leverage. “I can tell you for sure that no in-house attorney will agree to pay higher rates because the firms decided to pay their associates more salary,” says Linda Lu, a senior vice president at Nationwide Insurance Co. “I’m not worried, because we will pay what we pay anyway—the firms’ profit margins just shrink.”
Who pays retail for legal services these days—particularly for inexperienced help? “Nearly all firms are experiencing pricing pressure,” says law firm consultant Peter Zeughauser. “To address it, nearly everyone discounts at least some work.” William Henderson, law professor at University of Indiana Maurer School of Law, says “about 40 percent of the work is done with a 30 percent discount.”
And despite that catchy “tone-deaf” complaint, clients are hardly waiting for firms to structure the billing arrangements. They’ll pick the occasions when they might deign to pay full price—and that’s just for superstar partners on limited engagements. “I might call up a very expensive partner just to get their thinking on antitrust for two to three hours,” Kuo says. But for a long-term project, “I’m not paying $1,000 an hour,” he says, adding, “There are ways to contain my cost, such as alternative billing arrangements.”
That means it’s the law firms—at least the ones with thinner profit margins—that are in a bind. “If everybody pays associates the same, profits are squeezed all the more,” Zeughauser says, noting the “continuing segmentation of the market” in which the most profitable firms get to charge more. “The rich get richer, and it becomes harder and harder for everyone else to hold on to their top talent.”
Which brings us back to the law firms as sheep analogy. Because firms lack originality or are terribly afraid of being left out of the big boy club, they will shell out the hefty bucks—even if they can’t afford it.
So why are we talking about client angst in the context of salary increases? Well, it gave firms the illusion that billable rates still mean something. It’s nostalgia for simpler times. And it means nothing.
Contact Vivia Chen at email@example.com. On Twitter: @lawcareerist