LSAC GRANTS REPORT SERIES
 A Fragile Balance: Business, Profession, and Culture
in the Large Law Firm
Milton C. Regan, Jr.
Georgetown University Law Center
Lisa H. Rohrer
Harvard Law School
 Law School Admission Council
Grants Report 15-02
October 2015
A Publication of the Law School Admission Council
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© 2015 by Milton C. Regan, Jr., and Lisa H. Rohrer.
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Table of Contents
Executive Summary ...................................................................................................... 1
Introduction ................................................................................................................... 2
The Legal Profession and the Corporate Law Firm.................................................... 4
The Business-Profession Dichotomy .................................................................... 4
Corporate Law Firms ............................................................................................ 8
Intensifying Competition ............................................................................................ 24
Responding to the Market .......................................................................................... 29
Encouraging Entrepreneurs ................................................................................ 29
Compensating Entrepreneurs ............................................................................. 45
Pruning for Profitability ....................................................................................... 63
Luring Laterals .................................................................................................... 78
Conclusion ................................................................................................................... 91
References ................................................................................................................... 92
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Executive Summary
This project explores the ways in which large law firm practice is changing in light of
substantial structural changes that are producing increasingly intense competition in the
legal services market since the economic downturn that began in late 2008. It examines
how law firms are responding to this competition, and the extent to which they are
attempting to fashion distinctive organizational cultures that reflect a given firm’s
balance between business demands and professional values.
A common analytical framework for conceptualizing the large law firm since its
emergence in the late nineteenth century relies on a dichotomy between law firm
practice as a business and as a profession. For more than a century, there has been
criticism in some quarters that the practice of law has declined from a profession to a
business. Increased competitive pressures over the last three to four decades, however,
have intensified this criticism, and changes in market conditions since the economic
downturn have only reinforced it. The claim is that large law firms are now simply one
form of business enterprise whose behavior is dictated solely by the demands of the
market, with scant attention to professional values.
This report reflects preliminary analysis of interviews with 257 law firm partners in
the United States, almost all of whom work in large firms. Our conclusion is that firms
are indeed facing unprecedented competitive pressures, but that they are not
necessarily behaving simply as market-driven entities that focus only on financial
rewards. Firms see little choice but to respond to the market in ways that place more
explicit emphasis on the financial performance of both the firm and its individual
partners. They exhort their partners to be entrepreneurial, persistently seeking clients
and opportunities to generate revenue. They are reinforcing this message by placing
greater emphasis in their compensation systems on business generation, and by
demonstrating a greater willingness to let go of partners and practice areas that the firm
regards as insufficiently productive. Firms also are continuously engaged in attempting
to recruit profitable partners from other firms, sometimes by offering compensation that
exceeds the amount that most of their existing partners receive.
At the same time, to varying degrees, firms seek to create cultures that tie partners
to one another and to the firm on the basis of non-financial professional values. The
types of entrepreneurship they encourage, how they balance business generation and
other considerations in compensation decisions, the measures they adopt to deal with
underperforming partners and practice areas, and the ways in which they engage in
lateral recruiting all afford at least some opportunities to temper business demands with
professional concerns. Not all firms are equally committed to striking a balance, and
those that are must navigate considerable tensions. That a firm makes an effort to do
so, however, is important to most partners. We suggest that this process reflects the
latest iteration of the large law firm’s effort to operate both as a business enterprise and
as an organization composed of professionals. The balances that firms strike are fragile
but meaningful in an era in which market forces are exerting a powerful influence on the
large law firm.
The discussion of law firm culture in this report admittedly proceeds on a relatively
general level. Further analysis based on our research will examine in more detail
various mechanisms of cultural transmission, and the extent to which their effectiveness
1
is mediated by factors such as practice area, office location, status as income or equity
partner, informal personal networks, and other dimensions of law firm practice.
Introduction
Corporate law firms are major business enterprises. The 2014 Am Law 100 reported
that in 2013, 5 law firms generated revenues of more than $2 billion, and 18 more
earned more than $1 billion. Of these firms, 2 reported profits per partner of more than
$4 million, 6 of more than $3 million, 15 of $2 million or more, and 42 of more than $1
million (American Lawyer, 2014).
Large law firms are also organizations whose partners are members of what
traditionally has been regarded as a profession. William Sullivan suggests that “[a]
profession is a means of livelihood that is also a way of life” (Sullivan, 2005, p. 21). He
elaborates:
Professionalism seeks freedom in and through significant work, not by escaping
from it. In professional work, the practitioner expresses freedom by directing the
exercise of carefully developed knowledge and skill toward ends that refer
beyond the self and the practitioner’s private satisfaction. Concern for clients or
patients and for the public values for which the profession stands is essential to
genuine practice. The key point is that for a genuine professional the meaning of
the work derives from both what it is and the ends toward which it is directed as
much as or more than its significance comes from the return it affords. (p. 21)
As we describe in more detail below, for more than a century critics of corporate law
firms have claimed that firms have abandoned, or are in the process of abandoning,
professional values for the sake of business success. In recent years, observers have
suggested that professions more generally are losing their traditional prerogatives to
“control their own associations, to control the workplace, to control the market for their
services, and to control their relation to the state” (Freidson, 2001; Krause, 1996, p.
280; Rostain, 2010). In this respect, they are less able to serve as organizations that are
governed by professionals rather than by either market forces or bureaucratic
structures. Elliott Krause poses the question: “Has capitalism finally caught up with the
last remaining guilds?” (Krause, 1996, p. 280). He suggests that this process is under
way, and points to:
The loss of any noncapitalist values within the professions, both because of
external pressures … and because of the surrender of positive guild values—of
collegiality, of concern for the group, of a higher professional ethic beyond mere
profit—that has eroded the distinction between professions and any other
occupation and thus left them together as the middle-level employees of
capitalism. (p. 281)
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In this report, we present preliminary results from a study of corporate law firms that
attempts to explore in depth the conditions under which lawyers in such firms practice,
the ways in which they interpret these conditions, and the extent to which firms are able
to create and sustain distinctive cultures that reflect a specific balance between
business demands and professional values. The aim of our study is to examine more
closely claims that large law firms have been forced by modern market conditions to
base their decisions on business considerations, with minimal concern for professional
values.
Our research is based on interviews with 257 lawyers in 20 firms. Of these firms, 15
rank in the top 100 in the Am Law rankings by gross revenues. We conducted extensive
interviews in six of these firms, ranging from a low of 26 lawyers in one firm to a high of
62 in another. Five of these six firms are in the Am Law 100, and each of these five has
more than 750 lawyers; the sixth firm is in the Am Law 200. Some 246 of our interviews
were with partners, since our broad focus can be seen as what it means to be a partner
in a modern law firm. Respondents were selected solely by the researchers, who
attempted to include those who provided a reasonable representation of lawyers based
on partnership tier, practice area, seniority, age, gender, ethnic background, office
location, experience at other firms, and management experience. All but two interviews
were done in person (the other two by telephone), and ranged from 1 to 2.5 hours each.
All respondents were assured of anonymity.
Considerable work remains to be done, but some tentative themes can be identified
at this point. One is that, while law firms have been facing increasing competitive
pressures in the last three to four decades, those pressures have significantly
intensified since the economic downturn of 2008. Second, some lawyers express the
view that a permanent structural change is occurring in the market for legal services that
is likely to dampen demand for law firm services in the foreseeable future. Firms
therefore are emphasizing to their lawyers that they need to be entrepreneurial in
seeking out clients and business. They are attempting to reinforce this message through
their compensation systems, and by being more willing than before to let go of lawyers
and practices they regard as insufficiently profitable. They also are actively involved in
attempting to recruit profitable laterals from other firms, as well as to protect themselves
from defection by their own productive partners. In these respects, firms are devoting
more attention to rationally organizing themselves as business enterprises.
At the same time, professional values remain meaningful to lawyers and provide a
source of satisfaction in practice. When asked whether professionalism in current
practice means simply running a business that serves clients, one litigation partner in a
managing role in a major firm replied:
I think there is a lot more beyond that because I think that there is the craft and
the professionalism of writing a Supreme Court brief or delivering an argument or
a closing to a jury, conducting a cross examination, at least on the litigation side.
That’s a tradition of service and people in this firm want to serve and represent
individual clients whether it’s me representing [unpopular defendants in my
earlier practice] for which I took a lot of guff, or it’s people today who are
representing Palestinian refugees and taking some guff for that . . People want to
do the things that drove them to go to law school in the first place. And there is
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room for that. … Making better lawyers who know how to serve people is part of
the profession too, in a way I don’t think it is necessarily for engineers or
accountants or others who have licenses to practice. (Interview 247)
Lawyers consistently made the point, however, that a firm cannot hope to sustain a
culture that gives weight to such values unless it is financially viable. They see ensuring
that the firm remains competitive as a necessary, although not sufficient, condition for
the ability of a firm to offer a distinctive environment in which to work. The next step is
credibly communicating that the firm stands for more than simply financial gain—that it
gives meaningful weight to non-financial values as well. One interesting aspect of this
process is that some measures that enhance the firm’s business prospects can also
produce the conditions under which these professional values can flourish, creating a
sense of connection among partners and between partners and the firm. In short,
business and professional values can be intertwined in complex ways in the modern
large law firm, even though firms are undeniably more subject than ever before to the
influence of market forces. At the same time, not every firm will necessarily attempt to
strike a balance, nor will every firm that tries to do so be successful at it.
The next section of this report situates our study within the literature on the legal
profession and the rise of the corporate law firm. The section titled Intensifying
Competition describes the market conditions that large firms now confront. The longest
section, titled Responding to the Market, discusses the most important ways in which
firms are responding to these conditions and how partners in firms tend to interpret
them. Finally, the Conclusion sets forth our preliminary observations and describes
additional lines of inquiry that we believe will be fruitful as we continue to analyze data
from our research.
The Legal Profession and the Corporate Law Firm
The Business–Profession Dichotomy
Until the period after the Civil War, law practice in the United States was generally
conducted either by solo practitioners or by two lawyers who shared office expenses
while serving their own clients (Pinansky, 1986–1987). As business enterprises grew in
scale and scope after the war, however, meeting their increasing and complex legal
needs required larger law firms that could provide more wide-ranging and coordinated
services. Such firms focused a significant amount of their time on business clients,
helping to devise legal structures that could enable the emergence of economic
activities of unprecedented size and complexity. Although lawyers were generalists by
today’s standards, they became more specialized in their attention to corporate and
financial work.
The combination of law firms’ larger size, their more obvious character as business
enterprises in their own right, and their greater focus on work for large companies was
in tension with the republican notion of lawyers as independent craftsmen who served
the needs of local communities in which they were leaders. This latter conception of
what Anthony Kronman has called the “lawyer-statesman” (Kronman, 1995) posited that
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“individual professionals who were above the self-interest of the market served as
guardians of the public good” (Pearce, 1995, p. 1241). The fear was that this role was
being effaced as law practice became assimilated into ordinary business activity. As
Robert Gordon observed, this anxiety was expressed in an “extraordinary outpouring of
rhetoric, from all the public pulpits of the ideal—bar association and law school
commencement addresses, memorial speeches on colleagues, articles and books”
(Gordon, 1984, p. 61).
Confronted with the perceived erosion of the conditions for maintaining the
republican ideal, the legal community responded by articulating the notion that law was
a profession that stood in contrast to a business. Lawyers were not alone in drawing on
the rhetoric of professionalism; the late nineteenth century was marked by increasing
use of the concept to demarcate a variety of sectors that ostensibly operated by
principles that differed from those of the market (Bledstein, 1976; Larson, 1977;
Solomon, 1992). Professional and business values and orientations were cast as
dichotomous, resting on different motivations and aspirations. The unavoidable fact that
professionals do sell their services and therefore necessarily engage in business was
elided by what Russell Pearce has called certain taboos for lawyers (Pearce, 1995, p.
1242). These taboos prohibited explicit business practices that were characteristic of
the disreputable models of the Profit Maximizer and the Business Servant (Pearce,
1995, p. 1242).
The Profit Maximizer treated legal services like any other service for sale in the
market. “While the professional obtains business by providing excellent and ethical
services, the Profit Maximizer seeks as much money as possible from the client and
disregards obligations to the public” (Pearce, 1995, pp. 1242–1243). He openly markets
his services and engages in explicit competition with other lawyers for clients. The
Business Servant seeks to obtain the maximum advantage from the legal system for
business clients without regard for either the integrity of legal institutions or the public
welfare. Taboos on such behavior were reflected in the adoption of rules prohibiting
advertising, solicitation of clients, and contingent fees, and in the adoption of minimum
fee schedules for legal services so that lawyers would not compete for clients with one
another on the basis of price. In similar furtherance of the taboos, the American Bar
Association Committee on Legal Education emphasized to law schools and practitioners
the importance of “inculcating proper sentiments and of counteracting the evil effects of
the introduction of modern business methods” (American Bar Association, 1897, p.
382). Such a task, the Committee said, should unite “all those who hold their profession
as above price” (p. 382).
Louis Brandeis inveighed against the Business Servant model in 1910, noting the
criticism that “the Bar ha[s] become commercialized through its connection with
business” (Brandeis, 1905, p.10). To this he responded, “I am inclined to think that this
view is not altogether correct. Probably business has become professionalized as much
as the Bar has become commercialized. Is it not this which has made the lawyer so
important a part of the business world?” (p. 10). He spoke of the potentially important
social role that corporate lawyers could play:
5
By far the greater part of the work done by lawyers is done not in court, but in
advising men on important matters, and mainly in business affairs. In guiding
these affairs, industrial and financial, lawyers are needed, not only because of
the legal questions involved, but because the particular mental attributes and
attainments which the legal profession develops are demanded in the proper
handling of these large financial or industrial affairs. The magnitude and scope of
these operations remove them almost wholly from the realm of “petty trafficking”
which people formerly used to associate with trade. The questions which arise
are more nearly questions of statesmanship. (Brandeis, 1905, pp. 10–11)
Brandeis argued that lawyers had lost some of their stature not because they
represented business interests per se, but because “able lawyers have, to a large
extent, allowed themselves to become adjuncts of great corporations and have
neglected the obligation to use their powers for the protection of the people. We hear
much of the ‘corporation lawyer,’ and far too little of the ‘people’s lawyer’” (p. 12). As a
result, “there is felt to-day very widely the inconsistency in this condition of political
democracy and industrial absolutism. The people are beginning to doubt whether in the
long run democracy and absolutism can coexist in the same community” (p. 15). The
great opportunity for lawyers, Brandeis urged, was that “the people’s thought will take
shape in action; and it lies with us, with you to whom in part the future belongs, to say
on what lines the action is to be expressed; whether it is to be expressed wisely and
temperately, or wildly and intemperately; whether it is to be expressed on lines of
evolution or on lines of revolution” (p. 15).
The major task of the late nineteenth and early twentieth century elite legal
community thus was to “preserv[e] … the distinction between a business and a
profession” (Pearce, 1995, p. 1238). By accepting constraints on their behavior, lawyers
supposedly entered into a mythical bargain with society. Its terms were that “the
profession agreed to use its skills for the good of its clients and the public. In exchange
for this promise, society ceded authority to the profession, including the exclusive right
to practice law and [the enjoyment of] autonomy from government and, to some extent,
market regulation” (Pearce, 1995; Rostain, 2010). Lawyers were to be regulated by
ethics rules adopted by the courts of the states in which they were admitted to the bar.
The claim of a dichotomy between law practice as business and as profession
maintains that lawyers ideally practice in the market but are independent of its
animating forces, that they represent business but are able to stand apart from its
influence. The fundamental premise is that “the interests of the client and the public are
to take precedence over the lawyer’s economic self-interest” (Solomon, 1992, p. 147).
The dichotomy has been a conceptual device that has had pervasive influence on
how both lawyers and the larger public think about law practice. Since its emergence, it
has served consistently to frame criticism and debate about the legal profession. In
1895, for instance, an article in The American Lawyer (a publication unrelated to the
current one of the same name) lamented that the bar “has allowed itself to lose, in large
measure, the lofty independence, the genuine learning, the fine sense of professional
dignity and honor .... For the past thirty years it has become increasingly contaminated
with the spirit of commerce which looks primarily to the financial value and recompense
of every undertaking” (The American Lawyer, 1895). One author noted in 1901 in the
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Yale Law Journal: “There has developed of late an idea which has found expression in
the saying, ‘The law is no longer a learned profession, it has become a business’”
(Shelton, 1901, p. 275). He continued:
The distinction intended is not clearly defined in words, but it sufficiently appears
that in the general estimate, there has been a marked decline in the standard of
conduct which distinguished lawyers of a previous generation. That to the
generality of the profession law is no longer a high and honorable calling, to the
pursuit of which the devotion of a lifetime is demanded, and for the maintenance
of whose noblest standards no sacrifice is too great. On the contrary the lawyer
follows his profession as a means of earning his daily bread, he is prompted by
no lofty ideals, stimulated by no particular enthusiasm, and seeks only such
pecuniary rewards as will bring to him the luxuries of life before old age has
deadened his powers of gratification. His motives are as sordid and his activities
as mercenary as can be found in any other occupation, and the business lawyer
is the prevailing type of success. (p. 275)
Another author in the same publication argued in 1913 that “the practice of law has
become commercialized. It has been transformed from a profession to a business, and
a hustling business at that. Financial interests have looked upon the legal profession
with longing eyes, and have gradually corralled it and brought it under their domination
for the profits which can be acquired from it” (Bristol, 1913, p. 590). In 1934, Supreme
Court Justice Harlan Fiske Stone told an audience at the dedication of the University of
Michigan Law Quadrangle:
The successful lawyer of our day more often than not is the proprietor or general
manager of a new type of factory, whose legal product is increasingly the result
of mass production methods. More and more the amount of his income is the
measure of professional success. More and more he must look for his rewards to
the material satisfactions derived from profits as from a successfully conducted
business, rather than to the intangible and indubitably more durable satisfactions
which are to be found in a professional service more consciously directed toward
the advancement of the public interest. Steadily the best skill and capacity of the
profession has been drawn into the exacting and highly specialized service of
business and finance. At its best the changed system has brought to the
command of the business world loyalty and a superb proficiency and technical
skill. At its worst it has made the learned profession of an earlier day the
obsequious servant of business, and tainted it with the morals and manners of
the market place in its most anti-social manifestations. (Stone, 1934, pp. 6–7)
More than half a century later, another Supreme Court Justice echoed this concern
about the decline of the profession. In 1987, Chief Justice Rehnquist suggested that
“the practice of law has always been a subtle blend between a ‘calling’ such as the
ministry, where compensation is all but disregarded, and the selling of a product, where
compensation is all important. The move over the past twenty-five years has been to
increase the emphasis on compensation—to make the practice of law more like a
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business” (Rehnquist, 1987, p. 157). In 1994, law professor Mary Ann Glendon
lamented that “several radical propositions that were once but minor tributaries or
countercurrents have achieved respectability and prominence, if not dominance, in
mainstream legal culture,” among them being “that law is a business like any other; and
that business is just the unrestrained pursuit of self-interest” (Glendon, 1994, p. 6).
Supreme Court decisions in the 1970s striking down prohibitions on lawyer advertising
(Bates v. State Bar of Arizona, 1977) and minimum fee schedules (Goldfarb v. Virginia
State Bar, 1975) were seen as unfortunate support for this view, with the Court
declaring in the former decision that “the belief that lawyers are somehow ‘above’ trade
has become an anachronism” (Bates v. State Bar of Arizona, 1977, pp. 371–372).
As Samuel Levene has observed, debate over the extent to which law practice is a
business or a profession is “an issue that attracted considerable attention around the
turn of the twentieth century, and has remained a perennial concern for legal scholars
and practitioners alike” (Levene, 2012, p. 2).1 Noting the persistence of this rhetoric,
Marc Galanter and Thomas Palay have suggested that “contemporary misgivings about
the commercialization of law practice are part of a long tradition of lamentation over the
decline from the virtuous professionalism of an earlier day. That earlier era of virtuous
professionalism always seems to lie just over the horizon of personal experience”
(Galanter & Palay, 1994, p. 908). Deborah Rhode puts it more succinctly: “Lawyers
belong to a profession permanently in decline” (Rhode, 2000, p. 1).
Corporate Law Firms
For some critics of the legal profession, the corporate law firm has served for almost
a century as the embodiment of the decline of law practice from a profession to a
business (Green, 1978; Lundberg, 1939; Strong, 1914). Such critics have described the
large firm as a “law factory” (Llewellyn, 1931, p. 1218) whose lawyers have essentially
become Business Servants who subordinate professional values to the interest of their
clients (Berle, 1993). Notable legal scholar Karl Llewellyn, for instance, claimed in 1933
that corporate law practice had become “itself a business. … [with] a large staff, a highly
organized office, a high overhead, more intense specialization” (Llewellyn, 1933, p.
177). Adolph Berle maintained in the same year that:
The leading lawyers, especially those who are the heads of the great law
factories, must be able to please or serve the large economic groups and they
become therefore extremely skilled technicians. They rarely dare and usually do
not wish to attempt to influence either the development of the law or the activity
of their clients, except along the line which the commercial interests of their
clients may dictate. (Berle, 1993, p. 344)
At the same time, the fact that a substantial number of lawyers providing services to
businesses mostly worked in law firms rather than as employees—unlike others who
aspired to professional status, such as engineers—lent at least some plausibility to the
claim that lawyers were able to operate with professional independence (Hobson, 1986;
Krause, 1996, p. 60). As the integrated corporate law firm emerged in the early
1
To be sure, some have suggested the limitations of conceptualizing law practice in this way (Atkinson, 1995; Morgan, 2010).
8
twentieth century, law firms were organized as general partnerships (Regan, 2009). In
the classic partnership model, the law firm is a voluntary association of lawyers who
agree to share the risks and rewards of a common enterprise. Partners are co-owners
of the firm, who contribute capital to it and share in the profits of the firm largely
according to seniority, under what is known as a “lockstep” system. Partners also
personally are jointly and severally liable for the obligations of the firm. Every partner
has an equal voice in major decisions concerning the firm, which can only be made by a
majority of the partners.
The consensual nature of the firm is underscored by the fact that the relationship
among partners is governed by partnership law (Hillman, 1998). For the most part, that
body of law permits partners to determine their rights and obligations toward the firm
and each other by a partnership agreement. Statutes set some boundaries on the terms
of this agreement, particularly by imposing on partners fiduciary duties to the
partnership and to fellow partners. Terminating a partner, for instance, is a complicated
process under the classic partnership model. It must be authorized by the partnership
agreement and must be in good faith and not “predatory” (Dalley, 1999). The notion of a
partnership as an aggregation of individual partners is reflected in the fact that if a firm
is at-will rather than for a fixed term, which is the case with most firms, termination or
withdrawal of a partner requires the firm to dissolve, wind up its affairs, and form a new
partnership with the remaining partners. While contemporary firms are now able to do
this administratively without disrupting their operations, this requirement persists as a
residue of the classic partnership model.
The classic partnership model thus conceptualizes the law firm as a voluntary
association of partners who share equally in rewards and risks, who participate as
equals in self-governance, and who owe distinctive responsibilities to one another. This
classic partnership is a paradigmatic example of organizational self-governance, which
mirrors on a smaller level the broader self-governance of the legal profession.
We can think of the classic partnership model as addressing three concerns about
the risk that business considerations might erode commitment to professional values.
The first is what David Wilkins has called the “agency” problem: the risk that lawyers will
put their own interests above those of their clients (Regan, 1999; Wilkins, 1992, pp.
819–820). This mirrors the taboo against the lawyer acting as Profit Maximizer (Regan,
1999; Wilkins, 1992). The second is what Wilkins calls the “externality” problem. In
these cases, “lawyers and clients together impose unjustified harms on third parties or
on the legal framework” (Wilkins, 1992, p. 820). We can think of this as focused on the
taboo against the lawyer serving simply as a Business Servant. The third concern has
been the ability of individual lawyers to have a significant measure of control over their
work so that they can exercise professional discretion and judgment (i.e., “craft
autonomy”; Regan, 1999, p. 38). In the organizational setting, we can think of this as
another type of agency problem: ensuring that those who run the firm do so in the
interest of its lawyers rather than their own. Thus, professionalism raises concerns
about both client agency and lawyer agency.
For much of the twentieth century, the classic partnership model plausibly could be
regarded as addressing each of these concerns to some degree (Greenwood &
Empson, 2003). With respect to the challenge of ensuring that a lawyer put the client’s
interest first, the prospect of personal liability of any partner for the misdeeds of another
9
gives each partner an incentive to monitor the work of other lawyers in the firm. In
addition, lockstep compensation ideally minimizes financial competition among partners
and provides an incentive for them to share knowledge and information with their
colleagues. A lockstep system also serves to align the individual lawyer’s interest with
that of the firm. Individual decisions are less likely to be governed by individual costbenefit analyses because individual productivity is not the basis for compensation. The
individual might still be tempted to subordinate the client’s interest to the economic
interest of the firm as a whole, but the individual payoff from doing so is indirect and
might be too small to justify taking the risk. Finally, professional socialization
emphasizes the lawyer’s fiduciary duty to the client. The fact that the firm is run only by
lawyers gives clients some assurance that decisions will be made by persons who have
internalized the ethos of devotion to the client, and who will informally regulate behavior
in accordance with it.
With respect to the externality risk, the classic partnership model relies in part on the
norm that a lawyer is an officer of the court and, more generally, that he or she bears
some responsibility for maintaining the integrity of the legal system. The scope of this
norm has always been a source of some contention within the profession, but there is
evidence that it served in at least some quarters to lead corporate lawyers to give
relatively conservative advice to clients to stay well within accepted legal boundaries.2
The fact that the firm is run and controlled by lawyers supposedly enhances the
likelihood that advice will take into account concerns beyond those of the client.
Individual lawyers ideally are socialized to accept this norm, and a lawyer-run
organization provides the opportunity for collective reinforcement of it. Lockstep
compensation also purports to address the externality risk, by reducing the temptation
for individual lawyers to maximize their income by ignoring third-party effects in pursuing
clients’ aims. As with the potential client agency problem, a lawyer might be tempted to
ignore externalities in order to enhance the firm’s income, but the payoff from that will
be smaller and less direct than if he or she were compensated on the basis of individual
productivity.
Finally, the classic partnership model addresses concerns about individual lawyer
autonomy and independence by giving partners a voice in the operation of the firm. All
managers of the firm are lawyers, which eliminates the kind of “external” agency
problem that exists between shareholders and corporate executives. An internal agency
problem remains in that partners in the firm must monitor the partners to whom they
delegate authority. The cost of doing so is minimized, however, because partners are
relatively sophisticated and knowledgeable monitors, and because they have
opportunities to influence the partner-managers. The firm therefore is able to use
informal collegial monitoring as a substitute for more costly systems of formal control
that characterize other major economic organizations. These assumptions reflect the
2
With respect to the tax bar, for instance, see Rostain and Regan (2014). See also Regan (2004) on major law firm advice to clients
in the first two-thirds or so of the twentieth century:
Milbank Tweed, for instance, was notable for providing conservative advice to Chase Manhattan Bank about activities that
might violate restrictions on interstate banking. As one Chase official said of Milbank partner Roy Haberkern, if something
was “legally feasible but risky, he would tell his partner that it was a dumb thing to recommend.” Similarly, Lord Day &
Lord advised the New York Times that concern for the public interest should lead the paper to accede to the attorney
general’s request that the Times not publish the Pentagon Papers. (pp. 29–30)
10
classic partnership model’s premise that law firms will be small enough to permit such
personal influences to operate.
Partners’ embrace of common professional values also theoretically helps law firms
address a pragmatic challenge that faces any organization: the need for mechanisms to
integrate individuals into and align their interests with those of the organization. As Max
Weber famously suggested, large corporate and governmental organizations used
bureaucratic rationality to achieve this goal (Weber, 1964). Such an integration
mechanism was problematic in law firms, however, in light of the need for the exercise
of professional autonomy and judgment, the role of numerous project teams as the
mode of production, and the outward, client-facing orientation of those who provide
professional services.
Professional values ostensibly served as a means of integration that was an
alternative to bureaucratic rationality. Professionals were united by a commitment to
values that created a common discourse for decision-making and constrained the
operation of individual self-interest. These values provided a standard of behavior and
performance, and gave meaning to the work of members of the firm. In Alasdair
MacIntyre’s words, they motivated lawyers toward the attainment of “internal goods”
defined by the profession rather than “external goods” such as those defined by the
market (MacIntyre, 1981).
Firms ensured that their partners internalized these values less through formal
directives than through the informal transmission of cultural norms. Associates were
socialized in the firm’s philosophy of law practice by working with more senior lawyers,
who imparted this philosophy by words and example. Partners were selected from
among associates, which enhanced the firm’s ability to replicate its culture by promoting
lawyers who had best internalized it. There was virtually no movement of partners from
one firm to another, which ensured continuity of culture. All partners had been
socialized by and had spent their entire professional lives within the firm. Each firm
ostensibly was a self-contained organization in which partners could fashion and live out
their vision of law practice reflected in the firm’s culture.
The classic partnership model thus purports to provide some assurance that
professional ideals would not be eroded by the rise of law firms of unprecedented size
that were devoted to corporate work. The ability of the firm to serve as a self-governing
organization of lawyers signaled that society could continue to trust lawyers to comply
with the unwritten social contract that required them to act with the interests of clients
and the public in mind.
The classic model, which developed in response to concerns about professionalism,
was an ideal rather than an actual depiction of day-to-day life in the corporate law firm.
Some empirical work nonetheless suggested that there was at least some truth to its
claims. Erwin Smigel, for instance, conducted a study of Wall Street law firms in the late
1950s and early 1960s. Smigel concluded:
The firm takes a hand in seeing that the canons of ethics are enforced.
This is not too difficult a job. The caliber of men hired and retained
(especially law review men who probably become conscious of
professional responsibility before others) by the large law firms makes it
less likely that many would be willing to risk their reputation by being
11
unethical. In addition, these firms can afford to be ethical. As one partner
said, ‘It just doesn’t pay for us to be unethical. There is no incentive.’
(Smigel, 1964, p. 270)
In addition, as Smigel noted, “since much of the work in large law firms depends upon
team play, it is more difficult for an individual lawyer in the firm to be unethical. As one
associate put it, ‘If they caught you, they would fire you’” (Smigel, 1964, p. 271).
Similarly, in another study of New York lawyers in various types of practices, Jerome
Carlin found that most lawyers were committed to ethical precepts consistent with
common morality (Carlin, 1966). Lawyers in the largest firms, however, were more likely
to express commitment to ethical tenets more distinctive to the legal profession that
purported to constrain the pursuit of financial gain. Carlin suggested that this difference
was attributable not to the character of large firm lawyers, but to the conditions under
which they practiced law. Such lawyers faced fewer competitive pressures than other
lawyers, and confronted fewer inducements to act unethically. Other lawyers, Carlin
maintained, were less secure and more precarious in their practices, which created
more temptations to cut ethical corners. They were more likely to chafe at rules that
they regarded as impairing their ability to compete in the market for clients. Thus, “largefirm lawyers … have low rates of violation because they are largely insulated from client
and court-agency pressures, while small-firm lawyers and individual practitioners have
high rates of violation because they are most exposed to these situational inducements
to violate” (Carlin, 1966, p. 122).
Furthermore, Carlin suggested, Wall Street firms’ policy of hiring only men from
relatively elite economic and social backgrounds had the effect of sorting lawyers
among tiers of the profession by religion, ethnicity, and social class. Lawyers with elite
pedigrees were sorted into practice settings that featured relatively few ethical
temptations, while those lower in the hierarchy faced more potentially compromising
influences. In this way, the elite segment of the bar that occupied major corporate law
firms was able to insulate itself from “ethically contaminating influences” (Carlin, 1966,
p. 129).
We should resist unqualified acceptance of any claim that large law firms during this
period were paragons of ethical conduct. Close relationships between clients and firms
may have resulted in environments in which lawyers’ perspectives were so closely
aligned with those of their clients that lawyers failed to fully appreciate the social
consequences of courses of action that served their clients’ interest. In addition, the
inattention of clients to the details of bills may have led to occasions where firms gave
little thought to the possibility of doing work more efficiently, and where they resolved
any doubts by passing on charges to the client. Finally, of course, firms engaged in
explicit discrimination in hiring that significantly limited career opportunities for those
who were not from a certain socioeconomic class.
Nonetheless, “a combination of noblesse oblige and protection from competition may
have disposed Wall Street lawyers at least to constrain the more aggressive impulses of
their corporate clients. It’s easy to imagine that lawyers in these firms saw themselves
as members of a social elite with some responsibility for the stability and integrity of
social institutions” (Regan, 2004, p. 29). In this way, the classic partnership model
12
provided a distinctive vehicle for negotiating business demands and professional
values.
To the extent that this is true, Carlin’s work emphasized the importance of
understanding the material conditions that made it feasible. Large corporate firms
operated in a market for legal services that featured only minimal competition for clients
and lawyers. Firms and clients cultivated long-term relationships that lasted for
generations. This meant that clients belonged to firms, not to individual lawyers. A 1959
Conference Board survey of almost 300 manufacturing companies, for example,
revealed that companies generally were happy with their outside law firms and “have
never given any thought to hiring another” (Galanter & Palay, 1991, p. 34). One inside
corporate counsel remarked in 1965 that legal service “is probably the only service we
buy without some kind of survey of alternate cost” (p. 34). Furthermore, firms generally
were able to submit their bills with the simple notation “For Services Rendered” without
any further detail about the basis for the charges. In addition, there was “a scarcity of
information about matters such as billing rates, firm profits, partnership agreements,
partner compensation, associate salaries, and even the identities of the firm’s clients”
(Regan, 2004, p. 27).
The classic partnership model was particularly well suited to the oligopolistic market
for legal services that largely prevailed until the early 1980s. Oligopolistic firms have
considerable ability to set prices and face only mild pressures for improving efficiency.
They can eschew the unseemly overt competition and explicit focus on financial goals
that characterize firms that are more directly subject to market forces. With a stream of
predictable revenues and insulation from serious competition, they have the latitude to
structure their operations with some non-financial considerations in mind and to
establish a culture that reflects the firm’s distinctive understanding of professional
values. As one observer remarks of this period:
How cases were staffed and billed, how partners were selected and paid, and
how new partners were admitted to the ranks were issues based on internal
considerations rather than market factors. Free to conduct their affairs as they
wished, the established practices could all but ignore such boorish concerns as
efficiency, productivity, marketing and competition. (Stevens, 1987, pp. 8–9)
To use MacIntyre’s terms, partners in such firms thus at least potentially could align
the pursuit of “external” and “internal” goods (MacIntyre, 1981). Security with respect
to the demand for their services created an opportunity to create distinctive firm
cultures that reconciled business and professional concerns in particular ways. A
significant measure of insulation from market pressures meant that economic
considerations did not have to dominate firm policies and decisions.
Michael Trotter, for instance, describes a controversy in what is now the firm of
Alston & Bird in Atlanta in the mid-1960s. Associates learned that the firm’s billing
clerk was not only using time slips to determine how much to bill clients, but was
organizing them by lawyer and reporting this to management. They asked for a
meeting with Philip Alston, the firm’s senior partner, to protest this practice. The thrust
of their complaint was that “keeping track of such information and using it to evaluate
both associates and partners for the purposes of advancement and compensation
13
would lead to competition among the lawyers to put in the most hours and that such
considerations as quality of work and time spent on community service would be
sacrificed” (Trotter, 1997, p. 31). The partners deliberated about the issue, and
decided to discontinue the practice of reviewing individual lawyer billable time for what
became 10 years. As Trotter describes it, “because the firm had plenty of work and
was growing, and because the partners were enjoying an increased level of income
they had not anticipated, they agreed that such timekeeping practices would
undermine the firm’s close-knit culture and they saw no need to encourage
competition among the lawyers” (p. 31).
As is well known, the conditions in the market for law firm services have changed
significantly in the last three or four decades (Galanter & Palay, 1991; Regan, 2004).
Corporate legal departments have become increasingly large and sophisticated, with
general counsel who are more attentive to the cost of efficiency of outside legal
services. Clients no longer nurture long-term relationships with firms, but actively
encourage competition among them to provide services on particular matters. Clients
also are sensitive to the cost of legal services. They actively negotiate with firms for
discounts and other favorable terms, and they subject most matters to a budget.
Companies now increasingly seek out specific lawyers with particular specialized
expertise, and may put together teams of lawyers from different firms to handle a given
matter. This in turn has enabled the emergence of an active lateral market among
partners, who often are able to move to different firms based on their “book of
business” from loyal clients. The ability of firms to attract and retain partners in the
lateral market depends on the amount of profits that they can distribute to partners.
Information about this and other law firm finances is now widely available with the
growth of an aggressive legal press.
Firms have responded to these changes by largely abandoning the classic
partnership model. They are more explicitly focusing on financial performance. They
have sought to rationalize and make more efficient their operations, and to track
revenues and profitability more carefully. Reliance on lockstep partner compensation
largely has been jettisoned in favor of compensation systems based more on
contribution to profitability. Firms actively recruit partners in the lateral market to
acquire individual lawyers, practice groups, or even entire firms in order to expand into
or bolster particular fields of practice. The notion that the ranks of partners are filled
solely by the promotion of associates who grew up in the firm has gone by the
wayside, with a substantial percentage of partners in some firms joining the firm
through the lateral market. Firms are now more willing to demote equity partners to
salaried status, or even to encourage them to leave the firm. Management of firms is
now more centralized, and non-lawyer management professionals occupy increasingly
influential positions.
Not surprisingly, the decline of the classic partnership model has led some
observers to identify the last few decades as the period during which law practice
declined from a profession to a business. Mary Ann Glendon, for instance, argues that
“the concepts of professionalism promoted by bar leaders were remarkably stable and
consistent from the 1920s to the mid-1960s” (Glendon, 1994, p. 37). These created
the sense in corporate practice of “certain dependable verities”:
14
Associates who did good work would ordinarily progress to partnership; others
would be let down gently; partnership with its role divisions was a reasonably
secure status; independence from clients could and should be asserted when the
occasion required; economic considerations would be subordinated, if need
arose, to firm solidarity or to ideals of right conduct. (p. 37)
By contrast, she wrote in 1994, “today’s lawyers are wandering amidst the ruins of
those understandings” (p. 37).
The American Bar Association (ABA) felt the need in 1986 to address the question:
“Has our profession abandoned principle for profit, professionalism for commercialism?”
(American Bar Association, 1986, p. 1). In its report titled …In the Spirit of Public
Service: A Blueprint for the Rekindling of Lawyer Professionalism, the ABA examined
changes in practice that had occurred since 1960. Among them was the fact that
corporations are staffing internally to do work which they used to send to outside
firms. Long-time counsel with an historical relationship to a company are being
replaced by firms that promise to do the same work for less money. Increasingly,
groups of lawyers within firms who see themselves as bringing in a
disproportionate share of firm revenues are breaking off and taking clients with
them. (p. 9)
The ABA observed, “While economic pressure cannot justify unprofessional behavior,
it may help explain why some lawyers seem less selfless than before. Indeed, the
economic pressure is likely to become even greater in the future as the anticipated
50% increase in the number of lawyers between now and the year 2000 intensifies the
competition” (p. 9).
Ronald Gilson suggests that that “the lament that the legal profession is devolving
into a business reflects the belief that the professional obligation to the public interest no
longer constrains lawyers’ responsiveness to clients. From my perspective … what
distinguishes the profession of law from the business of law is the lawyer’s inclination
and ability to tell the client no, that is, the lawyer’s inclination and ability to act as a
gatekeeper” (Gilson, 1990, p. 900). With respect to litigation, lawyers playing this role
prevent corporate clients from engaging in “strategic litigation” that is designed purely to
impose costs on adversaries regardless of the merits of their legal claims (p. 877).
Gilson argues that certain market conditions historically enabled law firms to play this
role:
Development of the full service corporate law firm and the long-term relationships
such firms reportedly enjoyed with their clients can be usefully understood as
market responses to the peculiar fact that legal services are subject to both prepurchase and post-purchase quality uncertainty. In turn, this solution to the
problem of information asymmetry in the market for legal services has given
lawyers the power to act as gatekeepers despite the client’s real preference, at
the time a lawyer is hired, for a different kind of service. (p. 889)
15
Gilson argues that with the rise of sophisticated general counsel, “the patterns of
client relationship and law firm structure that developed to ameliorate the client’s quality
uncertainty are no longer necessary, and the switching costs that provided lawyers the
market power to act as gatekeepers dissipate. Lawyers lose the ability to act as
gatekeepers and the profession laments its devolution” (p. 901). As he concludes, “The
good news for lawyers is that economic analysis of legal professionalism provides some
solace—the devolution of the profession may not be our fault. The bad news is that, for
precisely the same reason, there may be very real limits on what the profession alone
can do to arrest the decline” (p. 872).
In a similar vein, Marc Galanter and William Henderson (2008) note that the
conditions that Jerome Carlin identified in 1966 as insulating large law firms from ethical
pressures have substantially dissipated since then (pp. 1909–1913). They suggest that
“in [today’s] highly atomized economic climate, it is likely that ethical gray zones will get
resolved in the client’s favor, and insecure lawyers will be less likely to acknowledge
any black or white” (p. 1913). They temper their conclusion by acknowledging that “our
discussion oversimplifies the history, culture, and governance of a wide array of large
firms. In our discussions with lawyers, we have run across examples of large law firms
that continue to share risk and inspire investment in the collective enterprise of the firm.
Ethical lapses were regarded as threats to a hallowed firm reputation and the trust of
longtime colleagues” (p. 913). Nonetheless, they conclude, “this ethos becomes harder
to maintain (and virtually impossible to create or restore) in larger, geographically
dispersed firms that are perpetually competing for clients and entry-level associates” (p.
913).
With respect to the ideal of professional independence, Robert Gordon surveyed
pronouncements on the legal profession made since the early twentieth century,
observing that “one of the great epic themes of professional rhetoric [is] the praise of
independence [and] the fear of its decline” (Gordon, 1988, pp. 5–6). He suggests that
we need to be cautious in taking this persistent claim of decline at face value, given the
tendency to romanticize the past, the difficulties in gaining access to the conversations
in which lawyers give advice to their clients, and the fact that “notions of proper
professional behavior often imply a particular, and quite controversial, political agenda”
(p. 50, emphasis in original). Nonetheless, Gordon concludes:
I think that the rhetoric of decline has captured something real. Analysis of
changes in the social conditions arguably facilitating political independence can
lend fairly strong support to the view that, at the level of elite private practice,
such conditions have indeed eroded in this century, and perhaps eroded most
rapidly during the revolution in the organization of large firm practice that has
occurred in the last ten years. (p. 51)
In sum, on at least some accounts, corporate firms organized according to the
classic partnership model of practice may have occupied a space insulated to some
degree from business pressures for the first several decades of the twentieth century.
This created an opportunity for corporate law firms to draw meaningfully on professional
values in fashioning their approaches to law practice. In the last three or four decades,
16
however, the market conditions that were the foundation of this model have crumbled.
Some suggest that the dike has given way, and that business pressures now flood
unchecked into law firm practice, making adherence to professionalism a receding
possibility. Many are skeptical of the century or more of warnings that law practice has
devolved from a profession to a business, but has the time finally come when this
conclusion is inescapable?
This could be the case, but it also could be the wrong question. Gaining a full
understanding of current law firm practice may require that we relax the assumption that
business and professional concerns are inherently antagonistic. Indeed, more
fundamentally, it may require rethinking the reliance on these categories to organize
observation and analysis. From the time that they emerged, corporate law firms have
been professional organizations engaged in business. They have operated under
different market conditions in different periods, and their viability has depended on both
being financially successful and being able to elicit the commitment of the lawyers who
work in them.
The possibility that business and professional concerns can be complementary is
illustrated by the work of Ronald Gilson and Robert Mnookin (1985) in analyzing the
operation of law firms during the period in which many firms and clients had long-term
relationships. They characterize these relationships with clients as “firm-specific capital”
that helps bind lawyers to the firm (p. 354). As they explain, individual capital represents
the capitalized stream of income that a lawyer can earn in the market based on his or
her talents, education, experience, and the like. Firm-specific capital is “the capitalized
value of the difference between a firm’s earnings as an ongoing institution and the
combined value of the human capital of its individual partners, if this human capital were
deployed outside the firm in its next most productive use” (p. 345). As they put it:
Because firm-specific capital can be neither easily removed from the firm nor
duplicated outside the firm, the return on this capital is available to lawyers within
the firm but is lost to lawyers who leave the firm. Examples of this phenomenon
readily come to mind. Having IBM as a client is valuable to Cravath, Swaine &
Moore, but if there is no individual partner who upon leaving the firm, can take
IBM with him, then the client relationship with IBM is an asset of the firm. Returns
on this asset are available to individual lawyers only so long as they remain
within the firm. (Gilson & Mnookin, 1985, pp. 345–355, emphasis in original)
Possession of firm-specific capital thus has both cultural and financial significance. It
provides an incentive for partners to remain at the firm, which helps create a stable
environment for the potential transmission of non-economic professional values. It is
also an important business asset that “allows the firm to staff more efficiently, while the
investment by the client in establishing the relationship moves the firm from a
competitive environment with respect to the client to one approaching bilateral
monopoly” (p. 369).
The combined professional and business salience of firm-specific capital is reflected
in the use of a traditional lockstep compensation system in those firms that possess it.
On the one hand, a lockstep approach based on seniority eschews a focus on financial
17
calculations as the basis of compensation. It can be seen as reflecting a commitment to
professional collegiality instead of competition, to the importance of high-quality work
apart from profitability, and to rewarding the accumulation of professional experience
and judgment. From this perspective, one might say that firm-specific capital affords the
firm an opportunity to base compensation on professional rather than business
concerns. On the other hand, Gilson and Mnookin (1985) describe how a lockstep
system enhances the value of firm-specific capital better than a system that bases
compensation on individual productivity:
The marginal product approach … creates an incentive to hoard clients which is
fundamentally inconsistent with the most effective development of the client
relationship as a firm-specific asset. In contrast, the sharing model has the
advantage of eliminating the conflict between maximizing the value of the firm’s
practice and maximizing the value of an individual partner’s practice that lies at
the heart of the marginal product approach’s problems. In a sharing model,
lawyers gain the most by maximizing firm value, behavior which is more effective
at creating firm capital. (p. 370)
Lockstep compensation also enhances firm-specific capital by reducing the risk of
threats to the firm’s reputation:
Where a lawyer’s income depends on the amount of work that he does for his
clients, as it would under typical productivity formulas, the … calculation shifts
from the firm level to the level of the individual lawyer. Even if a client is small in
relationship to the firm, it may nonetheless be quite large with respect to the
individual partner who must decide whether to sign a misleading opinion letter.
The result, of course, may be to put individual lawyers in situations where they
stand to gain from actions that in fact depreciate firm-specific capital. A sharing
model, because its only focus is on maximizing firm value, avoids this problem.
(p. 371, emphasis in original)
From this perspective, reliance on lockstep compensation can be seen as a policy
based on pragmatic business considerations.
This portrays a more dynamic and fluid understanding of the law firm environment
than the one suggested by the business-profession dichotomy. Business and
professional considerations sometimes may be in tension, but they can also reinforce
one another: Measures adopted to enhance a firm’s market position can also create
conditions that allow professional values to flourish. Policies established to vindicate
professional values also may further the competitiveness of the firm. This suggests that
law firms are the site of deliberations that have multiple dimensions and consequences
not automatically reducible to binary categories. The concepts of business and
profession may gesture at general constellations of attitudes and values, but those
constellations and their relationship to one another are not fixed and stable.
18
Thus, as Michael Kelly put it, “Professionalism is not an abstraction in an
organization. It is forged in every decision of the practice” (Kelly, 1994, p. 13). He
argues that the practice organization
is the arena for working out pressures of competition for clients, internal tensions
over compensation, and delicate balances between the costs and benefits of
supervision and practice quality, teaching and public service, collegial decision
making and focused directions for the growth of the practice. The standard
conception of lawyer ideals does not include the most fundamental trade-offs an
organization makes between decisions about business and decisions about
professional identity. (p. 13)
This suggests that the business–profession dichotomy may be best seen as a
stylized account of competing values rather than an empirical description of the actual
conditions of practice. The dichotomy depicts a stylized understanding of law firm
culture as well. From its perspective, one possible conception of the firm under current
competitive market conditions is that its boundaries are completely porous. That is, its
behavior reflects the operation of market forces unmediated by any consideration of
non-market values. On this conception, the messages that a firm sends to its lawyers
about what is desirable or undesirable behavior simply mirror market incentives. The
firm is unable to create and sustain any culture that generates distinctive common
sources of values and meaning that tie its lawyers to the firm beyond the pursuit of
financial rewards. In this respect, while firms may differ with respect to which rewards
they make available to particular lawyers, the rewards themselves are essentially
fungible. Their character is analogous to what Neil Fligstein has called the “financial”
conception of the corporation (Fligstein, 1990). This condition reflects the devolution of
law firm practice from a profession to a business.
On the other end of the spectrum, the dichotomy posits a firm whose boundaries
clearly delineate the organization from the market. Its policies and decisions are based
primarily on non-market values that reflect its partners’ aspirations regarding the
conditions under which they would like to practice. These aspirations may reflect
professional values such as collegiality, commitment to high-quality work, time for
involvement in community activities and pro bono work, and the desire that their
activities further the public good. This allows the firm to create a particular culture with
which its lawyers identify and that they are committed to sustaining. This condition
reflects a situation in which law firm practice is a profession rather than a market-driven
business.
The traditional dichotomy thus creates binary and mutually exclusive categories with
which to describe law firm practice. Actual firms, however, are likely to reflect a more
complex combination of business and professional values that may be both antagonistic
and complementary. A firm’s culture is a way of communicating an understanding of the
relationship between these values that gives meaning to the practice in which its
19
lawyers are engaged.3 That communication occurs in a variety of ways, through formal
and informal behavior relating to matters such as compensation, promotion, governance
procedures, business development, and a host of other issues.
This perspective illuminates that the current claim that law firm practice has declined
from a profession to a business is implicitly an argument that law firms today are at one
end of the spectrum. The claim is that their boundaries have been so completely
penetrated by market forces that firms are unable to fashion cultures that mediate
between business and professional values. Those who accept this assertion argue that
business considerations dominate law firm decision-making, and that firms are unable
to communicate any coherent values to their lawyers other than the importance of
maximizing profitability. This renders them unable to create any meaningful sense of
connection between lawyers and the firm. This state of affairs is reflected in the
constant movement of profitable partners from one firm to another, as well as a
weakening of the ability of the firm to ensure that lawyers act in the interest of the firm,
as opposed to their own self-interest. To the extent that a firm has these features, it is
incapable of serving as an organization that balances competing demands to forge a
distinctive conception of professionalism for its lawyers. It is able to provide no “glue” to
bind its members other than contingent loyalty based on its ability to furnish lawyers
greater financial rewards than they can obtain elsewhere.
Our project represents an effort to understand the world of current large law firm
practice by examining how lawyers experience and understand the conditions under
which they practice, and by exploring the extent to which firms are able to generate
sources of connection to the firm beyond financial rewards. In this sense, it reflects an
attempt to examine whether a culture that enables lawyers to mediate between
business and professional demands remains a viable phenomenon in large firms, or
whether firms for the most part are unable to muster any resistance to the full
penetration of market forces.
This question has both tangible and intangible dimensions. First, we may ask
whether firms in the current era are able to generate sources of firm-specific capital to
substitute for the loss of long-term client relationships. That is, can they create material
conditions of practice that furnish pragmatic incentives for partner to remain at the firm?
Second, can they build on whatever sense of connection that these incentives provide
to create a deeper sense of loyalty based on identification with non-financial values that
the firm can credibly claim that it embodies?
3
Our analysis admittedly suggests a relative unity of purpose that distinguishes one organization from another. As Joanne Martin
observes, however, this is only one of at least three different approaches to an understanding of organizational culture. It represents
an “integration perspective,” which “sees consensus (although not necessarily unanimity) throughout an organization” (Martin,
2002).
By contrast, a “differentiation perspective” is sensitive to inconsistent interpretations that may exist within an organization.
Subcultures within an organization “may exist in harmony, independently, or in conflict with each other.” Id. They “are like islands of
clarity in a sea of ambiguity.” Id. Finally, a “fragmentation perspective” emphasizes ambiguity, treating consensus as “transient and
issue specific.” Id.
As Martin suggests, each of these perspectives provides insights into organizational life, and each has its limitations. Some
dimensions of culture will be shared by most members; others will be interpreted by different groups; and still others “will be
interpreted ambiguously.” Id. She suggests that researchers should attempt to use all three perspectives simultaneously in an effort
to generate a richer set of insights than any single viewpoint. Id. at 120. Our analysis will focus on law firm culture mainly from an
integration perspective, with the acknowledgment that any given organization will exhibit the complex and layered sets of meanings
that Martin describes.
20
With respect to the first question, work by Emmanuel Lazega (2001) and by Bernard
Burk and David McGowan (2011) suggests that resource interdependencies among
partners in the modern law firm may provide some degree of glue that helps resist the
many centrifugal forces to which firms are subject. Lazega’s ethnographic study of a
corporate law firm examines co-workers, advisors, and friendship relationships among
partners of different status levels, and in different offices and specialties. He argues that
these networks of exchange can provide a stabilizing force that furthers organizational
integration:
Dyads or small groups of co-workers cut across status boundaries and countered
the centrifugal effects of stratification. Small cliques of mutual advisers cut across
geographical boundaries and countered the effects of distance and differences
between offices. Small cliques of friends cut across practice boundaries and
countered the effect of the division of work. This shows that, at least in the
informal structure of the firm, there was no single strongest relational basis for
integration of the organization. Each type of relationship contributed in a specific
way to the cohesion of the firm. (Lazega, 2001, p. 185)
Burk and McGowan note that “since the 1980s, it is both a mantra and largely true
that clients hire lawyers, not firms” (Burk & McGowan, 2011, p. 65). As a result, the
reputation of individual lawyers generally has come to be more important than that of
firms. This means that “referrals no longer come in a generalized inquiry from the client
to its outside firm, but rather to a particular partner whose reputation, experience, or
prior proof of reliability has attracted the call. This is true even when the call concerns
work that the caller has no reason to believe the partner would do herself” (p. 66). As
they elaborate:
A client choosing the lead partner for a particular matter typically accepts, more
or less blindly, the team the partner will bring to the task to assist her. The client
largely assumes that the lead partner who has proven to have the most
appropriate skills and experience will have access to, and know how to choose
and deploy, the colleagues and subordinates (conceivably dozens of them on a
sufficiently large or complicated matter) with the knowledge, skills, and
experience necessary to get the job done right. Similarly, the contact partner who
receives a call seeking assistance on a matter outside his expertise proves
worthy of the caller’s trust by pointing the way to suitable expertise, the ultimate
quality of which will reflect on his reliability and judgment in the eyes of the client.
(p. 67)
The authors suggest that “out of this web of incentives emerges a model of a
professional partnership as an internal referral network, with both the partnership and
the firm structured to maximize the value of each individual partner’s relational and
other human capital” (p. 69). This function of the network can serve as a source of glue
that ties partners to the firm. At the same time, this glue may be relatively weak,
because “nothing in the partners’ personal relational capital that powers a firm’s internal
referral network is highly firm-specific: An individual partner’s relational capital should
21
lose little value if the partner withdraws it to move to another partnership whose
members have personal capital that is similar, greater, or “better” (e.g., more
complementary or less prone to creating conflicts of interest) than the partners in the old
firm (p. 73).
Material incentives such as Lazega (2001) and Burk and McGowan (2011) describe
may be necessary for the creation of organizational glue. By itself, however, the glue
that these incentives provide may not be especially robust. A stronger sense of
connection between lawyers and the firm may rest on partners’ belief that the firm offers
an opportunity to practice in accordance with meaningful professional values. Such
belief is a function of the meanings that partners ascribe to the material conditions of
practice. These conditions do not have self-evident meanings but are subject to
interpretation by individuals in a process in which the firm can play a role.
One analytical framework that can be useful in exploring this interaction between
material conditions and their interpretation is archetype theory. This theory has been
used to analyze the structure and dynamics of professional service firms. Greenwood
and Hinings define an archetype as comprising two conceptual elements. The first is the
overall pattern of organizational structures and management systems that characterize
an institution or set of institutions. The second is the treatment of those patterns as “a
function of the ideas, beliefs and values—the components of an ‘interpretive scheme’—
that underpin and are embodied in organizational structures and systems” (Greenwood
& Hinings, 1993, p. 1052). An archetype is therefore “a set of structures and systems
that reflects a single interpretive scheme” (p. 1052). Work in this vein has suggested the
movement of professional service firms from what is called the P2 archetype—
corresponding to the classical professional partnership—to what is called the Managed
Professional Business (MPB). In the P2, structural features of the firm embody an
interpretive scheme that reflects a distinctive understanding of what it means to be a
professional. Participation by the full partnership in governance decisions, for instance,
and the provision of services by professionals exercising considerable discretion
express a notion of professionalism that emphasizes the independence of the individual
lawyer. The use of collegial structures as the basis of organization is designed “to
respect professionals’ desire for autonomy, to maintain the principle of partnership, and
to promote acceptance and cooperation” (Brock, 2006; Greenwood, Hinings, & Brown,
1990, p. 750). Similarly, basing compensation on seniority rather than calculations of
individual productivity embodies the notion that the true professional is motivated by the
desire to do excellent work in collaboration with colleagues, not by the desire to
maximize financial gain.4
In periods of relative stability, organizational features and interpretive schemes are
generally aligned and reinforce one another. Hence, we can clearly identify a prevailing
archetype such as the P2. As organizations encounter significant new challenges,
however, structural features and interpretive schemes may drift apart. Competitive
challenges may call for the introduction of new features that seem more adaptive to the
environment in which firms must operate. In order to gain complete acceptance of these
new features, however, a firm must justify them in accordance with a plausible
interpretive scheme that reconciles them in some way with professional values.
4
Greenwood and his colleagues do not discuss this subject, but this form of compensation is an important feature of the traditional
professional partnership.
22
This scheme may require some clarification as to how a structural innovation better
enables an organization to realize traditional professional values under new competitive
conditions. Or it may require making the case that some traditional values are no longer
functional, or that they have become unrealistic in light of changing conditions. The
latter argument provides the basis for claiming that an innovation embodies a productive
rearticulation of professional values more in line with current realities. As new structural
features and interpretive schemes emerge and become aligned, new archetypes of
professional service firms arise. As new archetypes arise, so do revised notions of
professionalism.
David Cooper and his colleagues thus argue that the potential shift from the P2 to a
new archetype such as the MPB does not simply reflect the incremental adoption of
more rational managerial techniques as the P2 firm moves along a continuum. Rather,
“this movement represents a shift from one set of values and practices to another”
(Cooper, Hinings, Greenwood, & Brown, 1996, p. 634). They elaborate:
The introduction of marketing into a professional service firm does not mean ‘just’
adding a function; to represent a move to the MPB, it has to be undergirded with
a different way of conceptualizing the relationship of the firm to its clients and to
its environment generally. Similarly, the introduction of a partner in charge of
other partners is only a crucial break with the value of equity in governance when
it is linked to a change in the interpretive scheme such that the role is one of
control and strategy, rather than being seen as a coordinator between equals.
(p. 634)
The MPB thus represents an interpretive scheme that is distinct from the scheme
embodied in the P2 firm. Cooper and his colleagues take pains, however, to emphasize
that the emergence of the MPB scheme does not represent simply the replacement of
one archetype by another. The process rather is one of “sedimentation,” in which
competing archetypes such as the MPB and the P2 co-exist to varying degrees (p. 635).
New archetypes gradually emerge that challenge but may not completely displace older
ones, “with the different interpretive schemes influencing and modifying each other, yet
also resulting in contradictions in the systems and structures” (p. 636). The meaning of
any given organizational feature will vary based on the interpretive scheme that is used
to make sense of it. “Not only do different lawyers articulate different schemes, but …
the two schemes are drawn upon by the same lawyer to explain and justify contradictory
practices in different parts of the firm’s activities” (p. 638).
Whatever glue that a law firm culture may provide therefore consists both of certain
material conditions and of a scheme for interpreting them that provides lawyers with a
meaningful sense of connection to the firm. Our project represents an effort to explore
the extent to which large modern firms are able to combine these elements in the face
of powerful challenges posed by changing market conditions.
Our first step in this process is an effort to describe these market conditions in as
much detail as possible, and to recount how lawyers experience and understand them
in a way that conveys their texture and impact. There is agreement for the most part on
the changes that have occurred over the past three to four decades, but these changes
tend to be described in general terms that don’t fully capture how they are shaping the
23
lives of lawyers who are encountering them. In addition, there are indications that law
firms find it more difficult than ever to create and sustain cultures that hold lawyers
together, but there is little detailed attention paid to the dynamics of their attempts to do
so. Finally, the economic downturn that began in late 2008 represents an inflection point
that has amplified these trends in distinctive ways. Our study began in 2009, in the
wake of these changes. We thus have had the opportunity to interview lawyers who are
confronting what many describe as permanent structural changes in the market for law
firm services.
Our study obviously does not encompass all large firms in the United States.
Nonetheless, we believe that it includes several representative firms, and a
considerable number of lawyers, whose experiences enable us to identify and describe
important cross-currents in large law firm practice. This report reflects the results of our
analysis thus far. It lays out our preliminary observations to date, and suggests further
lines of inquiry that we believe will be fruitful to pursue as we continue to analyze our
data.
Intensifying Competition
As we have described above, law firms began facing increasing competition in the
last decades of the twentieth century as corporate clients began to take more
aggressive steps to control their legal costs. As one partner said,
When I started in 1995 I think that the general mindset was if you do excellent
legal work your clients will come back and I think that’s no longer probably
enough just to do excellent legal work. I think you also have to be part of the
discussion with your clients and with other potential clients as to what are their
needs and how is their business going, it’s not just about solving their one
discrete problem. So I think in the 20 years since I’ve been out of law school I
think there’s been a transformation in law firms. (Interview 198)
Another partner contrasted current practice with practice a couple of decades ago:
It used to amaze me as a business lawyer how little the partners knew in their
hearts about the business of law. Giving all this sophisticated advice to clients—
even business lawyers—and yet somehow I think they believe we were living in
this little cloistered citadel that did not face the same types of pressures.
(Interview 231)
While there was increasing competition in the last decade of the twentieth century
and the early part of the twenty-first, there also was substantially increasing demand for
law firm services during this period that bolstered firms’ financial performance. Between
2004 and 2008, purchases of legal services by business increased by 9.8%, or $15.7
billion (Press, 2014). Furthermore, “even when using inflation-adjusted results, and
even taking into account the dot-com bust at the turn of the century, The Am Law 200
24
[list of firms with the highest revenues] outperformed the broader economy for the nine
years beginning in 1999” (Press, 2014).
One partner described the boom years in the early and mid-2000s: “Back in 2006 we
were hiring whoever we could, we took risks, we hired some kids that really probably
were not the right fit, but we were hiring because we needed bodies and figured, ‘Okay
we’ll hire three and if we have two out of it great,’ because it was so hard to get good
kids” (Interview 231).
The economic downturn that began in late 2008, however, produced a sharp drop in
demand that caused unprecedented turmoil within law firms. More significantly, many
partners view the downturn as a watershed that dramatically and irreversibly increased
the bargaining leverage of clients. Many also believe that it signaled a trend toward flat
or only modestly increasing demand for law firm services in the foreseeable future.
Some even believe this market condition is likely to be permanent. One partner
commented, “There is no question that the pie is shrinking for big law firms, whether you
call that the top tier work or you just say the work that will pay our rates, that pie is
probably shrinking. It may expand a little but we’re never going back to the growth of the
90s” (Interview 247).
One reflection of this is the reduced demand for first-year associates. Among the
largest 350 law firms in the United States, the number of entry-level associates fell from
7,703 in 2008 to 4,770 in 2012, a decline of 38%. As of 2014, the figure was 6,281,
some 18% lower than it had been 7 years before (National Law Journal, 2008–2014).
Another is the decline in billable hours per lawyer in a survey of major firms
(Georgetown Law Center for the Study of the Legal Profession/Peer Monitor, 2015).
The survey indicated that as of November 2014, hours per lawyer had been on a
downward trend for the past 15 quarters.
Another experienced observer of the law firm market noted that the 200 U.S. firms
with the largest revenue posted disappointing results in real dollar terms in 2013: “Using
the Bureau of Labor Statistics Producer Price Legal Services Index as the measure of
inflation, firms on average last year showed the lowest revenue per lawyer since The
American Lawyer began tracking the 200 firms in 1998” (Press, 2014). Furthermore,
profits per partner in constant dollars remain below the level in 2007 (Press, 2014).
Moreover:
From 2010 through 2013, the growth rate for legal services revenue was 4.6
percent, or less than half what law firms had enjoyed during the boom. In 2013,
business spending on law firms expressed in nominal dollars lagged $6.4 billion,
or 3.7 percent, behind its 2008 peak. In inflation-adjusted dollars, the results look
much grimmer. In the 10 years beginning in 2004, business legal service
revenues fell from $159.4 billion to $118.3 billion. That represents a dizzying drop
of 25.8 percent. By contrast, the nominal revenues grew from $159.4 billion to
$168.7 billion, a modest improvement of 5.8 percent over 10 years. (Press, 2014)
Since the economic downturn of 2008, as one partner put it, “with some exceptions
everything is up for bid and I think that’s different, I think that’s different than the way it
was in the 80s, 90s and even the first half of the 2000s” (Interview 196). Clients now
even more frequently use Requests for Proposal (RFPs) to solicit bids from law firms to
25
handle particular matters, or to become one of a small number of “preferred providers”
that a company turns to for a large portion of its work. Firms that earn the latter
designation obtain a reasonably regular amount of business from the client. In return,
they typically agree to discount their fees, to share their work product with all other
preferred firms, and to agree to billing guidelines that specify what the client will and will
not pay for. Some clients, for instance, will not pay for the work of first- or second-year
associates, or more than a certain number of lawyers at a deposition or hearing, or for
internal conferences at a firm involving more than a certain number of lawyers.
Companies generally reopen the bidding process for preferred providers after 2 or 3
years, so law firms that are selected must continually compete to retain their status. As
one partner observed, these are all well-established features of modern law firm
practice:
For probably the last several years people want an RFP, people want to go
through a process to figure whether you are a preferred provider, people are
dividing up their work among a number of different firms. For every client of ours
that is opening it up to other firms there is a client of somebody else’s that is
opening it up to other firms, so there are opportunities being created by that as
well as challenges. I think people recognize that that is the way of the world and
are reacting to that in a way that goes out to try and cross-sell, to market, to have
more emphasis on marketing and there is a lot more of that that is done now than
there ever was … I mean just the nature of everything has changed. (Interview
187)
Another partner echoed this sentiment:
PARTNER: It is so competitive out there you can’t take even long-standing
clients for granted, you know, you have to continue to do excellent work and be
really, really responsive. The minute you start taking a client for granted you’re
not going to have that client anymore. And so that’s one element of it, that there
are pressures to keep even good clients you’ve had for a long time happy. And
kind of the mirror image of that is that you have to be always kind of on the hunt
for new clients and new opportunities, because you never know, I mean there are
reasons you could lose a client and this has certainly happened to me for
reasons completely beyond my control. You can be providing the best service in
the world and there might be another lawyer who has got a friend at the company
and before you know it you don’t have a client anymore.
INTERVIEWER: Or they could be taken over by another company.
PARTNER: Sure, yeah, that’s happened to us. (Interview 256)
The emergence of less expensive alternatives to law firms to perform routine work
has contributed to pressure on law firm revenues. One partner described this trend with
respect to litigation:
26
Big firm litigation has changed dramatically because a decade or two ago you did
everything, so a client comes to you, you’ve got a million pages of documents to
review, that used to suck up the bottom five or ten percent of associates and the
bottom five or ten percent of your partners. You’re doing document production,
you’re dealing with the [attorney–client] privilege, and you would have cases
where they go on for years … I remember when I was at [another firm] part of our
downturn was we had had cases for [a client], I think it was employment
disputes, it sucked up a third of the lawyers and when that case settled [people
had to find other work]. So what we’re seeing is a shift away from that, where
they are using contract lawyers or they are outsourcing it to India and things like
that. (Interview 238)
Clients are also more sensitive than ever to the cost of legal services, and routinely
insist that firms operate on a budget and that they provide discounts from their stated
hourly rates. In addition, the rates that firms charge as a percentage of their standard
rates—their rate realization —and the percentage of fees that they collect of the amount
that they bill—their collection—have both been declining to all-time lows since the
downturn. One partner commented, “I work for big corporates, they watch every dime,
the notion that January 1 is an entitlement to raise rates—that’s history. I mean most
clients negotiate your rates every year and will go two or three years without being able
to raise any rate” (Interview 150). Another observed:
Most of them don’t care about the hourly rate. All they care about is what the
bottom line is going to be. So what if you charge $5,000 an hour if it’s the same
amount that they expect to pay. Some of them want more certainty from the
beginning and so therefore [demand] estimates and whatnot … The banks are
getting tough. In fact I have one of the biggest investment banks that [requires
that] the lawyers who work on their deals have to be approved at the beginning of
the year, and you have to put everything electronically, and if you’ve got a lawyer
on your bill [who] is not in their computer there are fireworks that come out.
(Interview 231)
Lawyers indicate that they spend more time negotiating fees with clients than they
used to. As one partner noted, “It’s now pretty much accepted that almost everyone
gets a discount. It’s like walking into the store where everything is always on sale”
(Interview 242). As another partner put it,
PARTNER: Sometimes—our business people would hate me to say this—but some
clients, you know, you are going to play Let’s Make a Deal at the end of the year.
INTERVIEW: So you sort of wait and negotiate?
PARTNER: Yeah, they know it, you know what your realization rate needs to be
and you negotiate down to that realization rate … I wouldn’t admit it to my
partners but … every one of us is doing that. (Interview 231)
This type of interaction with clients over fees is a significant change from even a few
years ago. As one partner commented, “Just getting people to realize that planning and
27
budgeting and working with a client on, ‘What do you want to spend on this?’ is part of
what we do, is a tremendous change from, ‘We’re the lawyers and leave us alone and
we’ll deliver the product when we’re ready and you’ll pay what we tell you,’ which is sort
of where things were 10 years ago” (Interview 47). He described how budgetary and
financial matters receive intensive attention: “We have a staff that works on budgeting;
on the finance committee we have to approve every budget, we have to approve and
we’re tracking them all and we give weekly reports to the partners in charge about how
they are doing compared to the budget, and every variance has got to be approved by
the finance committee” (Interview 47).
The slowdown in work has led some firms to take on matters at realization rates that
are lower than they would have accepted before the downturn. One partner observed,
We clearly have gone from a situation where some level of realization below a
certain level was viewed as bringing into play the question of whether we should
do this work. We used to have those discussions about this realization—below
this we really have to question whether this is the right thing for us to do. You
don’t hear as much of that anymore, and if you do it’s at a lower realization. I
think the reality of it is that especially where the pie isn’t growing you know there
are real reasons to make sure that you are getting the deals. (Interview 197)
All these trends create tremendous financial uncertainty for law firms. “The biggest
challenge,” said one partner, “is the radical change that is occurring in law firm practice
generally, meaning the changed demands of the clients, which have caused the change
in how we bill, and to a certain extent how we staff. I think the things that flow from that
are going to be the biggest challenge, and part of the reason is because those are the
things we’re having the toughest time predicting” (Interview 228). He elaborates:
Between the changes that technology [is] going to bring to the practice and the
changes that the clients are demanding, when you don’t exactly know where
those changes themselves are going it’s harder to prepare and plan for it. As the
market place demands that we change how we staff and how we bill, I mean, that
just in and of itself puts enormous pressures on partners who can’t produce the
way they were accustomed to producing in that system and so that creates
tensions. (Interview 228)
28
Responding to the Market
Lower demand, unstable client relationships, and irregular flows of business mean
that firms must explicitly focus on financial concerns in order to compete and even
survive. Key elements of law firm business strategy are emerging to respond to this
challenge. First, firms encourage lawyers in the firm to seek out new clients and new
matters from existing clients, through both compensation incentives and pruning
insufficiently productive practices and lawyers. Second, virtually all firms now attempt to
recruit lawyers from other firms who will bring profitable clients with them. Firms see
these measures as crucial in an unforgiving market in which law firms can falter and
dissolve with breathtaking speed.
Encouraging Entrepreneurs
Today’s firms need lawyers, especially partners, who are continuously focused on
seeking business opportunities in order to generate a steady stream of revenues.
People frequently use the term “entrepreneurial” to describe this orientation. As one
partner put it, people who are entrepreneurial “don’t just sit there and wait for the phone
to ring” (Interview 184). Another observed, “the practice of law is much more
entrepreneurial than it used to be” (Interview 245). This means that you can’t be
“somebody who just waits for something to come in the door” (Interview 245). As one
partner suggested, “the talent and willingness to be entrepreneurial from the first day
you walk in is highly valued. You need to be a good technical lawyer, but that is sort of
table stakes to not get fired” (Interview 252).
This emphasis on being entrepreneurial makes selling your services a much more
significant feature of law practice than it used to be. One partner emphasized, “There is
no doubt that the firm is going to be need to be more entrepreneurial. That is the way of
the world and lawyers are reacting to that in a way that goes out to try and cross-sell, to
market, to have more emphasis on marketing. There is a lot more of that now than there
ever was … I mean just the nature of everything has changed [in this way]” (Interview
187). Another partner noted, “Another aspect of lawyering when I first joined the firm
was that there never seemed to be any need to sell. We were sort of sought after, and
becoming a professional was sort of refuge from the sort of ugly mercantile world where
you have to actually … sell” (Interview 27). Selling therefore is something “that I didn’t
learn when I was younger” (Interview 27). Another partner described how this mandate
is reinforced on a daily basis:
INTERVIEWER: So how does being entrepreneurial manifest itself in specific
sorts of ways?
PARTNER: Well we have a daily 5 o’clock e-mail from our marketing department
that goes out identifying all the client pitches that have been made, every client
we’ve pitched to and then who put the presentation together, who presented and
we have between two and ten a day. (Interview 250)
29
One partner who was asked if she encountered any surprises in law firm practice
replied:
PARTNER: I think I thought there was less selling in it. My mom is in sales and I
was talking to her about something and she’s like, “Oh well you’re in sales,” and
I’m like, “Well if I wanted to be in sales I would have been a salesperson.” … I
don’t think you really realize that you actually get to a point where you are selling
a service, you are in the service industry and you’ve got to be a salesperson.
INTERVIEWER: Right.
PARTNER: And so I think it’s a realization you kind of come to if you are
cognizant of the fact that this is a business and there is a business model and for
it to work people have to bring in clients and the way you do that is to sell your
services. We don’t have, you know, we’re not like running ads or doing billboards
but we have to market ourselves to clients and you have to go to things where
you can meet more people and network and all that stuff. (Interview 241)
The need to market your services can be more pressing in some practices more
than others. One junior partner, for instance, described her bankruptcy practice as one
in which “it’s not like these are corporate clients that have been with the firm and will be
corporate clients for the firm forever. These are—we have to build every single deal that
we get from scratch, whether it’s pitching, developing relationships, so in my department
from a very young age you are taught that business development is a really big deal”
(Interview 178).
The promotion from associate to partner tends especially to bring home the
importance of selling oneself. As one partner observed:
I would say one of the biggest changes is the pressure that you feel as a partner,
as opposed to an associate, from a business development perspective. You
know, you really do have more of a vested ownership interest in the firm and so
you are always really cognizant about bringing in business … so that’s probably
the biggest change—just sort of putting on your business development hat and
feeling responsible to keep people fed and that sort of thing. (Interview 178)
The responsibility to “keep people fed” involves ensuring that enough business comes
in to keep everyone in the practice group busy. “I look around and I think, ‘Wow, you
know, if we’re billing on average 2,000 hours a year, let’s say there are 12 partners in
my department that’s 24,000 partner hours that have to be generated, and that’s just a
very different realization of what’s necessary” (Interview 178). Furthermore, a partner is
expected to generate not only enough business to keep herself or himself busy, but to
keep the associates within the practice group busy as well.
The focus of sales efforts differs depending on a partner’s role within the firm. Most
partners aspire to be rainmakers—to enjoy a consistent flow of work based on
relationships with highly profitable clients who regularly turn to them for services. For
partners with this aspiration, selling focuses mainly on seeking additional work from
existing clients and prospecting for new ones. One partner described her strategy in this
way:
30
For the three clients that I am currently doing the most work for, the plan is to try
to meet with them in person at least twice a year outside of scheduled meetings
that we’re having just to discuss ongoing matters, just to have face time and
meet with them and continue building the personal relationships I have with those
people. In addition, we want to as a group, but I in particular, to expand our work
for [companies in a particular sector] because that is where a lot of enforcement
activity that I work on is sort of trending, and they tend to be more willing to pay
our rates than some of the largest companies that have had the power to push
back on our rates, so sometimes working for a smaller company can be more
beneficial to the firm and to my own realization … So doing the industry
conferences and reaching out to the sort of mid-level companies is something
that I actually have on my business plan for [this year]. (Interview 201)
Another junior partner started at a very early point aggressively to pursue clients:
INTERVIEWER: So in your own practice now, the work you get, is it a mix of your
own origination and referrals from others?
PARTNER: For me at this point there is very little that I am not originating.
INTERVIEWER: And so how did you get to that point from the time you got
promoted?
PARTNER: A lot of aggressive marketing, and I am just not a patient person and
I have no desire to be beholden to other people to be honest with you.
INTERVIEWER: So what kinds of things can you do?
PARTNER: A lot of it is mentality, even as an associate looking for opportunities
to develop relationships with people and existing clients where I had been
introduced, stay in touch with people, and those people grew into roles that they
could make their own decisions and call me directly or they move on to another
place that is not an existing client. I’ve had a lot of success with people that have
left here that were my peers or whatnot who called back and said we would like
to hire you.
INTERVIEWER: So networking.
PARTNER: And this goes up and down. I mean, be nice to associates.
Associates are great; people don’t realize that, but a lot of those people are going
to go off and become very successful at some other place even if they are not
great firm people. They are smart people, so I try to cultivate those relationships.
You know some of it [is] good old fashioned cold calling, although that’s hard to
do … I just had no appetite for waiting around. I just think it’s too dynamic of a
world to assume that what was in the past is going to be. (Interview 203)
Most partners, however, cannot realistically hope to be major rainmakers. Some
may have personal relationships with only a small number of clients, while others have
none. For lawyers in both these categories, selling their services to other partners in the
firm is crucial. Their sales efforts thus are focused on their colleagues within the firm.
The need for internal marketing can be especially critical for junior partners. “The
reality,” one such partner said, “is that for a junior partner it’s going to be very difficult to
bring in a matter, especially a client that is going to be willing to pay our rates” (Interview
31
239). As a result, ensuring that you have enough work involves “advertising your skills
and your abilities and the value add you can bring to the table to other partners in the
office or the firm [who] have a book of business and clients who need service” (Interview
239). Even if a partner does not have experience in a specific field in which another
partner needs help, she may still be able to sell herself as someone with general skills
that are transferable and can enable her to contribute. One partner who specializes in a
particular type of litigation, for instance, described going to other practice groups and
saying, “‘I’m a litigator, and even though I haven’t done work [in your specialized area] I
can do your arbitration because I’ve got this package of litigation skills, so staff me on
your matter’” (Interview 239).
Similarly, another junior partner observed:
Maybe I should have realized it and just didn’t as an associate, but once you’re a
partner it’s a little bit hard because senior associates could do a lot of the stuff
that you do and they are cheaper, and … you have to find someone who has
work to give you. There are very few junior partners who have their own clients,
who are bringing in work, so you are reliant on other people to give you work.
Everybody has their person and if you are not someone’s person then it’s a little
bit harder. (Interview 241)
Another partner described his efforts to market himself to other partners in the firm:
I’ll try to cross-sell to my partners, which is what you do for practice development
in a big firm. You don’t go out and get a brand new client, because [often] they
are going to be conflicted out if you bring them in. So you meet your colleagues
and you describe what you do. So [for instance] you go to a transitional practice
and say, “You know, I understand there is a lot more demand to do Foreign
Corrupt Practices Act due diligence in a transaction; you should think about that,
[and] call me if you have a deal.” (Interview 254).
One partner described the need to reconnect with other partners after returning from
maternity leave to ensure that she had enough work:
PARTNER: So I was a partner for I think two weeks and then went out on
maternity leave and then came back. And whenever you go out on leave it takes
a while to ramp back up and so I think that has been my challenge.
INTERVIEWER: By ramping up does that require getting plugged in again?
PARTNER: Yeah, just getting plugged in again, reminding people that you’re
here, you’ve got time, getting, I would say, appropriately busy … And so that, I
would say, has been a challenge. (Interview 241)
Becoming known to other partners in a large firm with multiple offices can take
considerable effort. “You can send emails,” one partner said, “but people who are very
busy don’t read emails … you’re never going to get work off an email. It’s getting in front
of them and really attempting to develop a personal relationship with them” (Interview
239). That’s why it’s important “even if you’re a senior associate [to] make sure that
32
you’ve got a reputation with the junior partners and build those relationships” (Interview
239). Marketing yourself internally thus involves “getting to know partners, trying to get
opportunities to work with them, and getting your name around to partners in other
offices” (Interview 252). Annual partner retreats in large firms have assumed more
importance in recent years as opportunities to do this. While these events involve the
conduct of partnership business, they also afford partners the chance to meet one
another and learn about their practices. Indeed, some retreat panels are efforts to
showcase new areas of practice or new partners.
Continuous partner marketing within the firm has the potential to create internal
competitive pressures on occasion. One junior partner observed, “I spend more time
trying to gather up work internally than I do externally because obviously the odds are
better. The problem with it is that I am competing against fellow partners, and the thing
is—and this is not just the junior partners saying this; I think senior partners say this—is
that you’re not worried about competition outside of this building; you’re worried about
competition inside the building” (Interview 101). Another form that competition may take
is partner reluctance to give other partners much contact with their clients, for fear of
losing the relationship. One partner noted that “clients are very much protected [by
some partners]” (Interview 222). Their attitude may be, “‘I will introduce you to them
should I feel that you could do something and the credit should come to me” (Interview
222). Another partner observed:
I think when you make partner it’s kind of eye-opening. Oh, this is different, this
very much [is] all about business and, you know, I think even in a partnership
there can be sharp elbows in terms of people wanting to keep their clients and
being reluctant to kind of cross-sell or market. I think that, I don’t know, if I had a
clear idea of what it would be like—I just think now that I’m here I’m kind of like,
“Oh I’m not really sure this is what I expected.” (Interview 241)
The need for partners to take responsibility for generating revenues can be a sharp
and, for some, unexpected contrast to their experience as associates. Firms make
some effort to ensure that associates have enough work, and ideally provide them with
opportunities to develop various professional skills. Moreover, associates generally are
not expected to develop client relationships or even to bring in new matters from
existing clients. “As an associate,” one junior partner commented, “you are in a
regulated world. As a partner, you are in a completely deregulated world … It’s a
completely free market system” (Interview 101). Another partner observed:
When you’re a senior associate everybody wants your time because you know
what you’re doing and they can turn over a lot of work to you. When you’re a
junior partner, you’re still the same lawyer that you were two years ago before
the turnover, but bringing in another partner [like you] onto the case and justifying
that to the client [is an issue]. You know, other partners are very much trying to
make sure they are staying busy and they are keeping themselves fully occupied
and have a good pitch to the management committee when they’ve got to justify
themselves at the end of the year. So it’s much more that you’re out there on
your own trying to find work and kind of trying to piece it together. (Interview 239)
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Firms make an attempt to help partners with this internal marketing process, but
often have limited influence over how partners with available work choose to staff their
matters. Firms also try to provide support for partners developing relationships with new
clients. A firm can pay for a partner to visit prospective clients or travel to another office
to meet other partners. A firm may also try to create practices around major clients,
furnishing opportunities for partners to discuss services that they may be able to provide
them. Firms in recent years have also attempted to use practice groups and
departments to coordinate client development initiatives among partners and offices.
One practice group leader described his efforts in this regard:
You always have to be kind of on the hunt for new clients and what that means is
that you spend a lot of time every day not only doing your client billable work but
also, you know, doing client development things. So yesterday was a good
example. We had a lunch with—I convened a lunch with—a prospective client
and a couple of the new health care partners from [another firm] so that was a
couple of hours of my day. I actually I wrote them a follow-up note; it was almost
like three hours, so that kind of eats into your billable time. There’s only so much
time in a day. And especially practice managers—but really everybody has to
recognize that that’s very much a part of the job these days. (Interview 256)
Another junior partner who has engaged successfully in client development
described how the firm supports his efforts:
INTERVIEWER: I would think that the firm would want to encourage efforts of
people like you more and more because the institutional clients are less and less
secure.
PARTNER: Loyalty is a thing of the past, and so yeah, I’ve been highly
encouraged and given a lot of flexibility … There have been years where I wasn’t
billing any hours because I was out just developing and I’m not sure that they
want everybody doing that, but I guess they trusted me enough or gave me
enough rope to sort of hang myself, but yeah, I’ve been very fortunate that I was
encouraged. I was also a bit unique in that we did not have—we historically did
not have—a strong practice [in a particular field] and I even as an associate said,
“This is crazy we’re missing a whole boatload of truly loyal clients because that is
one client base that actually still remains quite loyal to its legal purveyors.” … I
said I like the work, I’ve done some of it and we had already done some; we just
never branded it, packaged it, sold it appropriately. I said I would like to go do
that and they said okay. Then I had to go do it. So that was where I identified a
hole and was willing to take the risk to try to mine it. (Interview 203)
Firms can vary, however, in their willingness to encourage and reward client
development. One partner said, “At [this firm] they are hugely supportive of marketing
efforts. I had a sense even from the interview process and I still think it’s very true that if
they have somebody who is really good at that they are perfectly happy for you to bill
1,000 hours and market for 1,000 hours, I mean that may be a little bit overstated, but if
you are successful at it [they support it]” (Interview 150). She continued, “They
34
recognize much more so than did [her previous firm] the sheer value of a good
marketing person, if you are willing to market not just yourself but your partners. And
they are willing to pay for it not only out of pocket but recognizing that that’s a valuable
contribution. That’s different; not every firm has that. So it’s not like did you bill 2,500
hours and now where is your 500 or 600 hours of marketing, it’s you put in 2500 hours
total” (Interview 150).
As another partner noted, the effectiveness of initiatives can vary even within an
individual firm:
In theory there are supposed to be practice group heads and I think it really does
vary from practice group to practice group how strong those leaders are and how
much they are invested in making sure that the people within their groups stay
busy and are progressing—not just kind of up to the point of making partner but
that the junior partners are progressing in their group. So I think some groups do
a great job at that and they are very supportive and can have a long-term
succession plan, not just in terms of [passing on] clients but in terms of
leadership in the practice group. Others it’s a little more kind of catch as catch
can. The leaders of the practice groups are [people] who have great client
relationships but they may not be people who were selected for that position
because they were great mentors or sponsors for people within their groups. So
it really depends on kind of what group you end up being in. (Interview 239)
Thus, the decentralized nature of practice, the greater tendency for clients to regard
their relationships as being with lawyers rather than with firms, and the professional
tradition of independence all may impose limits on the support that the firm can provide
for partners’ entrepreneurial efforts. As one partner commented about selling your
services within the firm, “Nobody is teaching you how to do that … they’ll put you in a
setting like a partners meeting and say, ‘Go meet each other,’ but I mean, you just
became partner and there are 500 of your colleagues there, so that can be intimidating”
(Interview 254). Ultimately, it is up to partners to take the initiative and forge their own
path.
The result, as one partner put it, is that “there isn’t necessarily going to be anybody
else looking out for you anymore. It’s kind of up to you to keep yourself busy … For
whatever kind of practice group structure there is going to be … at the end of the day
the only person who is going to care about you is you. And, you know, other people are
going to make the decisions that are right for them and so you’ve got to be your own
advocate” (Interview 239). Another partner remarked, “That’s part of the pressure you
live with, it’s that, you know, you are at heart an entrepreneur and you need to feed this
law firm, feed the associates and feed yourself” (Interview 241). Partners thus can
sometimes feel as though they are running their own business within the larger firm:
What I didn’t realize was how much of a business the practice of law is. I spend a
very significant percentage of my time just managing the practice and managing
my relationship with the law firm and managing my relationship with my clients.
And I spend a very significant portion of my time worrying about business
development, so you’re sort of forced as an individual partner in the firm with
35
more or less support—and at [the firm] I get a fair amount of support—but still
most of it falls on me. I am my own sales force. I am my own marketing force. I
also have to service all my clients at the same time and I am effectively my own
billing department. If there is a billing dispute I can’t turn it over to my accounting
department. I’ve got to go face the client. So you find yourself a small business
within a law firm, and I had no idea that I would be running, literally running, a
small business in a law firm. (Interview 250)
One partner believes that his firm is well positioned to compete in the increasingly
competitive market because “I think the lawyers in the firm have already crossed the
psychological barrier of understanding, you know, it’s not like when us older people
started and you were a partner for life and you were going to get to relax a bit at the
end” (Interview 228). He noted “the entrepreneurial approach that everybody here
seems to have, so I think people get it early on that if you are going to succeed here
you’re going to have to have that approach” (Interview 228). This means that “you’re
approaching [practice] more like a business than as a genteel provider of services”
(Interview 228).
“Staying busy” is increasingly important for job security, and partners are acutely
aware of whether they are doing it. “We’re aware of it on a constant daily basis,” one
partner said, “because we record our time and so you can see every day I’m not filling
my day or I am filling my day and you’ve got that real time feedback” (Interview 239).
Another said, “I think lawyers at [the firm] recognize that they need to bring their A+
game in being productive here every day, and if their practice area turns down or their
ability to attract business turns down I think people recognize that then the opportunities
need to go to the younger people or the lawyers of their vintage who are continuing to
be productive” (Interview 196). Another observed:
PARTNER: So, you know, the struggle is making sure there is enough work and
in making sure there is always something in the pipeline.
INTERVIEWER: And that’s something you can never take for granted.
PARTNER: You can never take for granted. (Interview 251)
One partner who moved to a firm from a corporate legal department was generally
satisfied with his move, but noted the difference between the two settings:
PARTNER: When you are in the law firm you always think about where your
work is coming from. You’re always thinking about, ‘Am I busy enough?’ If you
are too busy you are miserable, when you’re not busy you’re miserable because
you would rather be busy, and so there is never that perfect level of work—there
never will be—because, quite frankly, given the way we make money we just
always want to be too busy.
INTERVIEWER: I see.
36
PARTNER: And this is an uncomfortable place to be, to be always thinking about
wanting to eat more even if you’re stuffed. And I think there are certain days
where you really are operating at like peak business, where you’re working
maybe like 15 hours a day and then you don’t think about it, but you know if you
are only working 10 hours then you’re thinking I could be working more. I could
be doing stuff so that other people can be working more, and so you’re always
thinking about it. I think that’s the worst part of it. (Interview 245)
This concern has become especially prominent since the economic downturn began
in late 2008. Hours billed by partners have declined since then, and projections are that
demand for law firm services is unlikely to increase much in the next few years
(Georgetown Law Center for the Study of the Legal Profession/Peer Monitor, 2015).
This makes staying busy a persistent challenge for many lawyers.
Recognition of the need to be entrepreneurial and to maintain a healthy number of
billable hours can lead some partners to keep as much work as they can for
themselves, not to collaborate with colleagues unless they are assured of compensation
credit for doing so, or to refrain from introducing colleagues to clients for fear that they
will lose their client relationships. Such attitudes present a challenge for firms who want
lawyers to collaborate in order to provide the best service to clients. As one partner put
it, “Everything that puts more barriers within the firm is at the end of the day a loss for
the client” (Interview 222). Any managing partner would cringe at the story that one
partner told about another firm where he used to work: “No one is going to go with you
to a pitch [to try to get business from a client] until they know how much you are going
to give them in the way of [compensation] credit … I mean, a corporate person brought
a litigator who stopped the pitch in the middle and said, ‘I need to talk to you outside the
room.’ When they got outside, he said, ‘I’m not going back in until you give me this
amount of credit’” (Interview 211).
Such behavior may serve an individual partner’s self-interest, but it does not serve
the interest of the firm as a whole. As one partner said, “if you make people paranoid
about their future they are going to do everything in the world to protect themselves,
which doesn’t help with the whole philosophy that the firm is supposed to [put the] best
boots on the ground” (Interview 150).
This partner continued, “We have a lot of siloes and that indicates to me that people
are not taking really strong firm relationships and trying to broaden the base of practices
that work for them… My concern is if you make people scared enough about their
compensation or their job, even depending [on] how bad it gets, people will not take that
chance and I think that is why we have siloes where we have them” (Interview 150).
This partner’s own efforts to get colleagues to expand relationships with clients have
met mainly with frustration: “I mean we’ve got big litigation clients, there is no
transactional work done for them whatsoever and the litigators will tell you, ‘Well I don’t
know the transactional guys in the company.’ I said, ‘Well go meet them, how hard is
that?’ … Most people will not do that … It’s not even that it doesn’t occur to them to do
it; it’s when you tell them they could do it they refuse to do it. I don’t know what the fear
is but they will not do it” (Interview 150).
37
Part of the fear is that a fellow partner may not do good work for the client, and thus
may jeopardize the client relationship:
There is huge paranoia about opening that really important client up to somebody
else. I don’t know. I think some of it [is] driven by the fact that if they let you
in and you don’t do a good job you’ve hurt them and they don’t trust you
to recognize that you are holding their reputation in your hands. But part of that
is their own fault. If I introduce somebody to [a client] and they don’t do a good
job and it hurts me, it’s as much my fault as it is theirs because it never should
have gotten that far without my knowing about it. Part of … my job [is] to keep an
eye on that; the first time there was a hiccup I would know what’s going on.
(Interview 150).
One partner described the calculus this way:
In my view the real reasons that lawyers don’t like to share client opportunities is
a quality issue. So you’re a lawyer, you spend God-knows how many hours
building a relationship and you get a matter in a subject area that you personally
don’t know anything about. That means you have to go to the firm and say who is
our expert on this and somebody tells you who it is and you know the person
socially but you don’t know anything more about that. That person can ruin your
relationship with the client in a heartbeat. Many people decide, you know, it’s not
worth the risk. I’ll just tell the client go to [a different firm] … I get brownie points
with the client, I don’t have any down side. Other people say, ‘Oh no my partner
Harry Smith who[m] I have never met is an expert at this,’ and then you send
them out there and it either gets done A+, B, F, you know, there is usually
nothing in between. There is a lot of down side compared to the up side.
(Interview 227).
Most firms are sensitive to the risk that partners may not be willing to collaborate,
and strive to promote the idea that being entrepreneurial is a collective, not solo,
endeavor. Research confirms the benefits of involving multiple professionals on a
matter (Gardner, 2015). With varying degrees of success, firms attempt to emphasize
that cooperation is in the best interest of both the firm and the individual lawyer. Making
this message persuasive, however, is easier said than done. As the next section
describes in more detail, one important way that a firm can do so is by ensuring that
cooperative behavior is taken into account in compensation decisions. Another is by
constantly articulating responsiveness to colleagues as a core value of the firm,
explicitly and self-consciously describing it as central to the firm’s culture. Lawyers who
follow this philosophy may also find that their clients are more satisfied because they
can receive seamless service from the firm for a variety of their needs. In addition,
lawyers come to appreciate the benefits of reciprocity, as their efforts to help colleagues
are returned in kind. Furthermore, a firm’s success in instilling a cooperative ethos not
only can further financial performance, but also can create the conditions for cultural
glue by making partners feel connected to the firm and to each other.
38
Partners in one firm, for instance, consistently describe collegiality and
responsiveness to colleagues as integral parts of the culture. As one partner put it,
cooperation is “a core value of the firm that has been articulated since I’ve been
here … it’s something that is discussed at every partners’ meeting, it’s talked about at
[practice] group meetings, so I think the tone is set at those … So it’s both articulated
but then it’s practiced by the leadership of the firm for sure who are very willing to give
of their time” (Interview 198). Another partner said, “I do think that we are a place that
prides itself on being collegial and collaborative and so I think if you know if I send an email out to the entire firm or all the litigators, whomever, I’ll always get a response from
a fair number of people” (Interview 201). Still another partner said that, with respect to
responsiveness, “we have a self-generating sort of culture that attracts like-minded
people” (Interview 203). One partner noted the contrast with another firm at which he
used to work: “People are very responsive … That is a part of the culture here though,
you know, when people call you the expectation is that you say yes. That was definitely
not the case at [his former firm]” (Interview 219). He elaborated:
I often tell people when they ask about [this firm] and say so you get a call on
Friday afternoon from a partner, or you get a voice mail message saying, you
know, big ticket item just came in, we need to put together a team, are you
available to help? At [my former firm] maybe you didn’t return that call
necessarily until Saturday night. And the culture didn’t necessarily punish you for
doing that. Here that call gets returned. The culture, and in part the
compensation if it ever bubbles up to that, does punish you for doing that, you
are expected to help your partners here much more than was ever the case at
[my former firm]. And I’ve been on both sides of that by the way. I’ve been the
guy who made that call and the guy who got that call, and it works both ways.
(Interview 219)
The firm reinforces this ethos by asking partners on their annual compensation
forms to identify which partners have been helpful to them and whom they have helped.
One partner described this as a “really meaningful part of the evaluation,” and said,
“People want to know who is helpful to other people, they want to know who is really the
glue to the place, and so people want to get on that list” (Interview 203). One partner
noted that he “didn’t worry about it” when he basically ran a particular transaction even
though for various reasons he didn’t get any credit for being the partner managing the
matter (Interview 204). The reason is that he was confident that the compensation
committee would appreciate the role that he played (Interview 204).
Several partners at the firm believe that the firm’s emphasis on collegiality results in
exceptional responsiveness of partners to one another. One partner commented, “When
I reach outside of my practice group … you know, the joke is it’s as if they were sitting at
their desk just waiting for my call. Because I mean the response is, ‘Absolutely, I have
time, we did a memo on that two years ago, let me send that to you, I can get
somebody to update it.’ It’s quite seamless” (Interview 212). Another partner said that
partners “bend over backwards to help each other, so that is true, our reputation of
being collegial. I can call someone in the corporate group and say, ‘I need an hour of
your time,’ and they’ll give it to me right then or later that day or stay late or whatever”
39
(Interview 198). Another partner echoed this experience: “I’ve never called someone up
and had them not be anything less than fully willing to [say], ‘What can I do to help, I’m
happy to help,’ because certainly things come up outside of your area of expertise or
the expertise of people that are intimately working on the case and people are happy to
lend a hand and pitch in. Same way, people call me with a question [and] I try to be as
helpful as I can and, you know, helping them out with whatever their situation is”
(Interview 206).
One partner characterized his colleagues’ responsiveness as “universally terrific,”
and described a recent experience:
I had a pitch this week with a partner who I work with a lot; we went out to pitch a
prospective new client. Even though [he and I would get billing credit on the
matter], we had several of our partners who we reached out to who could not
have been more enthusiastic about trying to help us bring in the work. Contacting
people they knew, shooting e-mails to people who knew the general counsel
there, saying, ‘You know these two partners are great. What can we do? How
can we help?’ I think [a focus on] how can we help bring in business for the firm
is very much the overall perspective here, so I’m always very pleased with the
generosity of my partners in wanting to just help bring the work in. (Interview 207)
In a large firm, of course, not every single partner will behave according to cultural
expectations. One partner acknowledged, “There are people, you ask them a question,
the first thing they want to do is open up a new matter to [get billing] credit” (Interview
223). Such people, however, “are few and far between. For the most part, I would say
one of the good things about being here is [that] most people are not overly concerned
with getting credit; they are concerned, ‘Hey let’s just get the job done,’ and they are
glad to be brought into a project” (Interview 223).
Partners at another firm described the sense in their firm that collaboration among
partners is a fundamental feature of the firm. One commented, “There clearly is an
emphasis that we don’t want people in silos; it is a partnership, we’re an international
firm, you want people to be calling you from other offices and helping out, you are
encouraged to help people out” (Interview 82). As one partner said, “Periodically there
are memos that go out about, ‘This is how we should be,’ but it’s also more of an implicit
understanding that is how we operate and this is what is special about our firm”
(Interview 93). Another said, “The culture as I’ve understood it, as I’ve come up, has
been, we are partners; [it] isn’t just a title. We try to be partners and you help someone
out, whether it’s the pay it forward theory of ‘look, it will all work out in the end,’ I think
there is a lot of that” (Interview 70). This partner described how the culture furthers this
ethos by creating expectations about sharing billing credit:
There is a culture here of sharing originations, that if you might be the person
who brought the client in the door but … you are a corporate lawyer and they are
in the lending business and so you are going to bring in one of our lending
lawyers to do a lot of work on a matter, well then probably you are going to share
some of that origination credit. … That is one way I think the firm actually does
talk about the culture of the place, that here is guidance of how we think things
40
ought to work. That we do share and the point is we’re a firm and it’s theoretically
we’re stronger than the sum of our parts, that, yes, the corporate lawyer might
have had the relationship, but without the firm having the ability to answer
questions in a range of areas, you know, there is a good chance we might not
have gotten that work. (Interview 70)
One partner described his experience with this emphasis on sharing when he was
an associate, for whom billing credit would not affect his salaried compensation:
PARTNER: When I was an associate someone in another group had questions
and it sort of touched on [my practice area] and they called [the practice head]
and said, “Is there someone in your group that can help?” He said, “Hey [the
associate] can do that,” and I ended up helping out; it turned into a fairly long
term project. One month I’m looking at my monthly report and there I have
originations for the first time.
INTERVIEWER: Really, as an associate?
PARTNER: As an associate and so I went to [the practice head] and [said], “You
know this is very nice of [the billing partner] to do that and I didn’t even know I
was getting any of the credit, but in some ways it’s sort of a waste. I mean,
should we give this back to [the billing partner] or should you be getting it?” The
answer was, “This [is] the way we work; we share. You are right on some level, it
doesn’t [affect your compensation] but it’s a good thing to have; it doesn’t hurt the
firm’s view of you, so just say thank you. (Interview 70)
The result for many partners is a strong sense of cooperation within the firm. One
partner described the importance to him of helping other partners: “That means not
sitting on [an] e-mail for five days and not failing to return calls … That doesn’t mean
that I’ll necessarily have a substantive answer for them right away but it’s just, ‘I got
your call, let me look at this and I’ll get back to you in a couple days,’ or ‘I got your call, I
hope it’s not urgent but I’m actually going out of town with my family next week, can I
call you when I get back? Whatever it is, just being responsive to people” (Interview 69).
Another partner said, “The nice thing for me about the firm is that over the years I have
done a significant amount of outreach … and I’ve always been pleased with the other
people in other parts of the firm that I got to know and work with. So you get a sense of
trust of the institution, that they’ve hired well, and that, ‘Boy I’m so glad I’m at a firm
[where] I talked to X; X was very responsive, and certainly you are encouraged to be
responsive” (Interview 93). She continued, “So I certainly try to respond to phone calls
or e-mails [the] same day, especially e-mails, to at least acknowledge, ‘I got your e-mail
let me give this some thought,’ and I think that as far as a culture [that] is pretty
predominant here at [the firm]” (Interview 93).
A fellow partner echoed this: “We have a culture where people will pitch in to assist
client needs basically at any time, for any reason. So you can send an e-mail out to a
half dozen people and say, ‘I just got this question; the client would like to have a
meeting on this Saturday night at 6:00; who can do this?’ and four out of six people will
respond and say, ‘Yeah, I’m happy to help out,’ even though they are not going to get
41
paid for it, they don’t know the client, and even though it’s Saturday night at 6:00”
(Interview 75).
Another partner described a recent experience:
I had a partner in [a certain practice] group, this was right before Christmas, he
called one day I was at home, it was an evening, but I was at home; he said, “I
have this crisis”; basically he [had] gotten down to this state and really just
needed some corporate help and so of course I jumped in and helped him and I
have had that situation before, too. Like you all of a sudden … have a crisis, it’s
an inconvenient time, people definitely are very willing … Sometimes it’s, “I’m
traveling, I’m in an all-day meeting, I can call you tonight,” but it’s always. “I will
call you tonight,” it’s never, “We’re going to have to speak next week”; it’s never
that. (Interview 68).
Partners at firms in which there is considerable cooperation appreciate that
engaging in such behavior both helps the firm and enables them to serve their own
clients better. One partner described the expectations at her firm, which she
characterized as having a “highly collaborative culture”:
Part of your job is to find the person in the firm who is the best person for a
particular need of a client, because the theory is that you are not going to have
many clients if you don’t find the best person. So you’ve got to find the best
person, ideally it’s [here] and if it’s not [here] then you ought to find it someplace
else. … That means there is a huge value on being responsive and a huge value
on not sticking to yourself but reaching out, because if you are not doing that
then you are … disadvantaging your client. (Interview 131)
That understanding, she said,
creates a culture of high responsiveness and so it’s really out of need … And that
impacts the culture. It means that you are sort of forced to be outside yourself
because you know there is somebody sitting in some office who has heard that
maybe you are the right person to take the lead on something, and you can’t just
not answer your phone or your e-mail; that’s the whole purpose at [this firm] to be
able to reach out to people like you. (Interview 131)
Another partner at the firm mentioned a conversation with a recent arrival from
another firm, who had described how he benefits from collaboration. The arrival said,
“I’m much more able to hang on to my clients now when they have a complex matter
because people are responsive and I can find a team to put on that matter that I was not
able to at my [former firm]. So I have a more successful practice at [this firm] because
I’m able to manage those matters” (Interview 121). A partner at another firm observed,
“When people call within the firm and people agree right away to take on your project
and they do it well and the client is happy, that’s all good” (Interview 93). Similarly,
another partner said, “People will say yes and so I think we all have an understanding
that our clients’ needs will get met” (Interview 75).
42
Partners also benefit from reciprocity, being confident that if they help others, others
will help them. As one partner put it, “For my colleagues, I try and be very responsive all
the time because I want them to be responsive to me” (Interview 69). Another said,
“When I was saying earlier that I would feel genuinely confident telling my clients we
can do this for you, part of that is because I know the people that I would call to help will
help, will be there, that they will do that even if it’s not necessarily coming in for them,
and I would do the same” (Interview 68). One partner commented on what he regards
as the mixture of self-interest and altruism involved in cooperation: “I learned very
quickly here my time was currency, so if I help somebody else out they’ll help me out.
That’s a trade … I actually am acting rationally from that kind of perspective. I’m buying
a lot of future good will and … this connectedness will actually help you much more than
just altruistically. I think you feel altruistic when you’re doing it, but I step back and I
think it’s [also] economically motivated” (Interview 232).
The ability of a firm to foster a sense of collegiality not only serves the firm’s and its
partners’ financial interests but can also help create a sense of connection among
partners, and between partners and the firm. One partner commented that the
responsiveness of partners to one another in the firm creates “more of a sense [that]
you’re part of a bigger whole. And also it knits people together; it makes them more
committed to the institution” (Interview 93). Another partner who was asked if
collaboration among partners makes him feel part of a larger group replied, “Yes, I think
it certainly does” (Interview 189). Another partner regarded cooperation as fostering a
sense of shared values with other partners: “We have a fairly high level of
professionalism here, and I would put that down as when your partners call you to help
out on something, you get back to [them] as soon as you can, that’s just an aspect of
professionalism” (Interview 82). Still another partner suggested that reciprocity “fosters
that kind of connectivity that [builds] trust in societies” (Interview 232).
One partner is worth quoting at length because of the way in which he articulated
how material and intangible benefits from cooperation can be intertwined. First, the
material rewards:
I told people and I still tell people that when I got to [this firm], the day I arrived I
was a smarter lawyer and it’s because—and it really surprised me—I arrived and
within the first two weeks I was getting stuff from people, here is an e-mail, here
is a [regulatory matter], thought this might be interesting for things you do. And all
of a sudden sure enough clients called [and asked], “Hey do you know anything
about blah, blah,” and I would [say], “You know what, I do.” And, you know, I just
became better at what I do because of the contributions of my colleagues. And
then all of a sudden I started saying, “Gee, here is something that may interest
so and so,” which I had never done in my life at [my former firm] because nobody
did it to me. You know, it just [was] well, this is what I’m supposed to do here. So
there is this really interesting soft collaboration that exists here which I think is
very appealing. (Interview 76)
43
Next, the intangible psychological reward:
And so, you know, I mean it sounds sort of hokey but it’s really quite meaningful.
Like, the ethos here is that you come back from lunch and you return calls to
your clients and your partners in the same priority. If you have a question and
you call somebody they get back to you right away, any time of night, they drop
what they are doing, it’s fantastic. And there is no, like, “What’s in it for me?”
There is no, “Well I’ll only do this if we’re going to split the origination.” I mean
you never even have these conversations; it’s just a really nice environment for
that. And that is why I think some people are so happy here versus [at] other
firms that are quite good. (Interview 76)
Modern large law firms thus must encourage their lawyers to be entrepreneurial—to
look for opportunities to generate business for themselves and the firm. The pressure to
do this, however, need not inevitably lead to an atomistic environment in which lawyers
pursue only their narrow self-interest in competition with their colleagues. Indeed, there
are many reasons why a firm with such a culture might be handicapped in attempting to
gain and keep business from clients. Partners in a large firm cannot draw on intimate
knowledge of and interaction with their colleagues as a source of identification with and
commitment to the firm. That form of glue is no longer available. To some degree,
however, their embeddedness in a system of cooperation and mutual responsiveness
may provide them with a sense of being a part of something larger than themselves. If a
firm can establish the right conditions for cooperation, the natural human desire for
connection may help create at least some form of glue.
As one partner suggested, even in the midst of increasing competitive pressures in
law firms,
the human element is much more important than money in a lot of respects …
It’s like life emerges from the primordial swamp and [because we are] social
animals … if you saw the compensation and the natural competition in some
places, they should be flying apart, [but cooperative] cultures are emerging
despite all the forces that say they shouldn’t emerge … So there is something
about group identity whether it’s tribal, shared being part of something,
collegiality, how people treat each other. (Interview 232)
Competitive pressures therefore are prompting firms to encourage their lawyers to
be entrepreneurial—to actively seek out new clients, pursue new matters from existing
clients, and explore ways that they can make clients satisfied. Firms need to be
sensitive, however, to the potential for an entrepreneurial mandate to lead to narrowly
self-interested behavior on the part of lawyers that can be at odds with the interests of
the firm. Such behavior can be especially problematic in an era in which most work for
corporate clients requires a team of lawyers who can work seamlessly together. Firms
that appreciate this risk attempt to encourage collaboration among partners by fostering
an expectation that such behavior is a core tenet of the firm. Doing so furthers the firm’s
business interest, but it also can create a sense of connection among partners and
between partners and the firm.
44
In this respect, a policy adopted for business purposes also can vindicate the
professional values of collegiality and mutual support among partners. These values
once rested on personal interaction among partners, a foundation that is difficult to
establish in large firms today. Instead, an individual partner’s understanding that fellow
partners are willing and available to respond to his or her need for help, regardless of
where they may be, may provide at least to some degree a substitute for the personal
ties that once characterized law firm partnerships.
One way that a firm can seek to reinforce an ethos of collaboration and
responsiveness is by rewarding such behavior in the compensation process. As the
next section discusses, however, the increasing pressure to award high compensation
to rainmakers can be in some tension with that goal.
Compensating Entrepreneurs
Perhaps the most significant way that firms attempt to encourage partners to
generate revenues is to provide substantial compensation to those partners who bring
in clients.5 Firms are increasingly likely to reward their most important rainmakers more
highly than the average partner, and to pay them significantly more than the lowest-paid
one. The difference between the equity partners with the highest and lowest
compensation is known as “the spread.” Many firms traditionally had a relatively small
spread of 3:1 or perhaps 4:1. Recent research suggests that spreads have moved
considerably further apart, with an average in 2011 of 10:1 and some firms reporting
spreads as wide as 30:1 (Press, 2011, p. 63). These greater spreads reflect
increasingly more weight given to origination in the calculation of compensation. As one
partner remarked of compensation decisions, “Clearly the perception is that business
generation is the most important thing” (Interview 231). A partner at another firm
confirmed this trend: “There is a greater emphasis on origination of business as
opposed to doing work. So if you are more in the business origination end you will be
compensated more. And if you are in the worker end of that spectrum you will be
compensated less” (Interview 232).
How the firm manages the need to respond to business pressures to reward
rainmakers can communicate its understanding of the balance between financial and
non-financial values in the firm. Our research suggests that the partner compensation
process allocates both material and symbolic goods within firms. The criteria that a firm
uses to determine compensation do not simply result in differences in the financial
rewards that partners receive. They also can signal to a partner the extent to which he
or she is respected as a valuable member of the firm. Seen in this way, the
compensation process is an important occasion for a firm to consider how to fashion an
understanding of what it means to be a lawyer in that firm. This understanding must
accommodate both increasing business pressures and traditional notions of
professionalism. How a firm responds to this challenge can have a profound effect on its
culture, as well as on its chance of surviving in an era in which sources of law firm
cohesion are fraying.
5
Much of this section draws from an earlier article based on an analysis of 116 interviews that we had completed at that point
(Regan & Rohrer, 2012).
45
Some basic background on compensation will be useful. Compensation for equity
partners is largely determined by the percentage of the profit pool that is allocated to
each partner. The profit pool is composed of units or shares allocated across the equity
partnership. Unlike a corporation, where the number of equity shares remains relatively
steady over time, the number of units in a partnership pool is periodically reset—often
on an annual or biennial basis—based on the number and performance of equity
partners.
In allocating compensation, most large firms rely on certain objective criteria
complemented by subjective judgments of partners’ contributions, thus incorporating
some flexibility into determinations. Some firms use a formula as a base for
compensation, which is then modified by taking subjective factors into account (the
“combination” system). Other firms employ a purely subjective approach. The majority
of U.S. firms employ these types of systems, with approximately 54% utilizing a purely
subjective approach and 38% opting to pursue the combination approach. Because
systems that incorporate subjectivity are the most commonly used in the United States,
as well as the most complex, we focus here for the most part on this type of approach.
Firms employing a subjective or combination system take a number of factors into
account when determining the allocation of units. These factors may not be explicitly
publicized throughout the firm, but even when they are, no specific weight is assigned to
any one factor (if a weight were assigned, the system would quickly become a formula).
Thus, partners may be clear about which criteria the firm takes into account in
determining compensation, but they will not know precisely how those criteria were
weighed with respect to their own compensation. Common factors used in determining
compensation include origination, personal production, and management credit. The
relative importance of these factors may change as a partner moves through the equity
ranks, with more junior partners sometimes having fewer origination pressures, for
example, than those who are more senior.
Origination
One key factor in determining compensation in most law firms is origination, which is
based on the dollar value of revenue from clients and/or matters the partners have
brought into the firm.6 A partner receives “origination credit” in the compensation
process for those clients or matters, regardless of who is working on the matter. The
credit sometimes ends after a certain period of time, but can continue indefinitely as
long as the client continues to send work to the law firm. One early theory on why
origination first entered the compensation calculation is that by providing origination
credits, firms would encourage lawyers to share work instead of hoarding it to maximize
the amount of hours they billed (Smith, 1940, p. 650). Origination credit plays a
dominant role in many firms’ compensation systems (Lowe, 2012).
6
Law firms tend to place much greater weight on revenue than profitability in the compensation process. Traditionally, the
profitability of matters and clients has been difficult to determine due to disagreements over the distribution of firm-wide costs such
as office space, secretaries, etc.
46
Personal Production
Since law firms’ business models are largely based on billable hours, a key aspect of
virtually all subjective (and formulaic) compensation systems is the amount of time a
lawyer bills over the course of the evaluation period. Sometimes firms also look at the
percentage of fees charged that the client actually pays, to account for the fact that
clients do not always pay for all billable time spent on their matters. They may refuse to
pay certain parts of the bill, for instance, if they view the fees as unreasonably high.
Sometimes, in anticipation of client resistance, an attorney may reduce the bill before it
is sent out to the client. Focusing on realization rather than simply billable hours is
therefore a better reflection of a partner’s financial contribution.
Management Credit
Some firms provide credit for managing a client matter, even if the partner did not
bring the client in the door and therefore does not qualify for origination credits. In this
way, the firm rewards partners who play a large role in ensuring that a client’s needs are
being met on an ongoing basis, even if they were not involved in bringing the client to
the firm initially. Another version of this factor is to give a partner credit for hours billed
by lawyers who are actively under his supervision.
Additional Factors
Subjective components in compensation systems enable firms to also reward
behavior that is not easily measured. Firms employing these systems have discretion to
take into account factors in addition to those that are explicitly identified. These factors
generally relate to firm citizenship activity, such as serving on committees, undertaking
projects for the firm, and cooperation with colleagues. Some firms also include pro bono
work in this category.
Compensation for equity partners in systems that incorporate subjective factors is
generally decided by a group of partners on the compensation committee, which
typically comprises managers and/or rainmakers in the firm. The members of the
committee can be elected by the partnership or appointed by the executive or top
management committee in the firm.7 Some firms may have a mix of law firm leaders and
other partners otherwise not in management roles who are elected specifically to the
compensation committee. Most firms go to great lengths to ensure that decisions about
the composition of the compensation committee are regarded as legitimate.
Compensation in subjective systems is typically a prospective process. That is, the
compensation committee decides at the beginning of the year how many shares are
allocated to each equity partner, based on the partner’s performance during the most
relevant recent period. The ultimate annual value of each share therefore depends on
the financial performance of the firm over the course of the coming year.
Many firms also reserve some portion of partner profits for a bonus pool, which can
be used to reward stellar performance during the year that was not foreseen in the unit
allocation process (for example, landing a very large client in the middle of the year).
7
In some firms, the executive committee also functions as the compensation committee.
47
Some firms allocate shares every year, but others go through the process once
every 2–3 years. Some firms attempt to smooth out the peaks and valleys in individual
performance by basing compensation decisions on averages for 2 or 3 prior years. Our
research, however, suggests that competitive pressures may be prompting firms to
focus on briefer periods so that compensation can be adjusted more quickly to reflect
recent performance. One partner noted, for instance:
It has always been that people didn’t move up very fast but they didn’t move
down very fast, [and] that was our mantra. The last three or four years have
changed that … We used to look at five-year data, [and] now we look more at
three-year data because … what happened five years ago, pre-2008, is not very
relevant. We’re looking at what’s happening now right [sic]. It’s not exactly what
have you done for me lately but … you don’t want to artificially keep [someone
who is increasing in value to the firm] down because three years ago they hadn’t
been doing much. … You’ve got to be responsive to that or they’re walking out
the door. (Interview 10)
A partner in another firm was critical of what he calls an “investment bank” view that
compensation should be based purely on productivity on an annual basis, regardless of
the volatility this may create:
PARTNER: There are people who want this to be and they will say, “I want this to
be an investment bank.”
INTERVIEWER: And what do they mean by that?
PARTNER: They mean [they] want it to be purely reward-based, I mean it’s like
your contribution should be rewarded and that means if you are the guy
producing all this [revenue] you should be paid 30 times more than the other guy.
So there should be no limits and no kind of social barriers or constraints. So it
becomes obviously just purely what your contribution to the organization is
relative to somebody else. That is destructive to creating culture and cooperation
and long-term value and it’s very tricky.
INTERVIEWER: So [this] is in contrast to something of a longer-term view?
PARTNER: That’s exactly right, so the investment banking view is an annual
view. “What did you contribute at this level?” … Historically firms kind of go up
the ranks, what they call the slow up, slow down. You were part of the
organization and you were part of growing it, [but] in the banking model it’s purely
annual, you start fresh every year, what did you produce—and then it’s really, it’s
very destructive to creating long-term value. (Interview 232)
Since the compensation committee meets in private, all subjective systems lack
transparency in terms of how decisions are actually made in individual instances. This
creates some ambiguity about what type of behavior the firm is actually rewarding.
Research on compensation, however, indicates that the majority of partners believe that
originations are the most important component of equity partner compensation
decisions (Lowe, 2012, p. 8). When asked about the factors that go into calculating
equity partner compensation, one partner in the present study replied:
48
As far as I understand it—and there are guidelines, but I don’t know … how
strictly they are followed—it’s basically how much money did you get credited for
as an originator. Everybody wants origination credit, and that is where the money
comes from. If you have a lot of origination credit you get paid more, which is
why people run around fighting to get origination credit and are jealous in regard
to their clients. (Interview 21)
When originations play a large role in compensation, the stakes can be high. As one
partner noted, “You just can’t work enough hours to make the big money … at any law
firm. You have to have the originations or you’re the billing partner [because] those are
the numbers that really drive the compensation of various different partners” (Interview
101). According to a recent survey of over 2,000 law firm partners by legal search
consultants Major, Lindsey & Africa, the impact of originations on compensation has
been growing in recent years. Over half (55%) of respondents who reported that
compensation criteria had recently changed stated that originations were taking on a
larger role in 2012, up from 24% who responded similarly in a 2010 survey (Lowe, 2012,
p. 31). Sixty-five percent of all respondents reported that origination credit was the most
important factor driving compensation in 2012 (p. 30).
The effective result of this dynamic is effectively a two-tiered equity partner
compensation system. Rainmakers (the “Finders”) with a large number of origination
credits generally earn substantially more than service partners (“the Minders” and “the
Grinders”), whose compensation is based mainly on the number of hours that they bill.
This arrangement reflects the influence of an active lateral market for rainmakers. In
response to this market, a firm needs to be able both to keep its key partners from
defecting and to attract profitable ones from other firms. It therefore has to make sure it
is paying its valued partners market rates, and that it has the flexibility to pay top rates
for laterals it wishes to lure to the firm.
Origination credits and personal production based on billable hours are the two main
inputs that determine partner compensation in non-lockstep firms. While each of these
factors appears relatively objective on the surface, a closer examination reveals that
each is the product of a set of complex interactions among partners in the firm. These
interactions constitute a relatively unregulated market in which partners negotiate, and
sometimes compete, for origination credit, relationships with clients, and a steady
stream of work. The value of a partner’s services affects his bargaining power in
requesting a share of origination credits and obtaining work from other partners that
increases his billable hours. While firms make some attempt to regulate this internal
market, most partners regard it as being ultimately dominated by informal bargaining.
The simplest instance of origination credit is when a partner, by himself, brings in a
matter that involves a client that is new to the firm. The partner receives all origination
credit for that matter, and this credit is then factored into compensation decisions. If
additional matters arise for which the client needs assistance from other lawyers in the
firm, the partner who brought in the first matter will generally continue to receive
origination credits based on the value of those additional matters.
Whether a partner will share any of that credit with the partners doing the work on
these other matters will depend on informal discussion, and perhaps negotiation,
between the rainmaker and his other partners. One partner’s description captures the
49
ambiguity and personal judgment that is involved in origination sharing as she described
someone she spoke to from a newly acquired foreign office:
She said, “I just got something for someone in the US to do for one of my clients;
I think I’ll just maybe take … five percent of the origination [credit] because I’m
not going to do any of the work.” And I said, “No, you have to take at least 50
[percent] … because it’s your client [and] that’s what people do here. (Interview
92)
A partner in another firm agreed:
It’s constantly negotiated. I’ve only, only in the last few years have I started really
dealing with this origination mess; it’s a mess. Everybody is fighting for a piece of
this, and I deserve this; there are legacy people who do have origination credit
even though they don’t do anything; it’s just their old client. (Interview 21)
The outcome of origination negotiations is a function of how generous the rainmaker is,
as well as practical considerations, such as how scarce the skills are of the other
partners he needs to work on the new matters, how often he expects that he will need to
call on them again, and whether he expects them to refer work from their own clients to
him in the future. Firm norms and culture play a role as well, as illustrated by the
partner’s comment above: “That’s what people do here.”
A team comprising different partners from the firm may also make a presentation, or
“pitch,” in an effort to win business from a new client. If the work involves a corporate
matter, for example, the effort may be led by a partner with an especially strong
reputation for work on mergers and acquisitions. Other partners on the team might be
those who have expertise in a particular area that is relevant to the matter, such as a
specific regulatory regime, treatment under the tax law, or the form of financing that
would be suitable for a transaction. Of lawyers with such expertise, the lead partners
may select for the presentation those with whom they have worked in the past.
If the firm wins the business, origination credit ordinarily will go to the corporate
partner who was seen as leading the pitch, because of the view that his reputation was
the most important reason why the client chose the firm. This partner may be regarded
as having the best chance of developing an ongoing relationship with the client, or it
may be that the firm wants to ensure that this partner is satisfied with his compensation.
To the extent that the firm grows relationships with existing clients, the partners who
already have the most origination credits are in the best position to accumulate more of
them. If the firm does not revise this allocation, and if other partners on the pitch team
are unable to negotiate for a share of credits, the perception of some partners may be,
as one partner put it, “The rich get richer” (Interview 101).
Some firms attempt to lessen the need for negotiation over origination credits by
awarding management credit to the main partners working on or managing matters for
major clients. One partner said, “This firm has worked hard to include in a meaningful
way in its perception of business generation, not the mere collections but who was
really responsible for getting the work in the door and then working the work,
maintaining the client, making it a happy client” (Interview 228).
50
This type of credit will enhance the recipients’ compensation, although it typically
has a less substantial impact on compensation calculations than origination credits.
Other firms may impose a “sunset” provision, which places a time limit on the period in
which the firm grants origination credits, while some may require a minimum amount of
rainmaker involvement with a client’s matter in order to be eligible for credits derived
from it.
To varying degrees, firms also attempt to encourage rainmakers to share credits
with others. Some provide guidelines that indicate how origination credit should be
divided in certain situations (Nanda & Rohrer, 2012) while others rely on more general
exhortations to be fair. On occasion, a compensation committee may adjust a partner’s
compensation because it believes that he has been unfairly hoarding origination credits
for himself. One committee member reported, “We talk to people about being hogs and
we tell them that they get punished when they are hogs. … [We tell them], ‘You might
have made this but you’re making this because you’re not a team player’” (Interview
111). The partner went on to give an example:
This person thinks they are the billing attorney, but they really don’t have much
responsibility anymore, so we look at that. We get the self-evaluations and we
look at that, but in addition to the numbers, we get all of the backup behind the
numbers. So that if somebody claims to be billing attorney for X Corp we kind of
know if they really are or if they aren’t. So somebody will say, “Well, geez, my
numbers are so spectacular.” And we’ll say, “Well, yeah, but you don’t even know
who the general counsel is anymore at the client and it’s really so and so who
should get credit. (Interview 111)
For several reasons, however, firms tend to be deferential to partners with respect to
the allocation of origination credits between lawyers already in the firm. First, it is
impossible to specify in advance an appropriate division of origination credits, given the
myriad kinds of situations and forms of partner collaborations that arise. A firm that
actively monitored the division of credits would therefore need to spend a substantial
amount of time analyzing the facts of each particular situation. Second, in a firm that
comprises professionals accustomed to a large measure of independence, law firm
leaders generally assume that informal agreements by partners involved are likely to be
regarded as more legitimate bases for the distribution of credits than an edict by
management. Third, firms encourage partners to seek out new clients and want to avoid
adopting any policy that may create a disincentive for them to do so. Finally, firms are
also quite sensitive to the risk that a rainmaker who generates significant business may
bristle at what he regards as interference with his judgment about origination credits,
and that he may respond by leaving the firm.
Law firm management may exhibit similar restraint in attempting to ensure that
service partners have enough billable hours. Firms generally take the view that a
partner who has a relationship with a client is the best judge of who will be most helpful
in performing the work that needs to be done. As one partner commented:
51
We want to keep people busy … many of our people are quite versatile and they
can do lots of things. But I never, ever say to a practice leader or substantial
person who has a case, “I want you to use X. I know you don’t want to use X but
damn it, you use X.” That is not the way we operate here. It’s persuasion
sometimes, cajolery sometimes, but I’m not saying to a substantial person, “Use
X.” (Interview 10)
This tendency toward deference leads most service partners to regard the internal
market of the firm as largely unregulated, dependent on informal negotiations and
bargaining power.
The bargaining leverage of partners seeking origination credit from rainmakers will
depend on the size of a new matter, its significance in terms of the business strategy of
the firm, how crucial services of the non-rainmaker are, whether this partner is in a
position to refer work in the future to the first partner, and the personal relationship
between the two partners. It may also depend on the importance of the role one partner
plays in the ongoing work of the partner who is entitled to the origination credit. A
partner who regularly serves as a key lieutenant is more likely to receive some credit
than a partner who works occasionally on a narrow technical aspect of a matter.
The bargaining leverage of a service partner will also depend on the availability of
other partners who are available to do work for a rainmaker. The most significant
component of a service partner’s compensation is the amount of revenue that she
generates from the hours she bills. A service partner therefore needs a steady flow of
work from rainmakers. This need may inhibit her from pushing too hard for origination
credit with a rainmaker, for fear that she will develop a reputation that leads such
partners to turn to someone less demanding when they need help.
The internal market of the firm thus has an important influence on the most important
numbers that are used by the firm in setting partner compensation. Unlike the firm’s
formal determination of compensation, however, the internal market is regarded by most
partners as largely unregulated. Many firms attempt to encourage partners to share
origination credit, but firms are generally uneasy about explicitly overriding a partner’s
decision about the division of credits. Most outcomes in the internal market therefore
reflect individual personalities and informal negotiation.
Compensation in the modern law firm therefore constitutes a material economy
whose distribution of financial rewards is significantly shaped by the desire to satisfy
rainmakers in the firm and to attract them from other firms. Firms see themselves as
having little choice but to operate compensation systems with this feature. In this sense,
we can see them as market-driven organizations responding to business pressures.
The compensation process, however, has symbolic—not simply material—
significance for law firm partners. It is part of a complex moral economy that distributes
respect among partners. Decisions and negotiations about compensation are not simply
about money, but about the extent to which business skills and more traditional
professional skills form the bases on which respect is allocated in a given law firm. In
this sense, they represent communications about the meaning of professionalism in that
firm. One partner elaborated on this point:
52
Determining pecking order means you actually have to focus on somebody’s
worth to the law firm. Who is worth more to a law firm, the person who brings the
client in or the person who does the work? It depends on who you ask. If you ask
the person who does the work, the person says you couldn’t have gotten that
work but for the fact that I would do it, and if you ask the person who brings it in,
he says that person would have nothing to do but for the fact that I spent 100
hours a week running around talking to people, being sociable … being at the
ballet, being at the opera, you know going to dinners every night and stuff like
that, being on the gala circuit and all of that stuff and being known. How you fairly
weigh that—it’s not a science. (Interview 227)
Another partner said, “If you watch compensation from year to year [you will] … see
who is valued and who isn’t” (Interview 150).
The compensation process thus has significant meaning for a law partner as
constituting a moral economy that communicates the extent to which he is valued and
respected within the firm. This economy serves to allocate two forms of respect:
impersonal and personal. It allocates impersonal respect to the extent that partners
believe that compensation is awarded fairly. A partner who concludes that she has been
compensated fairly believes that she has been treated consistently with how other
comparable partners in the firm are treated. This belief enables her to have confidence
that she works at a firm in which each person’s contributions will be evaluated by a
common standard that is impartially applied. For her, the firm’s compensation process
reflects the value of formal equality: The firm doesn’t play favorites or base
compensation on criteria unrelated to the merits.8 This communicates a sense of
impersonal respect. It inspires confidence that all partners’ contributions will be
appropriately rewarded, and that their compensation will not be based on special
pleading, political considerations, or the influence of individual personalities.
The moral economy allocates personal respect to the extent that a partner believes
that his or her compensation reflects ways in which he contributes to the success of the
firm. This form of contribution is not fully captured in the quantifiable factors that serve
as inputs into the compensation decision. It involves less easily measured behavior
such as being generous with colleagues, effectively collaborating with others, mentoring
junior lawyers, doing high-quality legal work, assuming responsibilities on behalf of the
firm, and being involved in community and pro bono activities. A firm that recognizes the
importance of these traditional professional values affords a partner personal respect by
providing assurance that his compensation will not be determined solely by readily
quantifiable metrics that focus solely on profitability.
Understanding the operation of the moral economy helps provide a richer and more
subtle portrait of the complex cognitive universe that law firm partners inhabit and the
forms of motivation and satisfaction that law practice can provide them. In particular, it
suggests that struggles over compensation are in part struggles over the relative weight
the firm should give to business skills and traditional professional values. As such, these
8
It is noteworthy that a comprehensive recent survey of law firm compensation declares that “cronyism continues to be, by far, the
most significant reason for dissatisfaction with compensation satisfaction, outpacing all of the other enumerated reasons combined”
(Lowe, 2012, p. 7).
53
contests represent efforts to define the boundaries of the potentially all-encompassing
influence of financial imperatives in the modern law firm.
This allocation of respect occurs on two levels: the firm compensation decision and
negotiation among partners in an internal market for credit and billable hours. Most firms
identify the factors that will be considered in determining compensation, and many
provide extensive information about all partners’ originations, hours billed, realization,
and other factors taken into account in determining contributions to the firm. The
availability of this information increases the likelihood that a partner will look to a fellow
partner with similar inputs as her basis for comparison. The extent to which a partner
feels that the firm affords him respect depends on the extent to which it treats him the
same as everyone else with the same measurable forms of contribution. The firm, in
other words, expresses impersonal respect by conforming to the standard of formal
equality.
Reliance on objective criteria also expresses impersonal respect by making
compensation relatively predictable. A partner will ideally be able to calculate his
compensation by relying on the same metrics that the firm uses. If the two numbers
match, he feels respected because the firm has made a decision affecting him on the
basis of publicly announced criteria. This sense that compensation is predictable (i.e.,
because it is based on factors known to everyone) contributes to a belief that the
process is fair:
I guess I’ve always been on the verge of wanting to grumble about the
compensation here, but whenever I’ve kind of objectively assessed it and kind of
looked at the kind of objective criteria that I know that they use, you know, how
much money I brought in and originated, etc., I’ve always found in the end my
compensation was about where it should be. So I kind of grudgingly think the
system actually has been pretty fair and it has worked. (Interview 94)
Another partner echoed this sentiment:
INTERVIEWER: Would you say that overall people trust the compensation
committee to get it right?
PARTNER: I can only speak for myself on that but I do. … Each time I go into
[the compensation] process thinking I’m getting ready to get mad, and then when
I analyze it I realize, “Well, I think actually it’s about where it should be.” To give
you an example, every two years your share allocation gets readjusted, and
theoretically it can go up or down. And it wasn’t the last one but the one before
[when] I asked for a pretty substantial increase, and I did it based on my
calculation of the amount of revenue, overhead, and all the rest of it. I said, “This
is how much I think I should get,” and that is what I got. … That’s gone a long
way in terms of building my confidence in the system … given my understanding
of how the system is supposed to work, I got what I was supposed to get.
(Interview 96)
54
Many firms also give the compensation committee some discretion to include a
subjective assessment of a partner’s contribution in order to encourage and to reward
organizational citizenship. This discretion reflects the view that objective metrics may
not tell the whole story—that it is impossible to specify in advance all the ways that
someone may contribute to the success of the firm, and that the firm needs to be able to
take into account individual circumstances that affect performance. Permitting some
reliance on subjective assessments theoretically provides the opportunity for a firm to
pay personal respect to a partner as a unique individual by valuing the particular ways
in which he contributes to the firm, and by acknowledging any difficulties that he has
encountered in doing so.
One partner contrasts his firm’s compensation system with a rigid, formula-based
approach that he calls “eat what you kill”:
Eat what you kill is at the end of the year you hit the print button on the computer
and it generates all the numbers, and whatever the numbers say goes to
compensation—there would be no point for management. We spend three
months [reviewing data] until we announce bonuses and base compensation.
Why do we do that? Because it’s not eat what you kill; it’s qualitative merit
contribution based. We go through every single partner and we say, “Okay the
numbers suggest this, is there anything else we need to know?” (Interview 83)
Those who receive more compensation than others with comparable objective
metrics are likely to feel that the firm respects them by not basing their compensation
solely on “the numbers.” This can be taken as a signal that the firm is not concerned
simply with short-term financial reward and the behaviors that produce it. Rather, the
firm recognizes that people contribute to its success through cooperative behavior not
easily measured, and sometimes through sacrifice of immediate personal interests.
For instance, a partner may agree to refrain from representing a client on a certain
matter to avoid a conflict that would otherwise require the firm to forgo representing a
new, potentially valuable, client. This would reduce the compensation to which she is
entitled unless the firm treats this behavior as a form of contribution to the firm that
should be taken into account in setting her compensation. In addition, if compensation
also reflects appreciation for pro bono work or the quality of work for a client that is not
hugely profitable, it also can be construed as affirming intrinsically important
professional values apart from their contribution to financial success.
Partners who feel that they have had an opportunity to be heard may feel that their
compensation is fair even if it does not represent as large an amount as they would like.
One partner noted:
Each partner has an opportunity to write a memo … about who has been helpful,
who has been maybe difficult for you. What are you doing in the community?
What are your pro bono activities? Tell us all of that or tell us if you’ve had a
serious illness in the family, because that is something we take into account too.
Has somebody had a tough year because, you know, kid’s been sick, wife’s been
sick, husband’s been sick? We take that into account and normally that would
55
mean that there is unlikely to be any movement in their comp even if there was a
bad year. (Interview 111)
Another partner commented on the importance of giving colleagues an opportunity
to tell their stories:
Every year at the end of the year we do compensation review. Now I’m talking
about partners who are making a million dollars a year—they are making a lot
of money okay? But we don’t know their full story. Our partners making a
million dollars a year may be supporting his mother-in-law, his cousin, her
best friend, whatever, and so in compensation, for example, I will sit down and
talk to partners about what their hopes and expectations are and how [they are]
relevant to their life, rather than just imposing their compensation on them.
(Interview 83)
Firms that attempt to allocate both impersonal and personal respect through their
compensation systems must find the right balance between reliance on objective criteria
and subjective judgments. Greater reliance on the former can create a sense that
partners with comparable metrics will be treated equally, but may produce resentment
that unique personal contributions are not taken into account. Greater incorporation of
subjectivity addresses the desire for individualized determinations, but may create the
perception that the compensation process is unpredictable and amenable to favoritism.
Even if law firm management appreciates that its compensation system is part of a
moral economy that sends important messages about respect, it faces a potentially
formidable obstacle in ensuring that partners feel respected. The factors on which a firm
relies in determining compensation are often subject to the bargaining among partners
over origination credits. The operation of this market can strongly affect partners’ sense
of the extent to which they are valued, because decisions about whether and how much
to share credit are made by colleagues with whom a partner directly works. Firms
attempt, to varying degrees, to encourage partners to share credits in this market. The
ability of rainmakers to go elsewhere, however, imposes a practical limit on how much
many firms can do.
The most psychologically salient outcomes in most firms’ internal markets are those
that involve origination credits. A partner’s skill set and need for billable work influence
his bargaining power with respect to obtaining such credits. While firms make some
effort to prevent egregiously unfair outcomes in this market, many partners regard it as
largely unregulated. As a result, outcomes tend to reflect the personalities of individual
partners and the dynamics of ad hoc negotiation.
The internal market is shaped by the fact that rainmaking partners who have
relationships with clients begin with presumptive entitlement to origination credit for any
matter involving their clients. As one partner described it:
Yeah, the person who originates will get credit for anything. … I mean this is
general, it doesn’t always hold the case, but that’s generally the case. However,
if, for example, there is a big matter which is the first matter that is brought in by
partner number one and partner number two does most of the work on it, if
56
because of the excellent work on matter number one there are five other matters
that partner number two may not have been involved in, but was really
instrumental in securing the client for the firm, the partner may not get any
originations for any of those other matters. … So therefore compensation is
largely driven by originations. (Interview 83)
A partner’s satisfaction with the allocation of origination credits depends on the same
considerations as those that affect his satisfaction with the firm’s decision about his
compensation. First, does a partner believe that another partner has given him the
credits he deserves in light of his contribution on a matter? Second, does a partner
believe that another partner has relied on a fair process to determine whether to share
credits or how many to share? Finally, what has another partner’s decision about
origination credits communicated about the respect that he has for the partner with
whom he has worked? As with the firm’s decisions about partners’ compensation,
outcomes in the origination market are part of a complex moral economy that distributes
both money and meaning.
The allocation of respect in this sector of the moral economy can have an especially
powerful impact because it occurs through the personal interaction of partners. The
sense of respect that is allocated in these interactions can be even more vivid and
personally significant than the form of respect conveyed by the firm in its compensation
decision. A partner interacts with a firm about his compensation once a year for a
limited period of time. The conversation of course focuses on his particular
compensation, but part of it may well touch on general factors affecting his
compensation for which he is not responsible, such as the firm’s business strategy,
general economic conditions, and the amount of demand in the partner’s practice area.
A firm’s determination of compensation is thus likely to be based at least in part on
considerations that don’t reflect personally on him. In addition, it reflects a judgment by
“the firm,” which may be an abstract actor to a partner in a large firm notwithstanding
the personal importance of the compensation decision.
By contrast, decisions about the division of origination credits allocate respect
through direct personal interactions between individual partners. They reflect a
particular colleague’s judgment about the value of another partner’s contributions. This
judgment is more intensely personal than a firm’s determination of a partner’s
compensation. The respect or disrespect it communicates therefore can be especially
meaningful. One service partner elaborated on this point:
[There are cases where] I am confident that I’ve been a part of helping us
land some of our largest corporate work, confident. But when it comes
time to reward people, it’s the corporate guy who landed the deal who gets
all the gravy. What we do often isn’t even given its own matter in the
sense that we might be given some of the credit for that piece of the deal.
It’s just you are expected to contribute, but frankly it just means I’m billing
my hours so at that point I might as well be a second year associate.
(Interview 98)
57
Another service partner described the conflict that can arise over sharing origination
credits:
[There was an] individual who left a year ago who did not treat it fairly, and
people got very upset. An existing client of someone else’s would be
brought in and he would want to take the full origination credit, or one of
his clients would have a new matter that actually was the kind of work he
didn’t do and so he would bring in someone else to do the work but he
wanted to keep all the origination credit. Those are the kind of things
people remember and then that does increase resentment. (Interview 6)
These psychological dynamics of the firm’s internal market influence a partner’s
satisfaction with the outcomes of that market. With respect to judgments about
distributive justice, a partner’s conclusions about whether he has received what he
deserves will be sensitive to whether he believes his contributions have been
appropriately recognized in the internal market. That market tends to give substantial
weight to the development of personal relationships with clients as a measure of
contributions.
By contrast, a service partner’s definition of his contribution may focus on the quality
of his legal work. The latter, however, may not represent currency in the market for
origination credits. This can trigger a sense of unfairness. Even more disconcerting, a
service partner may believe that he made a contribution by interacting with and being
responsive to a client far more regularly than the partner who brought the client to the
firm. The failure of the latter partner to acknowledge this by sharing origination credits
may provoke an especially acute sense that a partner is not receiving what he
deserves.
Any belief that outcomes are unfair may be accentuated by a sense that the process
is unfair. A service partner’s receipt of origination credits depends on the generosity of a
rainmaker and whatever bargain the service partner is able to strike. In most cases, in
other words, the process is a function of informal personal interaction rather than the
uniform application of any general rules. The compensation committee bases its
decisions on the number of origination credits that partners record. This suggests that
the compensation process is objectively fair. The number of credits reported to the
committee, however, can be the result of an internal market process that some partners
may not regard as operating on the principle of fairness.
In the market for origination credits, beliefs about distributive justice therefore are
unlikely to be tempered by a sense of procedural justice. A compensation committee
member may have some credibility in saying to a service partner, “It’s nothing personal,”
but a rainmaker in the internal market generally does not. The fact that outcomes in the
market for origination credit are driven by what are perceived as highly personal
judgments makes it more likely that a service partner will be highly skeptical about the
fairness of the process that produces those outcomes.
All partners are members of a profession with traditional aspirations to individual
independence and control over one’s practice. Rainmakers, however, come much
closer to realizing these aspirations than do service partners. Even though partners
ostensibly have equal formal status, the relationship between a rainmaker and a service
58
partner can effectively approach that of an employer and an employee. If a service
partner is unhappy with a rainmaker’s decision about origination credits, he may have
little recourse within the firm. Furthermore, threatening to leave the firm may not be
credible, because there is relatively low demand in the lateral market for partners
without substantial books of business. In addition, of course, a service partner may well
feel constrained in asserting any claim because of his need to obtain a regular flow of
work from a rainmaker.
This dynamic can make interactions between partners in the firm’s internal market
especially fraught with underlying resentment. Notwithstanding a service partner’s
acknowledgement of his substantive dependence, he may take offense at any behavior
by a rainmaker that underscores it and makes it more explicit. As one service partner
put it, “The partner–associate thing isn’t all that different from the equity partner–income
partner thing, and I feel a lot more like a well-paid associate sometimes” (Interview 98).
Furthermore, both partners know that the rainmaker is not wholly self-sufficient. He
must rely on service partners to do the work for the clients that he brings in and to do
whatever it takes to keep them happy. There is, in other words, some degree of mutual
dependence between a rainmaker and service partner, even if one party to the
relationship is less dependent than the other. A service partner may thus resent a
rainmaker who hoards origination credits not simply because it has a financial impact,
but also because a rainmaker is effectively denying the contributions of his colleague
and is asserting a self-sufficiency that they both know is false. A service partner
described the sense of unfairness that can result from this denial of mutual
dependence:
Our compensation structure is based in part on the idea of originations
and I don’t think enough people play fair. … The same guy who brought
client X in 30 years ago is still getting 50 percent of everything everybody
else does, and hey man, if I get 50 percent from everybody, I would
be thrilled. … Someone brings the work in and I do 98 percent of the
work with my team of associates, and I feel like he’s getting compensated
and I’m not. He’s getting overly compensated and I’m getting
undercompensated for the way the work is done because clearly I couldn’t
do the work if he didn’t have the relationship, but the work couldn’t get
done if there weren’t someone like me to do it. (Interview 98)
A law firm’s internal market has particular importance because it serves to allocate
respect most directly from a partner’s colleagues. Because this market occurs through
daily personal interactions on “the shop floor,” it can have an especially powerful impact
on the extent to which a partner feels valued as a lawyer. To some degree, the sum
total of these interactions effectively is the firm on a visceral level for a partner. Their
quality is likely to have significant influence on how the partner views the firm and his
place in it. How generous or self-interested colleagues are in such interactions sends a
message about, and continuously serves to shape, the culture of the firm.
These interactions may lead a partner to conclude that the firm is a place in which
most people are likely to pursue their own interest, and that he needs to protect himself
by doing the same. Or it may lead a partner to conclude that the firm is a place in which
59
people have some commitment to shared values and are willing to temper self-interest
for the sake of the larger good. A partner who reaches the latter conclusion is more
likely to feel that he can do the same, trusting that others will not take advantage of him
if he does. That does not mean that considerations of self-interest will never be salient;
there will inevitably be occasions when they are. What it means is that a partner has
enough confidence in his colleagues that he does not feel the need to relentlessly
pursue only personal rewards without regard for others.
The sense of trust that can emerge from interactions in the internal market can be
fragile; trust is more easily destroyed than created. It can, however, generate a virtuous
cycle, in which trust leads to a willingness to behave generously, which signals to others
that it is safe to trust, which in turn leads them to be generous. As more people trust and
behave accordingly, the message can become stronger and more widely
communicated.
What would it mean for rainmakers and service partners to act more generously in
the firm’s internal market, and what would be their motivation for doing so? Acting more
generously for rainmakers is relatively straightforward: a willingness to share origination
credits. But why would they be interested in helping create a more cooperative firm
culture to which members would have some allegiance? First, most narrowly, this type
of culture might increase the origination credits that a partner receives from fellow
rainmakers. Many rainmakers are not just Finders. To differing degrees they also are
Minders who do work for other rainmakers’ clients. An ethos of sharing origination
credits could enhance the compensation that they receive from playing the latter role.
More broadly, even if a rainmaker’s concern is mainly obtaining financial rewards, a
firm in which people are committed and engaged is also one that is more productive.
People who don’t feel respected and don’t feel that it’s safe to look beyond their own
interest are less willing to share ideas or to go the extra mile to get the job done. This is
especially true in organizations in the knowledge industry, which compete by generating
innovative solutions for their clients and customers (Kim & Mauborgne, 2003). If a firm’s
internal market tends to communicate disrespect for service partners, this may lead to
disengagement by partners who are essential to serving clients and keeping them
satisfied. There is also some research that suggests that employees in professional
service firms who occupy such positions may be an especially important source of
innovation (Smets, Morris, Carroll, Malhotra, & Campus, 2008). Enlightened self-interest
can therefore motivate a rainmaker to act in the internal market in a way that allocates
respect to service partners.
Finally, one should not assume that all rainmakers are interested only in financial
rewards. For instance, a rainmaker also generally wants respect from other rainmakers.
There is the potential for a hierarchy even within the ranks of rainmakers based on the
amount of business that a partner generates. A rainmaker may well want to be well
regarded by fellow rainmakers not simply for his book of business, but for the quality of
his legal work and the value of the service he provides to other rainmakers’ clients. It
may be important, in other words, for him to be respected for both business and
traditional professional skills.
Furthermore, many lawyers value the opportunity to be of service to clients, to work
in a collegial atmosphere, to do high-quality work, to participate in work that is
intrinsically meaningful, and to be of some service to society. Some also value being
60
part of a firm that has a historical legacy that exemplifies these values. We are social
animals, and being involved with others in pursuing a common purpose is a powerful
source of satisfaction (Amabile & Kramer, 2011). A rainmaker therefore may value
cooperation as a good in itself, not simply as a means to maximize long-term selfinterest.9
Service partners generally are not in a position to have origination credits, and thus
they will have fewer opportunities to shape the firm’s internal market through their
decisions about sharing such credits. They may have opportunities, however, to behave
generously in the market for work. A service partner who is convinced that she needs to
relentlessly pursue her self-interest will fiercely compete with her colleagues for work
from other partners, regardless of whether she is the person who could provide the
most value to the client on a particular matter. To the extent that she has any discretion
to select other members of a project team, she may choose those she sees as less of a
threat to her advancement. If she has an opportunity to organize how some of the work
is done, she may do so in order to ensure that she receives the most credit. She may
also be disinclined to pitch in to help colleagues whom she regards as rivals, out of a
belief that their gain will be her loss. In each of these instances, she is making decisions
that are as self-interested as the hoarding of origination credits, and may be equally
damaging to developing a collegial culture within the firm.
To the extent that a service partner feels that the firm’s internal market shows her
respect, she will be more likely to regard the firm as a place where she is valued and
where she and colleagues are working for a common purpose. She therefore may be
more inclined to make decisions such as these with a view to the firm’s larger interest
rather than simply her own. Her sense of attachment to the firm also may lead her to
engage in acts of organizational citizenship such as helping to mentor junior lawyers
and serving on firm committees. In addition, she may be less likely to follow a rainmaker
who decides to leave the firm, or to depart for some personal opportunity that arises. To
the extent that firms are interested in institutionalizing clients—making them more
clients of the firm than of individual partners—the Minders and Grinders in the service
partner ranks are critical in ensuring that a client receives the consistently high-quality
service that leads it to turn to the firm to do its legal work.
For all these reasons, a law firm has a substantial interest in ensuring that partner
interactions in its internal market serve to allocate the respect from colleagues that is so
crucial to a partner’s sense of connection to the firm. As we have discussed, firms
attempt in various ways to influence behavior in the internal market. Each approach that
the firm uses may increase compensation, but each may also have a different impact on
the allocation of respect.
First, a firm may limit the period during which origination credit is available, or may
require that eligibility for it is contingent on a partner’s having substantial ongoing
involvement in a matter. Second, a firm may award management credits to partners for
assuming responsibility for managing matters for the clients of their colleagues. This
practice attempts to reduce the extent to which compensation reflects partners’
dependence on rainmakers’ willingness to share origination credits. Management
credits typically do not boost compensation as much as origination credits do. They can,
9
This cooperative mentality is coined the “assurance game,” a variant of game theory that was first described by Jean-Jacques
Rousseau.
61
however, communicate recognition of the importance and value of high-quality work and
client service in addition to the business development skills that are reflected in
origination credits. By sending this message, the award of management credits
underscores that rainmakers are not self-sufficient. They must necessarily rely on the
contributions of their colleagues who possess traditional professional skills to ensure
that clients remain satisfied and continue to turn to the rainmaker when they have legal
needs. This affirmation of mutual dependence can enhance a service partner’s feeling
of being respected as well as his sense of making an integral contribution to a common
mission. Third, a firm may establish guidelines for sharing origination credits that it
encourages partners to follow. This represents an effort to establish norms that can
influence partners’ exercise of discretion in the internal market. A firm may try to
reinforce and signal the importance of such norms by penalizing failures to abide by
them. Our research suggests, however, that firms tend to do this infrequently, reserving
it for especially egregious instances in which rainmakers claim credits that should be
shared with others.
Aside from these pragmatic considerations, enforcing guidelines by penalizing
compensation also may have a limited impact on the allocation of respect in the internal
market. That market operates through interaction by individual partners. These
interactions only communicate respect when one partner believes that a colleague
genuinely values his contributions as a fellow professional. A partner may receive more
compensation when a firm overrides a rainmaker’s division of credits, but he knows that
this has occurred over the objection of the rainmaker. What the rainmaker actually
thinks of him thus presumably remains unchanged. As a result, the increase in
compensation communicates respect from the firm, but not respect from the rainmaker.
Only the rainmaker’s voluntary willingness to share credits can do that.
Perhaps the most effective way for firms to influence the internal market therefore is
for major rainmakers to forgo taking as many credits, and as much compensation, as
they could. Modeling the kind of behavior that the firm wants to see can have a powerful
effect on partners. We regularly have heard stories of how the willingness of partners
with large books of business to do this has shaped the culture of the firm. One partner
relates the approach of a colleague who is a major rainmaker in the firm:
He could probably demand five times the compensation he makes, but
what he does, and he does this to create loyalty, is that he will take less
compensation for himself and say, “Compensate these other people who
are really important to my practice well.” And so that simultaneously binds
them to him and keeps them happy and keeps them here. He’s always
made a point of saying that it’s a point of pride that he leaves money on
the table; he doesn’t extract out of the firm all the money he could, and
that’s an example for other people too. (Interview 52)
Lawyers who have benefited from this practice and who themselves have become
major rainmakers tend to feel a strong obligation to follow this example in dealing with
junior lawyers. In this way, a rainmaker’s acts of generosity can have a powerful ripple
effect that shapes the atmosphere and culture of a firm.
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A law firm’s partner compensation system therefore distributes both material and
symbolic goods to its partners. Apart from the financial rewards provided by the material
economy, a firm’s moral economy operates to allocate respect among its partners.
Amounts of and differences in compensation effectively communicate which qualities
serve as the bases for being respected as a valuable member of the firm.
In recent years, intensifying competitive pressures have led firms to attach more
importance to skills commonly associated with operating a successful business, and to
contributions more readily identified as directly contributing to profitability. The
increasing importance of these business skills means that a good law firm lawyer is now
not simply someone who does excellent legal work or helps to create a collegial
atmosphere within the firm. The greater importance that firms attach to these more
commercial attributes is reflected in their increasing weight in determining partner
compensation. The result is that the compensation process has taken on significance as
an occasion for considering—and sometimes contesting—the relative value of those
qualities that characterize a good lawyer. Compensation thus can be seen as an arena
in which law firms are attempting to reconcile contemporary business demands with
traditional notions of professionalism.
Drawing on archetype theory, the process of determining compensation can be seen
as an occasion for the invocation of interpretive schemes associated with different law
firm archetypes. A firm’s exposure to new competitive conditions may call into question
traditional criteria for determining compensation. Management may believe that
changes are necessary to respond to these conditions, but successfully introducing
changes requires justifying them in terms that resonate with an interpretive scheme that
partners can accept. That scheme will need to provide a persuasive account of how a
new compensation system will strike a balance between business necessities and
professional values that enables the firm to respond effectively to the challenges that it
faces.
An interpretive scheme, in other words, must offer an understanding of what it
means to be a good lawyer that partners can accept. Furthermore, maintaining the
allegiance of partners requires not just that they agree with management’s proposed
revisions to the compensation system, but that they continue to accept decisions with
respect to their own compensation and what such decisions express about their place in
the firm. As one set of scholars maintains, archetypes need to be understood as “part of
an historical process by which firms and the people who work in them not only
accumulate wealth, but also obtain their identity” (Cooper, Hinings, Greenwood, &
Brown, 1996, p. 643). This perspective underscores that compensation is part of both a
material and a moral economy within the firm.
Pruning for Profitability
One striking impact of the 2008 economic downturn has been the more explicit
willingness of firms to lay off lawyers, including partners, whom they regard as
unproductive. An even more radical change is that firms are now more willing to let
lawyers go because of a decline in the firm’s business. Firms historically eschewed
layoffs due to fluctuations in the business cycle, out of concern that doing so would give
them a reputation with prospective recruits of being unduly focused on the bottom line.
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As one observer noted, “Layoffs are a brutal reality of corporate America. During fallow
periods, publicly traded companies, including the big banks, routinely cull their ranks.
The country’s largest law firms, by contrast, have historically taken a kinder, gentler
approach, rarely firing employees en masse” (Lattman, 2013).
The downturn, however, sharply reduced demand for law firm services, and left
many firms with little work for a good number of their lawyers. Firms responded by
laying off lawyers in unprecedented numbers. On a single day in February 2009 known
as “Bloody Thursday,” six major firms announced the termination of a total of almost
1,000 lawyers and staff (Harper, 2013). For that month as a whole, law firms laid off
some 2,000 lawyers and staff (Harper, 2013). During all of 2009, law firms laid off
12,259 lawyers and staff (Moliterno, 2012, p. 336).
While those cuts occurred in the midst of an especially sharp economic downturn,
layoffs have lost their traditional stigma as a way to maintain profitability even in the
face of more modest fluctuations. As one former partner who is an observer of the law
firm sector described, “Even a single year of relatively minor decline can create
concerns. Cutting costs through layoffs and getting more billable hours out of the
survivors has become a typical, businesslike response” (Harper, 2013). A law firm
consultant described the role for firms that layoffs need to play in fashioning a strategy
to deal with economic uncertainty. “In a word, [firms] need to get lean. They need to
reduce chronic underperformers, they need to reduce fixed overhead both in terms of
attorney and staff overhead, [and] they need to reduce excess real estate. Firms that
get lean can come through this and have a lot of opportunity on the other side” (Weiss,
2012).
Thus in June 2013, for instance, Weil Gotshal & Manges, a global law firm based in
New York with 1,200 lawyers, announced that it was laying off 60 associates and 110
staff members, as well as reducing compensation for about 10% of the firm’s partners.
Profits per partner in the firm were $2.2 million the year before, which led it to rank 17th
among U.S. firms. Those profits, however, represented an 8% decline from the year
before. The firm generated over $1.2 billion in revenue for the same year, ranking it 13th,
but that was essentially the same amount of revenue as in the preceding year. These
figures were published in the American Lawyer a couple of months before the layoffs.
About 20% of bankruptcy associates were let go, reflecting a slowdown in such work
after several years in which the firm had handled major bankruptcies connected with the
financial crisis. The memo by the firm’s managing partner announcing these measures
described the market conditions that led the firm to adopt them:
As we have discussed during various town hall meetings over the last few
years, the market for premium legal services has entered into a “new
normal” after the 2008 financial crisis. Many firms have been forced to
take actions over the last few years to reduce costs to deal with this new
reality … As the restructuring and litigation work relating to the 2008
financial crisis winds down, and as the overall market for transaction
activity remains at the lower levels which we believe is the new normal, we
must now make the adjustments we avoided over the last few years to
position the Firm to continue to thrive … From a revenue perspective we
will continue to take significant steps to further increase our market share.
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However, it appears that the market for premium legal services is
continuing to shrink. Therefore, actions to enhance revenue alone will not
be sufficient to position the Firm as necessary for these new market
conditions. (Weil Gotshal & Manges, 2013)
The memo stated that in addition to the layoffs that had been announced, “there will
have to be meaningful compensation adjustments for certain partners in light of the
economic realities of the new normal. It may well be that some of these partners will
decide to pursue other opportunities” (Weil Gotshal & Manges 2013).
A partner therefore knows that how successful he or she is as an entrepreneur will
affect not only compensation, but ultimately his or her future at the firm. “If you are not
productive for a few years,” one partner said, “firms don’t carry their wounded that long
anymore” (Interview 14). It used to be that “you could give somebody a chance to retool
if he or she lost a client or two” (Interview 14). Now, “it can happen but it’s rare”
(Interview 14). A partner at another firm echoed this: “I think it’s inevitable when people
are asked, ‘What have you done for [the firm] lately and are you billing, are you handling
enough work?’ I mean, if you are a worker bee partner, if your hours are high enough
you’re okay, but if you don’t have the hours, you don’t have the business, you’re going
to have some issues and you’re not going to be able to stick around for 20 years”
(Interview 199). As one partner succinctly put it to a reporter, “You’re only as secure as
the amount of money you bring in. The job is to make money for the firm” (Rogers,
2013).
When asked if there have been cultural changes since he joined the firm, one
partner responded:
Yeah, well I certainly think that things changed as a result of the downturn. [This]
was a place that kind of prided itself on, for years, on never having done
economic layoffs, and that changed when things went south starting in ‘09 I think.
And I do think that there is much less tolerance for people who aren’t busy, both
on the associate side but on the partner side as well. I think the idea that you
could just kind of, if you make partner, you can kind of glide out your career as
long as you were minimally busy is gone. Partnership is not a guarantee of a
lifetime appointment. (Interview 189)
Firms in recent years also have become attentive to the relative profitability of
different practice areas. The most dramatic examples of this occurred in connection with
practices related to financial services that were hit hard by the economic downturn in
2008. One partner described his firm’s process of dealing with this:
[The head of the practice] said, “It will come back, let us keep the most
sophisticated cutting edge lawyers who are doing this kind of work, segue them
into doing some other types of finance while we wait for it to come back.” We
gave people a long lead time but we basically said [after] a couple of years, “You
ought to look for other opportunities.” We downsized about 100 lawyers there.
That was probably a market disruption that we won’t see again in our lifetimes,
but there are things like that practice that recur year after year. (Interview 247)
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Practices for which there is still demand may nonetheless fall by the wayside if
management does not regard their level of profitability as consistent with the firm’s
strategic direction. Dechert, for instance, decided that its state tax practice did not
contribute to the firm’s efforts to focus on higher-end work, even though it generated
revenues of $10 million “and turned a tidy profit” (Triedman, 2007). The firm therefore
was not willing to devote resources to its development. As the firm chair wrote in
announcing the departure of the partners in this practice for another firm, “For a variety
of reasons, the development of a nationwide state tax practice is not a strategic priority
for Dechert” (Triedman, 2007). As one observer noted, “In Dechert-speak, that means
that the state tax group wasn’t going to help build one of the practices the firm sees as
having the most profit potential: corporate, hedge and mutual funds, real estate finance,
antitrust, securities litigation/white-collar enforcement, product liability, and most
recently, IP and arbitration. And if it wasn’t serving those practices, it wasn’t going to get
much in the way of resources from the firm” (Triedman, 2007).
Profitability is not a straightforward objective metric that reflects a firm’s financial
performance, but a highly significant social symbol. Law firm management is concerned
not simply with whether the firm is profitable, but whether it is profitable enough in light
of the signal that it wants to send about the firm.
Professional services are credence goods whose quality can be difficult to assess
even after they are consumed. In transactional work, for instance, it can be difficult to
say how much value a lawyer or a firm contributed to an acquisition of another company
or the sale of a subsidiary. Even in litigation, where outcomes would seem more easily
measured, how much of the value of a settlement or a judgment was attributable to the
lawyers’ skill compared to the importance of the facts, the clarity of the law, the
perspective of the judge or fact-finder, the bargaining leverage of the parties and, of
course, the skill of the other side?
While clients tend to rely more on individual than firm reputation these days, they still
attach some importance to the reputation of the firm. As Burk and McGowan (2011)
suggest, the greater focus on individual lawyers “is not to say that a firm’s overall brand
has become irrelevant.” They continue:
We suspect that it is relevant for all firms, although for most it is no more than a
relatively weak asset that signals the quality of the firm’s control of internal
agency costs. For example, firm reputation apparently matters to the extent that
in-house counsel do not want to be second-guessed for giving an important
matter to counsel that no one in senior management or on the board has heard
of. Just as no one ever got fired for buying IBM (at least once upon a time), no
one is going to second-guess an in-house lawyer for hiring, say, Skadden on a
matter of consequence. (pp. 65–66)
In light of the nature of professional services as a credence good, clients that
evaluate firms tend often to rely on proxies for quality in doing so. For law firms, these
proxies may be the reputation of the firm (admittedly an ambiguous standard); the
clients to whom the firm provides services; the extent to which the firm has done work
similar to the type that the client needs; the educational background and credentials of
the lawyers; the expertise and prominence of particular lawyers in the firm; and the
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profitability of the firm, including profits per partner. Firms do their best to ensure that
these proxies tell the best possible story to the clients whom they hope to represent.
One distinctive feature of the law firm market is that reputations are quite sticky.
While there has been some change, the roster of firms based in the United States that
perform the most complex and highly profitable work for major companies today is not
dramatically different from the list a generation ago. Many of these firms are centered in
New York, and many have close ties with financial institutions. Even the dramatic
turmoil in this sector of the economy beginning in late 2008 has not significantly altered
the influence of most of these firms. Their reputations and expertise help them continue
to attract business, which in turn enhances their expertise, the credentials of the lawyers
whom they are able to recruit, their profitability, and their reputations. These all
contribute to their role as market leaders.
Firms that hope to solidify or attain status as major corporate firms attempt to mimic
these market leaders in many respects. Perhaps the most striking example of this is
increases in starting associate compensation. Over the last few decades, many,
although not all, notable increases have been instituted by highly prestigious firms.
These increases can be expensive, since they tend to produce a ripple effect that
results in increases for associates at all levels of seniority. As a matter of pure economic
rationality, therefore, it might not be advisable for all law firms in, say, the Am Law 100
(ranked by gross revenues) to adopt these increases. Yet this has generally been the
case. Firms have tended not to determine whether their cost structure and revenue
base can support these increases. Instead, they have moved swiftly to adopt them,
sometimes within hours of the initial firm’s announcement. The reason is the fear that
failing to do so might send a signal that the firm is not committed to hiring the best
possible lawyers, and that its profitability is more precarious than that of the market
leaders. The assumption is that this perception can be a serious problem for a firm
attempting to signal its high quality to the market.
A similar phenomenon occurs with respect to profits per partner. Not all firms can
match the market leaders on this metric, but they are exquisitely sensitive to how they
are doing with respect to firms that they regard as their peers. Peers generally are
defined as firms with a similar ranking in the American Lawyer ranking of firms by gross
revenue, as well as those firms ranked slightly higher. While competition among firms
differs according to practice area, these peer firms generally are the ones that a firm
tends to consider its closest overall competitors in attempting to obtain business from
clients.
Considerations of profitability also have become more salient for some firms in light
of data suggesting a more pronounced segmentation of the legal market by firms and
types of work. There is some evidence that the most profitable 20–25 firms are
beginning to pull substantially ahead of the others, and that they are gaining an
increasing proportion of high-end work for business clients that are less price-sensitive
than most businesses (Press, 2014). This group of law firms includes some traditional
market leaders, as well as newer firms that have been able to adopt successful
strategies in the last two to three decades that have greatly enhanced their profitability
and visibility. The perception among many observers is that the advantages of being in
this top tier will be self-reinforcing, so that it will become increasingly difficult in the
future for firms outside of it to move into it in the future. Other firms certainly will still be
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quite profitable, but they will need to compete for work with respect to which clients are
more sensitive to price and efficiency.
Many firms outside the top group are eyeing this trend nervously, and are
determined to be on the right side of the emerging market divide. As one partner
observed:
There is a feeding frenzy among big law firms for the top of the market—big
corporations, big private equity firms, big international firms—so how do you
continue to distinguish yourself, what are you selling, what are you selling into
these markets, who are you, what is your identity and how do you manage that
process, and do you do anything out there that destroys that identity? So I think
you need to understand who you are and what you are trying to sell and you’ve
got to be—you’ve got to fight for that every day because it’s a handful of big
players at the top end of that market. (Interview 176)
Improving profitability can be both an effect and a cause in pursuing this goal.
Profitability that comes closer to the top firms can serve a signaling function by
suggesting to clients that a firm is comparable to these firms in other respects, thus
providing a certain halo effect. It also can signal to potential lateral partners who do
high-end work that the firm will be able to compensate them handsomely if they move. 10
Firms can increase profitability not only by increasing revenues but by reducing
costs. By letting go of practices and lawyers whose profitability is below a level that the
firm regards as suitable, a firm attempts both to encourage entrepreneurship and to cut
costs. Firms will differ in how they define an acceptable level of profitability. Those who
see themselves as inside or within striking distance of the top tier will set it higher, in the
course of which they may increasingly limit their work to higher-end services. This often
involves work for financial institutions and private equity funds; larger international
mergers and acquisitions; high-stakes litigation often involving intellectual property or
antitrust issues; large-scale corporate restructuring and bankruptcies; and other highly
profitable work. Even firms with no reasonable aspirations of being in the top tier,
however, will periodically assess the profitability of the services they provide, and are
prepared to jettison some of them if the firm’s profitability begins to fall below that of
their peers.
One partner described how this process at his firm was prompted by the sense that
“we were doing just fine as a firm, [but] the gap between our firm and the top tier … was
getting wider … We weren’t keeping up with our so-called peer group” (Interview 228).
As a result, “we went through a significant blood-letting, a lot of older partners were
asked to leave, [the firm suggested to some] practice groups that maybe you would be
happier in a different platform” (Interview 228). Another partner said that at his firm “for
a long time we had way too many clients. You know, without exception your receivables
in the bottom third of your client list are going to be 3X what they are up the chain, so
we set out to basically rid ourselves of the third tier. It might have been one-fourth, onethird, a lot, and we rid ourselves of a lot of lower value work, thinking that would make
10
Profits per partner (PPP) represents an average figure; a firm may well pay a potentially profitable lateral more than this. PPP
nonetheless signals a certain order of magnitude of profitability that can enable a firm to provide even higher compensation.
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some big changes and it did make some big changes. I mean, our realization rate went
up from 89 or 90 percent to 96 or 97 percent; that was a lot of money” (Interview 176).
Firms may effectively prune practices without explicitly telling partners that they need
to leave by raising rates to levels that less profitable clients can’t easily afford. One
partner described how “the policies with respect to how billable rates are set have had a
significant impact on people like me, who have smaller practices in terms of smaller
clients” (Interview 19). He elaborated:
PARTNER: [Rates] are generally increased across the board; you are told it’s to
keep up with whatever the market is, but I’m not sure what market they are
talking about. The markets that I’m dealing with are looking for lower rates not
higher rates, and that has made it difficult to develop a practice.
INTERVIEWER: And so there is the prospect you might lose some clients at
some point along the way?
PARTNER: Yes, and I think I’ve already lost work and clients because of that.
INTERVIEWER: And do you have much input into the decision to raise the rates?
PARTNER: In theory, yes; in practice, no.
INTERVIEWER: How is that supposed to work in theory?
PARTNER: I guess in theory there should be some sort of dialogue in how
the rate increase might impact the particular practice, but there isn’t. I think
the decision really is, we need to keep up with what the market is for firms of our
size so we need to bill accordingly … I think the firm sees itself as playing in a
certain segment of the market, and there are other firms in that segment that they
want to not fall behind, because then they might be perceived as instead of a
first-tier or second-tier law firm—they would be a third- or fourth-tier law firm”
(Interview 19).
This partner admitted in the interview that he could foresee the possibility that this
trend toward rate increases might mean that at some point he would need to leave the
firm:
INTERVIEWER: So is there concern among you and the folks you work with that
at some point your practice just may not fit where the firm thinks it’s going
strategically?
PARTNER: Yes. That’s certainly an issue for me, yes.
INTERVIEWER: And how do you think management would react if you explicitly
raised that?
PARTNER: It’s hard to say. I think the answer might be that I need to either
adjust what practice I want to have or my expectations, or look for other
opportunities. (Interview 19)
It turns out that sometime after the interview this partner did leave his firm to join
another firm.
Another partner explained that at her firm partners have some flexibility to discount
rates for some clients, but that there are ultimately limits to how far this can go. “The
groups that are saying, ‘We can’t charge these rates and we’re going to have to give
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every client a 25 percent discount,’ well over time that has to affect your compensation.
Or we may go the way of other firms that have taken a narrower model and have just
gotten rid of the less profitable practice areas … You have to decide what practice
areas you want to emphasize, I mean, you have to live with the realities of the market
and where the work is” (Interview 193). She saw the firm as moving more toward a
“practice group profitability model as opposed to an individual partner model … so I
think that if you are in a practice over time—not in a particular year but over time—if you
are in a practice group that is growing and can command high realization or more
leverage or whatever that drives profit, and this makes your practice area more
profitable, then the partners in that group will be recognized over time—and the
converse is true also, obviously” (Interview 193).
Part of the challenge for partners is that practice areas are not fixed with respect to
their relative profitability. They tend to go through a cycle in which they begin as
innovative services offered by a small number of firms who can charge premium rates
for them, and eventually become routine work in which profit margins are small. This
process appears to be accelerating as a result of factors such as the wider availability
and lower cost of information, greater attention to analyzing the workflow involved in
legal services, and the increasing ability of clients to identify and parcel out discrete
portions of work to low-cost providers. This “legal services life cycle” thus consists of:
(1) the development of an innovative service that generates above-market profits
for its creator; (2) the enjoyment of premium profits by the first mover for a period
of time; (3) the entry of additional firms into the market who seek to gain
competitive advantage through more cost-efficient provision of the same service;
(4) the standardization of many or even all facets of the service in furtherance of
this goal; and (5) the transformation of the service into a commodity that
corporate clients purchase mainly on the basis of price, with low profit margins
for providers. (Regan, 2010)
As professional services consultant David Maister observed, “In every profession, one
can point to practice areas that, in only a few short years, moved rapidly from being
frontier activities handled by only a handful of innovative firms to high-volume practices
offered by increasingly large numbers of competent firms” (Maister, 1993). One partner
described how this dynamic has become commonplace in law firm practice:
PARTNER: The interesting thing is that the low value legal work is not a fixed
number of practices. The law work continues to go through an evolution and what
was high end, high quality work at some point can become low value. So what
that really means is at the back door of your law firm at some point in time
somebody that once did high value work who hasn’t changed what he’s doing is
likely to be doing low value work and be asked to move on to a smaller low-value
law firm some place. And that happens kind of seamlessly. It used to be a shock
in the old days but today people understand it’s normal.
INTERVIEWER: So that’s an ongoing process.
PARTNER: Yeah, it’s got to be. (Interview 176)
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Some firms keep a close eye on overall financial performance, but have opted to
provide a broad range of services that may vary in their profitability. A partner noted that
his firm “wants to be full service and be in some areas that are valued by our clients but
that are not as profitable in terms of realization.” He continued:
My view is, I’ll take that trade any day to be honest, I mean if I step back and
think, “Okay, in terms of stability and longevity would I rather have a bigger
product offering that can get my billable number, my origination number higher,
versus be at this other firm where I can only sell four things.” For me that’s a nobrainer, I mean every day of the week I’ll [choose the former]. (Interview 165)
Another partner noted his firm’s belief that having a wider range of work helps the firm
weather fluctuations in the market: “We think the [narrower] model is tougher in a
downturn … We did better in the downturn simply because we had a much broader
base” (Interview 238).
Ultimately, as one partner put it, “There is no big mother that will support you should
things not work. And I think where most of the firms will go at the end of the day is to
say, ‘We are providing a platform and, you know, we will enjoy it if you succeed but
there is no net to fall back on” (Interview 188). As another junior partner who has faced
some challenges getting enough work concludes, “I mean the way I look at it is, look I’m
either going to get appropriately busy and then I’ll be happy and they’ll be happy with
me, or I won’t be and neither one of us will be happy and I’ll be looking for something
else” (Interview 241).
Partners in law firm management are aware that greater willingness to lay off people
and to let go of less profitable practice areas can lead some people to say that “the firm
has become too bottom-line oriented, that business is being put first and that this was a
more humane and social place in the past” (Interview 228). They see the need to take
such measures as unavoidable, however, because of the unforgiving competitive
conditions in the legal services market. As one partner put it:
We try to balance [it with] preserving our culture … but the reality is that we have
to adapt to the way that the economics of the law firm industry are moving. …
You can’t just sort of put your head in the sand and just plug your ears and say,
“No, no, we’re just going to keep doing it the way that we did it ten years ago
because that is how we like to do it; we don’t change.” You do that, then
eventually you’ll just be a dinosaur. So you have no choice but to adapt.
(Interview 71)
Another partner commented on a firm that was having significant problems at the
time of the interview, which eventually was acquired by another firm. “Our firm,” he said,
“could have found itself in deep, deep water the way [this firm] is now, for instance, if it
wasn’t as forward-thinking as it is. If it hadn’t taken steps to deal with underperformance, or just good performance but in practice areas that just don’t fit with this
kind of … platform. You can’t be all things to all people, you just can’t” (Interview 228).
Firms believe that failure to acknowledge these realities will imperil not only their
competitiveness but their very survival. A 1994 account of the dissolution of New York’s
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oldest law firm Lord, Day, founded in 1818, tells a story that is paradigmatic of the shift
in the law firm market, whose lessons are central to how law firms see their situation
today. As the New York Times reported at the time the firm closed, “The old values of
being true, quiet professionals still held. Lord, Day’s lawyers served the same clients for
generations. The aggressive pursuit of new business and old bills was considered
unseemly. Gentility counted for a lot—colleagues uniformly described one another as
‘nice.’ It was a lovely way to run a law firm. It turned out to be a terrible way to run a
business.” By the late 1980s, “senior partners were waking up with a start. They
realized that if the firm did not expand rapidly, it would die. With scarcely 100 lawyers, it
could not assign 30 or 40 bodies necessary for the complex mergers and acquisitions
that were bringing windfalls to larger firms.” Ultimately, “like many firms, Lord, Day
refused for so long to adapt to the new legal market that when it did—merging with
another firm, taking on a costly lease—it was too late.” As one associate commented,
“We came here just because it hadn’t woken up to the new world. What I liked about the
firm were the very reasons it couldn’t last” (Hoffman, 1994).
More recently, one partner described the situation at a firm where he and some
colleagues previously had worked that was eventually acquired by another firm after
what looked like a death spiral: “We realized pretty quickly that there was going to be
some financial turmoil, they were going to have to let lots of people go. The productivity
level of the partners was dismal. I had heard at one point that … it was probably
generally accurate that less than 50 percent of the partners billed more than 1,000
hours a year. And it wasn’t because they were rainmakers; it was just people who had
been around for a while and it was hard to get rid of people” (Interview 253).
Several partners we interviewed regard their firms’ lower tolerance for
underperforming partners as contributing to a greater sense of fairness within the firm,
and thereby strengthening culture, by holding people more accountable. One partner,
for instance, described her firm as one characterized by “taking pains to emphasize the
importance of collegiality, taking pains to emphasize that it’s important to share, it’s not
an eat what you kill type of firm; people are not well regarded if they are, I would say,
selfish … I tend to not embrace working with people who are selfish. People who are
altruistic tend to want to work with each other, and it seems as though for the most part
that they remain in the majority” (Interview 131). At the same time, she observed that
“the trend over the last 10–15 years that I’ve seen [is that] … we’re getting a little better
at letting underperforming partners go.” She continued:
So the trend is in general sort of a slow trend toward what I would call
more business discipline, very much tempered by sort of our disinclination
to cut someone off. It’s not as forgiving a place as it used to be and I don’t
think that’s bad. You can’t survive without making any decisions, and also
I think there is a benefit to the people who are performing to impose some
expectations, and [when] people are asked to leave it’s very delicately,
privately, gently done, but I’ve done it, I mean we’ve done it. (Interview
131)
Another partner maintained, “You have to have a performance based culture in a law
firm. Performance can mean a lot of different things. It can mean that you are a guy who
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attracts $30 million a year in transactional business. It can also mean that you are an
extraordinarily well respected mentor role model … There are a lot of different ways to
contribute to the firm’s performance but at the end of the day everybody has to at some
level perform” (Interview 247).
Knowing that the firm holds other partners accountable creates trust that a
generation ago might have been created by regular personal interaction with other
partners. The trust is that colleagues are pulling their weight and contributing to the
success of the firm. This creates a sense that the firm treats people fairly, which is
something that a few decades ago was created by active involvement in governance.
This trust is impersonal rather than personal, and it is designed to solve a potential
collective action problem among partners who may be relative strangers to one another.
One partner articulated it this way:
PARTNER: If you are successful, you sort of earn your credibility and then
nobody really second-guesses what you do.
INTERVIEWER: But you are held accountable because you’ve got the
performance metrics.
PARTNER: And that keeps everybody performing and so that creates the trust.
(Interview 76)
Indicative of the potential problem of failing to do this is the fact that at the old-line
Lord, Day law firm, “younger rainmakers—people who attracted lucrative business—felt
their efforts propped up the veterans, who were expected to spend their golden years
burnishing a firm’s reputation by taking on community leadership roles” (Hoffman,
1994). In 1986, the firm lost the head of its multimillion-dollar antitrust practice, who took
17 lawyers and several clients to another firm. “Lord, Day was never able to rebuild its
antitrust work. Half the firm’s real-estate practice left, as did Richard G. Cohen, its tax
chief. In addition to the loss in business, the firm lost prestige: top-flight law school
graduates became increasingly difficult to recruit” (Hoffman, 1994). The latter
development reflects the perceived connection between profitability and status that is
characteristic of the modern law firm world.
Underscoring this point, one mid-career partner described how he sees ensuring
high financial performance as a necessary element in preserving the firm’s culture:
INTERVIEWER: What do you see as the biggest risks to the firm’s culture going
forward?
PARTNER: I think that the single biggest risk [is that] there is increasing
stratification based on both perceptions of quality and profitability. And if we are
not in that top tier by the time I retire it’s going to not be as great a place to
practice.
INTERVIEWER: In what ways?
PARTNER: Well you won’t be able to attract the best work; therefore, you won’t
be able to attract the best associates, and it’s a cycle, and suddenly once you are
perceived as being a second-tier firm doing second-tier work that’s a problem.
You know, I talked about performance culture, you downsize [a certain]
practice not because you don’t like those guys, but you can’t be running around
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the country at $500 bucks an hour dealing with [fairly routine matters], right,
you’ve got to have the top tier people doing the top tier work in [that field]. You’ve
got to have the top tier people … and you’ve got to be perceived that way, and
that perpetuates itself in a positive way, and once that starts slipping it
perpetuates itself in a negative way and the threat to the culture ironically is if you
are not competitive in profits per partner. (Interview 247)
Some partners see their firm’s business strategy to maintain a relatively broad range
of services as also having a cultural impact by mitigating some of the pressure to lay off
partners and prune practice, as well as contributing to a more collegial atmosphere and
satisfying practice. An exchange with one partner illustrates this, when he contrasts a
“transactional” approach that focuses on discrete high-end matters from a more fullservice approach:
INTERVIEWER: Do you have a sense at this point of whether the firm trades off
some intangibles for not completely maximizing economic performance, financial
performance?
PARTNER: I have that sense actually.
INTERVIEWER: And how is that reflected in concrete ways?
PARTNER: I think it’s, in part—it’s reflected in [the fact] that firms that focus very
much on the bottom dollar are very transaction-focused, whereas I think we are
transaction-focused but I think we focus more on making sure that we give clients
very good service and that we have really almost every practice area
represented at the firm. And that comes at a cost because not every practice
area is that profitable, whereas I think there are certain firms that really prefer to
focus on just a few very profitable areas. We are a very full service place and
there is a lot of value in just sort of helping others, you know responding to
questions that people have … My sense is more that we’re more focused on
client service even if means that we do things or we have lawyers who spend
their time developing expertise in issues that will not necessarily be that
remunerative to the firm.
INTERVIEWER: And that’s a deliberate philosophical choice?
PARTNER: It seems to me that way, particularly in light of sort of other firms that
I was talking to, where their focus was very much on deal after deal after deal.
Those are the high volume, those are the high profit margin practice, even
though [for] many of those types of transactions it’s not that fun to do them over
and over and over again. And it’s more fun to work on interesting legal questions
or problems, things that are more advisory, less transactional. I think the choice
to be a full-service firm, to actually have all of the legal practices, I mean we
wouldn’t be doing things that are completely unprofitable, but if we care more
about profitability we would probably focus more on being a little bit more
aggressive. (Interview 245)
A partner at another firm described his firm’s commitment to a range of practices:
“[We aim] to have ultimate flexibility to meet each one of our markets and, if we can be,
as long as we can be competitive compensation-wise and rate-wise in each one of our
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markets we can be successful” (Interview 163). He recounts the story of one group of
partners who came to the firm from another firm because the other firm told them:
“Your rate next year will be $850 an hour,” and that had nothing to with their
practice, their client, it was just that was what their rate had to be. And we said,
“We can’t charge $850 bucks an hour,” and they said, “I don’t need to make $2
million,” and so now they are with us [and] they are charging $650 bucks an hour,
and a couple of them are making over a million dollars. They figured, “I’m doing
what I want to do, I’m keeping my clients and I’m making a pretty damn good
living.” But they couldn’t fit that into their system, where again [we] preach
flexibility and our compensation allows us to do that … It’s kind of like a jigsaw
puzzle but it all fits together where we can accept people. (Interview 163)
Another partner described a practice in which the partners “don’t make as much as
the corporate securities lawyers but they love what they do and we love to have them
because it’s a great full service to offer to our business clients. We don’t have to send
them to somebody else” (Interview 163). Another partner at the same firm said, “I would
also consider us as being a little bit less shy about being committed to culture, you
know, a little bit less given to embracing profits over people, sort of a little bit of caution
about going the route of growth and profits, which has been evidenced by the way
we’ve grown. It’s slow and steady and cautious, but good and successful” (Interview
131).
Firms that maintain a relatively broad number of practices are able to maintain
overall profitability because partners in them are willing to accept that there may be
significant differences in compensation based on the profitability of different practices.
What may appear at first blush as a harsh compensation system and an internally
competitive firm thus may actually reflect a more inclusive approach that tries to balance
business and professional concerns.
Not all partners in such firms agree with this approach. One partner in a firm with a
relatively wide range of practices acknowledged that “there are some people [who] say
we’ve got to cut the number of partners because if we got rid of ten percent of our
partners our American Lawyer numbers will look better … So there are some people
who will say it isn’t good enough just to reduce [a partner’s compensation] to the point
where they’re profitable and let him or her decide whether they want to leave, we’ve got
to be more aggressive, get rid of people” (Interview 201). A partner at another similar
firm complained, “They don’t fire people as quickly as they should … you view everyone
economically, which is, ‘What if we cut his comp down to $125,000 and it costs this
much to have a portion of a secretary and the utilities and all that, and he only bills X
hours at X rate we’re still breaking even, we’re still making a little bit of money on him.’ I
think it’s a terrible way to run a firm … I mean we let people hang on here three, four,
five years. You’re not doing them any favors … everyone who knows about law firms
who studies them said the same thing: ‘Don’t carry your wounded forever’” (Interview
174).
Firms believe that there are ways to handle involuntary departures that are better or
worse in helping to maintain morale and culture within the firm. One partner believes
that regularly keeping an eye on performance enables his firm to be “more humane” by
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“balancing the business needs with a sense of decency” more than other firms who
have let problems become serious before they responded. One firm he mentions, for
instance, “didn’t change with the times and so when it had to they were brutal, they just
overnight became brutal” (Interview 228). By contrast, his firm did the culling that it
thought was necessary, but “did it in a very humane way compared to when people just
got shoved out the door overnight with no notice, no nothing” (Interview 228). Another
partner remarked, “We don’t cut throats very quickly here and we don’t do it very
readily. We almost always give people at least two years to retool or rework or rethink
their practice” (Interview 237). Firms may also signal the need to leave by in effect
phasing out a practice area, rather than immediately abandoning it. This involves not
devoting new resources such as entry-level associates, promotions to partner, lateral
partners, increases in compensation, and marketing efforts to the practice. This
provides time for partners in that practice to find another firm in which their work is a
better fit.
One partner noted that his firm made unprecedented layoffs during the bottom of the
economic downturn, but “we did it more slowly, we tried to find places for people to go
and [did] our best to be as humane about it as you can be in those circumstances”
(Interview 165). With respect to involuntary departures more generally, “we set
deadlines all the time for people to transition out and then extend those deadlines [for]
almost endless periods of time [to give them] the maximum chance to find an
opportunity” (Interview 165). Another partner said, “where we decided we need to let
people go we tried to give them a lot of time to find another home, we tried to help them
find a position because not everybody is going to succeed here; in fact the vast majority
of people don’t … And so that’s just the nature of it, but I think we’ve always in our
group tried to be very humane about it” (Interview 204).
Virtually all partners who spoke of layoffs or instances in which partners were
encouraged to leave their firms described these events as occasions for regret, rather
than simply as business decisions made by the firm. One partner who described his
firm’s need to make layoffs during the economic downturn said, “Do I think the firm did
the wrong thing? No, I don’t. That was the economic reality of the time, but it hurts
because you are dealing with people’s lives” (Interview 204). Another partner noted that
in the firm there is “in general a sort of slow trend toward what I would call more
business discipline, but very much tempered by sort of our disinclination to cut someone
off” (Interview 131). Still another partner said, “We’ve had practices that just dried up.
This firm is pretty good about it, you know; we don’t cut someone off at the knees after
one or two bad years but over some period of time, you know, after cutting people’s
compensation we have told people to leave” (Interview 238). Speaking of her firm’s
layoffs during the worst of the economic downturn, another partner said, “I never want to
see that happen again. I don’t think the firm wants to see it happen again” (Interview
254).
Many lawyers seemed to be attempting to come to grips with this trend, and with its
implications for the nature of law practice. This may reflect a desire to continue to
distinguish law practice from ordinary business. It may be based in part on concern for
the firm’s reputation among potential entry-level and lateral lawyers. One partner
suggested:
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Even after the layoffs in 2009 where so many people were doing it, people still
got criticized. You know, ‘How much severance did you give?’ The kids these
days know it and it has a direct impact on the ability to recruit and it sends market
signals too for laterals. So I think also the law firms understand that six months or
a year is a very short time frame and someone in a practice group could be slow
but the next year you may need them and you’re not going to be able to attract
talent if … whenever you are slow you just lay people off. (Interview 253)
One partner quoted earlier described opposing an approach to compensation in his
firm that reflected what he regarded as an investment banking mentality. That same
mentality contrasts with a concern to mitigate the frequency and harshness of layoffs.
As Karen Ho describes in her ethnography of Wall Street investment banking culture,
“investment banks, on average, conduct a significant downsizing every year and a half
or so, with continual ‘purges’ in between and along the way” (Ho, 2009). Such layoffs
occur in both bull and bear markets, so that “investment banks’ up-and-down
employment strategy is perhaps their most consistent cultural practice.” Banks are
hypersensitive to the slightest market movements and to opportunities to profit from
them, which means that “Wall Street’s approach to downsizing is instantaneous and
absolute.” The standard practice when layoffs are announced is “forcing downsized
employees to pack up and leave within as little as fifteen minutes (or at least that day).”
Their belongings are later shipped to them in UPS boxes. As one banker commented:
I think that every single day you realize that our job could be gone the next day.
You have a downturn in the market, and they lay off hundreds of people or you
have a downturn in just your desk [your particular area’s] performance; all of a
sudden they need to lay off people. You know, your company decides they don’t
want to be in that produce anymore; they lay off an entire department. I just think
that’s part of life here. (Ho, 2009, p. 236)
Ho suggests that this Wall Street model of rapid deployment of resources and
personnel in response to market conditions increasingly is presented as the template for
the rest of the business world. As she put it, “The workplace practices and approaches
to employment that have been cultivated on Wall Street have certainly helped to
constitute the brave new workplace in general” (Ho, 2009, p. 243). Similarly, Richard
Sennet argues that the motto “no long term” may best capture emerging approaches to
employment (Sennet, 2011). He quotes an AT&T executive to elaborate on this
concept: “In AT&T we have to promote the whole concept of the work force being
contingent, though most of the contingent workers are inside our walls. ‘Jobs’ are being
replaced by ‘projects’ and ‘fields of work’” (Sennet, 2011).
Investment banks are an extreme example. The point, however, is that they are in
many respects the embodiment of the purely market-driven organization fueled by
business concerns. By contrast, law firms seem unlikely to reach this point in the near
future. The structural changes in the market since the economic downturn have made
partners resigned to the fact that firms may need to let lawyers and practice groups go if
they are not meeting financial performance standards. They see this as an inevitable
feature of law firm life in the “new normal.” This undoubtedly strains ties between
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partners and the firm, especially for partners who may feel vulnerable because of
lagging profitability of their individual practices. Furthermore, the dynamism of any given
practice area can’t help but prevent most partners from feeling completely secure.
At the same time, partners believe that firms can go about this process rashly or
deliberately, harshly or humanely. The breadth of practices that a firm decides to offer,
its reliance on differences in compensation rather than terminations to respond to
differences in the productivity of partners, the extent to which it encourages departures
by phasing out the commitment of resources to particular practice areas, the amount of
time that the firm provides for lawyers to find other employment, and the visibility of
terminations all can send messages about the values of the firm. Partners generally
seem reconciled to the notion that partnership is no longer forever. To the extent that
they regard their own firm as characterized by a deliberate and humane approach to
underperforming partners, however, they believe that it stands for values beyond simply
profitability. This can be one basis for them to identify with the firm and its culture even
in an era in which loyalty is more qualified than before.
Luring Laterals
As law firms grapple with the tension between the demands of modern practice and
traditional notions of professionalism, lateral hiring has become an arena in which
business values and professional values are both reinforced and tested.
Lateral hiring refers to the practice of hiring partners from other firms into the
partnership. It has become a key aspect of many firms’ strategic plans. The American
Lawyer has documented data on lateral moves since 2000. By 2000, the trend was
already well established, with 70% of the top 200 law firms hiring at least one lateral
partner; by 2011, the figure was 89% (Henderson & Zorn, 2013). It appears from these
data that among large law firms, the practice of hiring lateral partners has become
institutionalized—a taken-for-granted part of the growth of large law firms.
Not everyone regards this evolution as desirable. As one leader of a large U.S. law
firm lamented, the lateral market equates to “the death of loyalty in the practice of law”
(Interview 40). A partner at another firm described the challenges posed by the lateral
hiring trend for modern law practice, both for firms and for their clients:
The market is starting to look a little bit…almost [like] sports teams; you know, we
trade some stars, stars keep leaving and going and the whole game if you are
the coach is to temporarily get together a team and then it moves on. So I think
that’s the huge external pressure that law firms are facing and [the question is]
how much do they succumb to that … At the end of the day it probably doesn’t
make that much sense for clients. Clients are probably deluded if they think there
is some … great individual and it’s not the firm as a whole that is delivering to
them. (Interview 179)
While there has been no empirical research comparing lateral movement in law firms
with other professional service organizations, accounting and consulting firms appear to
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rely on lateral hiring much less than law firms do.11 Indeed, although lateral hiring is an
accepted practice among large law firms, it is not the only path to growth. And yet, law
firms are increasingly eschewing organic growth in favor of lateral hires and mergers
(which for professional service firms are a variant of lateral hiring). This trend is perhaps
encouraged by the legal profession’s traditional notion of individual lawyer autonomy
and the ability of partners to take their clients with them when they move to another firm.
It also is abetted by the inability of law firms to enforce covenants not to compete
against lawyers who leave the firm, unlike the case with other professional service firms
(Regan, 1999).
The alternative to mergers and lateral hiring is organic growth, but many firms view
this approach as less attractive for a number of reasons, mainly due to incentives and
timing. Although law firms have traditionally relied on an apprenticeship model (Galanter
& Palay, 1991), investing in training and development for young lawyers is expensive
and time consuming. One reason for the lack of investment is the partnership structure,
which tends to discourage long-term investments of any kind. This tendency may be
amplified by the fact that many law firm partnerships are composed of an increasingly
older population, providing even less incentive to make investments that will not pay out
for many years. Because of the length of time it takes for a new associate to become a
productive partner (over 10 years), it can be difficult for firms, as the legal environment
changes, to quickly add new practices without hiring experienced partners. Finally,
determining which associates have future business development ability is difficult, so
the payoff from any investments is highly uncertain. Investing in lateral hires may
therefore seem to be a “safer” risk, since the incoming attorneys have already proved
themselves in other firms and are theoretically able to bring their clients with them
and/or attract new clients immediately upon arrival.
There are examples of firms that eschew the lateral hiring practice. But they tend to
fall into one of two camps: they are either very elite (the relatively small New York “white
shoe” law firms; Cravath and Wachtell Lipton are prominent examples) or quite small.
The vast majority of large firms engage regularly in the practice.
One side effect of increased emphasis on lateral hiring is its effect on the
compensation structure of the firm. Laterals may skew compensation upward because
lateral hiring creates competition among firms for certain types of attorneys. Here’s how
one partner described this phenomenon:
There are firms throwing crazy amounts of money around these days and I do
think … more so than ever [the] mentality is get [it] while you can … because
who knows what tomorrow is going to hold. And that’s a challenge. More so than
ever I think you’ve got to pay your performers and [although] they may leave a
little money on the table, they are not going to leave a lot of money on the table
because it’s too easy. (Interview 203)
11
See for instance Koltin Consulting Group’s 2014 lateral hiring study of accountants and financial consultants, which found that half
of the top firms hired at least one lateral during the first six months of 2014 (http://www.koltin.com/pdfs/KCG-Lateral_Hiring_StudyFirst_Half_2014.pdf).
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Another partner from the same firm observed, “Since the advent of the American
Lawyer and the explosion of the headhunting or recruiting profession it’s very
easy if you know your metrics to pick up the phone and ask a recruiter what kind
of money you could be making at another law firm” (Interview 247).
Another partner attributed the intense competition for lateral partners to the
changing client base in large U.S. firms:
Today, to attract top talent, you are in a bidding war situation that you may not
have been in ten years ago. It’s a different world in that sense, because getting
work from big multinational … companies is a ticket to generating revenues in a
way that may not be the case with smaller companies. … If our business model
now is that we’re competing with global firms for partners, we have to pay
partners these big amounts of money. (Interview 71)
The Currency of Lateral Hiring
The currency of lateral hiring is what is referred to as a partner’s “book of business.”
This phrase refers to the clients for whom a partner is responsible for maintaining the
relationship and overseeing the ongoing delivery of service. For some firms, the dollar
value of a partner’s book of business represents a de facto quantitative threshold below
which firms will not seriously consider a potential lateral. One partner described the
approach of his firm: “They won’t even look at you any more for a lateral unless you’ve
got a book of business that can support the compensation you would like to get”
(Interview 66).
Firms’ approaches to lateral hiring restrict the movement of attorneys who are not
fortunate enough to possess a large book of business. One partner aptly described the
reaction of recruiters when she tells them she does not have her own portable clients:
“[The recruiters say,] ‘Hey you have a great background, great resume, blah, blah, blah,’
and then the moment I say I don’t have any portable book of business [they say] ‘oh
nice knowing you,’ click” (Interview 101). Another partner coming out of government
explained the challenges of finding a position without having clients, comparing her
experience with the colleagues who had been looking earlier:
[People had previously] left the U.S. Attorney’s office and [had become] partners
at firms despite the fact that presumably they were walking in without a book of
business. By the latter half of ‘09 when I started looking … the legal market was
a completely different world. I put out a lot of feelers both personally and through
friends and through using at different points two different recruiting firms and
pretty much across the board the answer back was … no matter how great you
are, and we’ve heard of you, and you have a great reputation and your
credentials are great, you seem great, we don’t bring people in as partner unless
they are walking in with $2 million worth of business. (Interview 42)
For some firms, a certain level of business is the main attraction of potential laterals.
For others, it is a necessary, but not sufficient, requirement. These firms also consider
the fit with both the firm’s existing strategy (the “platform”) and the fit with the firm’s
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culture. The latter consideration sometimes may take a backseat, however, if the
strategic opportunity is attractive enough.
Strategic Fit: The Platform
Many law firms view lateral hiring as being primarily an approach to achieving
strategic goals. As an example, here is how one partner described the role of lateral
hiring in the firm’s strategy:
In 2005 we … did a strategic assessment of one of our [specialty] practices and
… through market research we felt we were losing business west of the
Mississippi because we didn’t have a west coast office. So even though we had a
brand name [in the] market … we were having trouble on the west coast. So part
of gaining market share was to increase our presence on the west coast. So then
we said, “Okay who can do that for us on the west coast?” And we identified
different people that we thought could do that. [XX] was one of them because
he’s the brand in California, so we had a strategy to go after him and thank God it
was successful. So we recruited him and his group and that started our L.A.
office. (Interview 11)
Lawyers in many law firms describe the strategic fit of laterals in terms of how the
lawyer will fit with the firm’s “platform.” A platform refers to a firm’s mix of practices and
geographic locations. The platform terminology is unique to law firms (and perhaps
professional services more generally) and may have evolved as a type of linguistic
framing device (Hirsch, 1986) that reinforces the notion of individual independence and
autonomy. It contrasts with the corporate term “portfolio,” which is used to describe a
business’s suite of products and geographies. Indeed, law firm partners tend to talk
about platform most when they discuss how it relates to individual practices, thus
producing the imagery of a diving board, which serves as a vital tool to propel the
individual’s effort. The platform therefore describes the strategic fit between a lateral
hire and the firm’s geographic and practice orientation:
The move really came because I felt for me personally, for my practice
personally, it was a stronger platform; we had more practices to offer nationally
and internationally. (Interview 36)
We are never going to attract the people that do the trans-global mergers
because we don’t have international offices and that’s not part of our strategic
plan. So we’re not the right platform for them, so we’re wasting our time.
(Interview 11)
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Platforms nourish practices, in theory at least, by providing the potential for
synergies and ties with other attorneys in the firm:
Presumably the reason that you bring on a new group is for the synergy … so
that you know it works well with your existing platform so that two and two can be
five as opposed to four. I mean that’s what your goal is. (Interview 16)
Simply because you put people together, however, does not mean they will actually
work together. One partner described the challenges with trying to form the ties that
would lead to synergies between practices upon arriving at a new firm:
When you first get there you think … all the … 1,800 lawyers or at least 700
partners [will] see [the] notice come upon their screen that we have this group of
antitrust lawyers now in D.C. and they all [will] immediately … focus on it and
wake up every morning think[ing] how can I take advantage of the fact that we
now have this antitrust team? Whereas the truth is everyone is … focusing on
their own thing and it’s amazing how many people … to this day … don’t even
know that there are antitrust resources in D.C … Even after I had been at [the
firm] for three years I remember … one time being really annoyed because there
was this partner in San Francisco [who] had a matter right up my alley … and he
gave it to this other partner in D.C. because he didn’t know of my existence … I
don’t blame anybody, [but] the point is you have to be going to [other] offices—
I’ve been to Chicago I don’t how many times now at least six or seven times—
you go to those offices, you walk around the halls, and you just have to stay top
of mind with people so they remember that you are here. (Interview 244)
The term “platform” implies that there is a certain logic to the firm’s acquisition of
practices and office locations. Some partners, however, express the belief that certain
firms appear to use lateral hiring as a means simply to grow bigger, without particular
regard to synergies with the existing practice. One partner we interviewed referred to
this as “buying a revenue stream.” While many respondents hastened to reassure us
that their firm did not engage in this practice, they acknowledged that it happens at
“other” firms in the market. This explicit distinction perhaps signals an underlying
discomfort with hiring lateral partners, one that is appeased by the knowledge that the
firm is making decisions about laterals that will help the firm as a whole succeed. A
lateral hire who complements existing practices will, at least in theory, form ties with
current partners and create opportunities to cross-sell, the often-elusive holy grail of law
firm business development:
I am highly confident that nobody [says] we’re just trying to buy a stream of
revenue, buy a book of business. Mathematically it [may] work but culturally it
doesn’t work—otherwise you become a law firm of a bunch of people that share
offices and silos. It’s only if it really fits with what we’re trying to accomplish, what
we are strategically trying to do. … lateral partners need to work within our global
plan. And our global plan isn’t just to add more people; it’s to be consistent with
our practice. There are certain things that we do. There are certain things that we
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don’t do, so I don’t want to bring someone in unless they are really going to be
part of the current fold and do better. (Interview 69)
Regardless of whether a firm is “buying a revenue stream” or “expanding the
platform,” the underlying assumption behind both approaches is that clients who
comprise a partner’s book of business must be portable, meaning they will follow the
lawyer from firm to firm. Clearly, big rainmakers who leave with a number of large
clients will destabilize their prior firms. Law firms therefore constantly try to
institutionalize clients to provide the firm with more stability. This means involving
several partners in providing service to the client. Partners who primarily work with
institutionalized clients find it harder to move to other firms:
So when you have client relationships … that are very deep with the institution
but they are very deep at a personal level as well so I know—I think if I were to
go somewhere else some of those clients would call me but they also have
important relationships with other people at the firm so I don’t feel like I have the
ability to say I’m going to march across the street to one of our competitors and
millions of dollars of business will follow me. (Interview 33)
While firms try to institutionalize clients, partners have incentives to resist these
efforts. A book of business is synonymous with power in law firms (Nelson, 1988). Many
incentive systems reward partners more based on their own book of business and less
on whether that partner is bringing firm resources to bear on the client’s work (Lowe,
2012). Furthermore, if a firm’s fortunes start to decline, partners may feel the need to
move their practices in order to maintain options. One partner described the paranoia
that can develop around partners’ ability to move clients away from the firm:
I think what does probably threaten them … there was always a fear that some
strong practice would pack up and move and the two threats were perceived as
being [Partner’s] practice and the international arbitration practice that [Partner]
runs. Both of them [are] very portable practices, prestige premier practices and I
think the firm spent a lot of time worrying about how to keep that from happening.
(Interview 54)
While institutionalizing clients is theoretically a way to immunize the firm against
these types of threats, some believe it is not a realistic goal in today’s market:
Because there is no such thing as institutionally based work anymore, work is all
personal, work moves; I don’t care what people say. Everyone is entrepreneurial,
everybody who is worth anything is out trying to get everything they can in terms
of clients. (Interview 36)
Cultural Fit: The “No Jerks” Rule
Firms vary in terms of how much emphasis they place on cultural fit with
potential lateral hires. Many profess it to be very important, but the notion of
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cultural fit is hard for them—or anyone—to fully articulate. More than one partner
expressed it in terms of people who would not fit: jerks. Partners often invoked
this notion as a way to emphasize their own firm’s culture:
What you hear all the time … excuse the French, but the low, you know, asshole
quotient was a high factor. We weren’t always successful in that, but that was …
definitely the watch word—you know we’re good guys and girls and we want to
keep that. (Interview 76)
I remember a couple of years ago we had a guy … who wanted to come here
and he had worked at the SEC. I knew him a little bit at the SEC, but I heard a lot
about him, about how this guy was a really difficult guy to work with, and so when
he was interviewed and we were sitting around a table talking about him, I said
look I just have to tell you that this is this guy’s reputation. It was at the SEC and I
understand it’s the same way in private practice and they looked around and said
that’s enough for us. He’s not coming. (Interview 66)
Although a “jerk” may be in the eye of the beholder:
What do you mean by no jerks? It’s completely different from what I mean about
no jerks. What they mean about no jerks [is] you can’t throw the vase through the
window. What I mean about no jerks is don’t turn your back on me … those
words … only give you just the most superficial insight into what’s really going
on. (Interview 131)
Indeed, one wonders how strongly firms feel about cultural fit when the main
criterion is a lack of bad behavior. Some partners admitted that with an attractive
enough book of business, other potential cultural issues could be overlooked. As one
partner lamented:
I don’t think there is time spent thinking about…the culture of a small group
rather than their book of business and how their expertise adds to our resume.
So when that happens I mean you get powerful individuals often who end up on
the executive committee that are heads of these groups that may have a different
way of doing business and they don’t get the whole [firm] thing—the kinder,
gentler … thing because that is not them. And I think that is going to erode—I’ve
seen it erode our culture. (Interview 254)
While partners expressed a rather limited conception of culture when
discussing cultural fit for a potential lateral hire, they explored a much wider
variety of cultural features when explaining why they would want to stay at their
current firm and not enter the lateral market. It is important to these partners not
only that their values align with those of others in the firm but also that they are
respected as individuals:
84
I mean my connection [to the firm] is I have a number of people that I have
worked with a lot and respect and enjoy working with and who I would not want
to let down. …I feel like I’ve gotten a lot of good things out of [the firm as a whole]
and I mean I feel having not worked at any other firms for eight years, I mean, I
feel like it’s a good place, it’s a pretty humane place, it’s a place that I think has a
lot of … respect for the profession, it’s an ethical place … that supports a lot of
pro bono work, and I think those are things that … to the extent I have
institutional loyalty that [is] where it comes from. (Interview 63)
As long as I’m not on the road I feel like I have the ultimate flexibility … to leave
in the middle of the day to run to [my kid’s] school to go attend a chorus concert
or leave early … Friday to go watch the camp show or whatever it might be. I feel
like if I’m in the office as long as I’m not on the road it’s completely flexible. And
I’ve always felt here very supported in being a mom, having kids and doing this
job. I talk about my kids non-stop with my colleagues and my clients and I feel
like it’s absolutely never been … held against me—it’s never been a, you know,
“Oh, she [has] kids at home; would she be a good fit?” I just don’t feel like it’s
ever impacted me in the least in any kind of negative way. If anything, I feel like
people always ask about my kids and are really wonderful about it, which is
always the vibe that I had here when I was here before, and that’s not changed.
(Interview 99)
When my wife, who I married in the midst of law school, and I had our first child
they thought he might die the first couple of days … at the time they thought he
had a seizure and might have some sort of brain aneurism or tumor, so [I was]
with him down in the NICU—oh my, I still remember people just fell over
themselves to take away a massive case that I was involved in at the time, not in
a kind of, well it’s ours now, but in a just forget about this—we’re going to fire you
if you come in here—and think about this, you go handle life, this is all going to
be waiting for you when you get back, and you’ve got a hell of a lot more
important things to worry about. And it was it was very sincere and made a real
impression on me at the time fairly early in my career. (Interview 100)
Furthermore, the larger the group of laterals brought in from another firm at one
time, the less credible is the firm’s claim that cultural fit is an important criterion in hiring.
One partner, for instance, noted that the firm recently hired more than 30 lawyers in a
particular practice group from another firm:
But in terms of, like, the culture I would say when a firm brings in a group of 35
lawyers from another firm, what’s the difference what the culture is, you are a
corporate entity you are bringing in other people from other firms, it doesn’t
matter whether they are part of your culture or not, it’s a business, you’ve made it
clear this is just a business we’re looking at the bottom line … So what is the
importance of a firm culture if you’re bringing in that many lawyers who had
nothing to do with, were not brought up within, the firm culture? (Interview 189)
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The Signaling Value of Lateral Hiring
Because fit with a firm’s strategic and cultural aspirations takes on a fair amount of
importance, lateral activity is rich with signaling. The signaling is even more important
given the opacity of the lateral hiring market (Connelly, Certo, Ireland, & Reutzel, 2011).
The ethics rules add to the lack of transparency, because they prohibit firms from talking
to a potential lateral’s clients about whether or not they would come with the partner to a
new firm. Here is how one partner explains the dilemma:
Well they, I mean you, can talk about your deal history or your case history and a
lot of it is public record, so the nature of the deals or cases you’ve worked on is
known, the types of transactions, the types of skills that come into it and then you
can talk to them about what you did on that deal or how you think about this
particular area of the law or this type of practice or whatnot. But you never really
know how they do it until you actually see them draft an agreement or negotiate a
deal or supervise an associate or, you know, reel in the fish. (Interview 34)
The unknowns, however, go beyond technical expertise or client portability:
I think that the person you don’t know sometimes looks better than the person
you know. ... And a lot of U.S. laterals you know they were not successful in their
prior lives for a reason, some of them had real skeletons in the closet and so we
do some due diligence and I think we do a lot more due diligence now than we
did then but I think we’ve bought a lot of clunkers. I think that to some degree we
fooled ourselves into thinking that we could develop practices like the local
corporate practice by acquiring [the] right people. (Interview 31)
The lateral market’s lack of transparency leaves plenty of room for firms to send
signals through its lateral hiring strategy both to the public and to its partners about its
market position and its aspirations. Externally, the legal press reports regularly on
lateral hires (American Lawyer has a regular column called Comings and Goings) and
firms generally send out press releases when they hire a new partner, touting the
addition to their practice.
Dewey LeBoeuf, for example, before it famously imploded in 2013, had an explicit
strategy of moving into the upper tier of law firms. Stephen Davis, chair of the
predecessor firm LeBoeuf Lamb followed an aggressive lateral hiring strategy. His first
big coup was hiring securities lawyer Ralph Ferrera in 2004, a move that was widely
seen as a coup for the firm and a signal of the firm’s lofty aspirations. In 2007, Davis
engineered a merger with Dewey Ballantine, a firm widely believed to be a “fading
beauty” among elite New York firms. From this newer and bigger platform, Davis
doubled down on his quest to lure big name laterals using huge compensation
guarantees. Davis predicted that the firm would be a “premier New York law firm with
global reach” (Longstreth & Raymond, 2012). There is little indication that Davis was
drawing on many other tools besides lateral hiring and mergers (which is simply lateral
hiring on a grander scale) to pursue these goals.
86
Indeed, Henderson and Zorn’s analysis of lateral hiring data shows that a shift has
taken place since the 2009 financial crisis (Henderson & Zorn, 2013). Before the
financial crisis, the average lateral move was to a firm with higher revenues per lawyer,
indicating that partners were moving from less profitable firms to more profitable firms.
By 2011, the average lateral move involved a partner moving to a firm with lower
revenues per lawyer. One explanation for this shift is that law firms have been trying to
pare down their partnership ranks as competition has become fiercer. Thus, as some of
these less productive partners are asked to leave, they find new homes in firms that are
a few rungs down on the law firm prestige ladder. Even though the incoming partner
had been perhaps less successful at his old firm, the advantage for the destination firm
is it can send signals both internally and externally that it is able to attract partners from
premier firms, which it hopes will have a halo effect on its own reputation.
For other firms, lateral hiring decisions help the firm define where they are currently
in the market:
We have wanted to expand our corporate presence and we’ve spent a lot of time
trying to laterally recruit people in the corporate area. There is a point where you
say, look, we have to go after a specific type of corporate partner because we
are never going to attract the people that do the trans-global mergers because
we don’t have international offices, and that’s not part of our strategic plan. So
we’re not the right platform for them, so we’re wasting our time if that’s who we
are going after because they are not going to come here, because there is no
reason they should come here … so, I mean, it’s trying to have [potential laterals]
think realistically about what our services are and what we are able to do as a
firm and how we are able to expand our business and then working with them to
exploit where we can do it. (Interview 11)
Lateral hiring also sends signals internally about what types of traits firms
value. Lateral activity therefore serves both to test and reinforce firm culture:
When I interview laterals I kind of have to go with my gut … because I find it’s
very hard in a 30-minute setting or an hour to really get a feel for a person,
so you kind of feel out what you can. But yeah obviously you want to get a sense
of is this person the kind of person who has red flags in their past, [who] is going
to be somebody who isn’t really a team player or is going to be difficult or is really
out for themselves versus this is a person who is going to be truly the kind
of person who if you have a problem on Friday at 5:00 they want to help you
as opposed to they just want to find a way to punt it on somebody else. That’s
a valuable thing, and you want people around who … [want] to help you.
(Interview 71)
The extent to which the firm takes into account cultural considerations in the
face of the opportunity to bring on a partner with a large book of business signals
the tension between culture and financial opportunity. How firms resolve this
tension sends strong signals to other partners in the firm:
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Traditionally there has been what I would refer to as a no asshole rule, and I am
familiar with at least one example of someone who had a big book of business
where a decision was made not to pursue them because he was viewed as a
jerk. And I think … that rule is still at least somewhat in effect. (Interview 82)
The challenge of identifying cultural misfits remains, however:
INTERVIEWER: What are the main considerations that your group looks for
when considering a lateral hire to partnership?
PARTNER: I think they really have to be people who work with us well. I mean
they have to be good lawyers and all that, but I think there [are] people everyone
has said there is no way we want that person no matter what book of business
they have.
INTERVIEWER: How do you know?
PARTNER: People know.
INTERVIEWER: Is it just a feeling?
PARTNER: Well, you know you’ve worked with these folks before; they have
reputations [so] you just have a sense. Like in the antitrust bar and in particular
the health bar, people work with each other lots of times in lots of different ways.
So often people have been in the government together and you get a sense of
who we would like and who you wouldn’t like. I think that’s true; I mean, it’s
always been there are certain people you wouldn’t go near.
INTERVIEWER: And what types of people [are] that?
PARTNER: Obviously people who are just difficult, just obnoxious. It doesn’t
mean you have to be socially friendly with everybody, but you are looking for
decent people. That’s been a pretty high priority. (Interview 73)
The Limitations of Lateral Hiring as a Strategic Tool
Despite the large number of firms engaged in lateral hiring, there is little evidence
that it is a successful strategy across the board. In Henderson and Zorn’s examination
of lateral hiring data from 2000–2011, they could find no statistical relationship between
firm profitability and the rate of lateral hiring (Henderson & Zorn, 2013). CitiGroup asked
managing partners in 2012 about the success of their lateral hires. Some 40%
responded that their lateral hires were at best breaking even and 17% called them
unsuccessful (Citi Private Bank & Hildebrandt Consulting, 2013).
A few partners shared skepticism that partners can improve their own practice by
switching firms:
The notion that partner or person X is not as successful as he or she would be
because of the platform [and] he or she needs a better platform is fool’s gold. I
think I know with very few exceptions [like] if you are the only guy who is
practicing FDA law then maybe [you] would be better off if you go to a firm that
has a huge FDA practice. But for the most part I think that’s just a delusion and
that the partner who isn’t successful in Firm A isn’t going to be successful [in
Firm B]. (Interview 31)
88
For the most part, however, partners do not question the practice of lateral hiring as
a tactic to pursue firm business strategy. When discussing lateral hiring, partners voice
more concern over the effect of poor decisions about laterals on firm culture. As one
partner said about his firm: “We’ve grown fast by the addition of laterals. Like in
chemistry, every time you add a drop of something new, the composition of the entire
solution changes” (Nanda & Rohrer, 2012, p. 11).
These findings are consistent with data collected in another professional services
industry: equity analysis. Groysberg, Nanda, and Nohria (2004) followed highly
performing analysts who switched investment banks and observed that performance
declined after they switched firms. They note that organizational context is often
underrated in professional service firms:
Obviously a star doesn’t suddenly become less intelligent or lose a decade of
work experience overnight when she switches firms. Although most companies
overlook this fact, an executive’s performance depends on both her personal
competencies and the capabilities, such as systems and processes, of the
organization she works for. When she leaves, she cannot take the firm-specific
resources that contributed to her achievements. (Groysberg et al., 2004)
Thus, “top performers who join new companies find that the transitions they must make
are tougher than they anticipated” (Groysberg et al., 2004).
Could the same be true in law firms? In the past, law firm administrators imposed
little in the way of processes and systems on lawyers. As firms grow larger and the
environment becomes more complex, however, administrators are increasingly
empowered to implement systems such as pricing controls, project management, and
client intake systems.
The Ties That Bind
Organizational systems and processes are one form of firm-specific capital, the
importance of which is underlined in the above-mentioned work in the area of
investment analysis (Groysberg et al., 2004). While it is true that systems and
processes may be lightly imposed in law firm environments, perhaps a more important
type of firm-specific capital for lawyers is the array of ties that are formed among
professionals in a firm. These ties are the conduit for knowledge sharing about the latest
developments in the law as well as cross-selling to clients and providing a sociable
working environment. They are of paramount importance for lawyers, both for doing
their work effectively and for their individual happiness and engagement with their
current firm.
One partner who had recently “lateraled” from another firm discussed the importance
of coming to a firm that would be collaborative:
[The firm] convinced us that the firm truly has a culture of working across
department lines and office lines because we said to them another problem we
had at [our old firm] was [that] our practice was one where we have to have very
significant, very sophisticated help from [a variety of practices] … So the firm just
89
totally lived up to its commitment to give us the support that we needed and
enabled us to grow a practice that we couldn’t have done in our old shop no
matter how lucky we got with new cases from clients. (Interview 228)
Ties to others in the firm also affect lawyers’ decision-making process about whether
or not to entertain calls from recruiters:
I get a lot of calls by headhunters or whatever, but if I [were] to go to someplace
else, okay, there is the possibility of me earning a bit more money, probably not
twice as much money and for that differential would it be worth it and it’s probably
not, so it’s not a particularly comfortable position, yet it’s a position where I really
enjoy the work, I really enjoy the clients, I enjoy the people that I work with, so
those are important aspects and I’m sure it’s driven differently by every
individual. (Interview 72)
Ties among partners therefore can bind people to firms:
I could never imagine going to another firm and having a better situation in the
sense of I would lose the relationships that I developed over eight years, both in
terms of other practice groups, people that I know how to call on and have
rapport with, people that have had a relationship where I know they can help out
or we have a good way of sort of allocating work, or I know that I can get certain
types of questions answered where it’s not my specialty, right, and we have a
team that works, functions. (Interview 71)
Personal and professional ties thus form a type of glue that can bind lawyers
together. Not only do these ties help lawyers serve their clients better, but they are also
personally satisfying. Indeed, personal ties are important in all types of organizations.
The research organization Gallup has found that a key predictor of whether an
individual will leave a job is whether they have a “best friend” at work (Harter, Schmidt,
& Keyes, 2003). The challenge for firms is how to promote a broad network of ties in a
world where large firms are becoming more geographically dispersed and are
constantly engaged in recruiting in the lateral market.
A firm’s network of ties therefore serves as potentially powerful glue that can
balance the destabilizing effects of aggressive lateral hiring. Despite the issues that
arise with lateral hiring and the well-publicized data on lateral hires’ poor performance,
firms continue to pursue the tactic as a means of implementing plans for growth.
Indeed, lateral hiring does not just fulfill strategic objectives. The practice presents
opportunities for firms to reinforce their notions of market position and culture. Firms
accomplish this externally through sending signals about their strategic aspirations,
which are theoretically received by future potential lateral hires as well as clients.
Internally, the lateral hiring process enables the firm to reinforce cultural values
(however tenuous they may be) through a vetting process and the stories that arise
from internal decisions about the impact of known bad behavior on the process.
Tensions between the importance of achieving the strategic and financial goals of the
90
firm and the maintenance of a collegial and collaborative culture are therefore played
out in this critical activity.
Conclusion
Large law firms now face unprecedented competitive pressures. They are
responding in various ways that reflect more explicit attention to financial performance.
These responses are placing greater demands on lawyers to seek out business and
generate revenues. Partners know that their compensation and even their continuation
with a firm depend more than ever on their ability to meet these demands. In light of
these trends, it may be tempting to say that the alarms that critics have sounded about
law firms have finally come true: They have become simply one type of business
without any regard for professional values.
Our research, however, suggests that this claim is overstated. Even in the midst of
intense market demands, there are ways that firms can and do respond to these
demands that reflect an effort to balance business considerations and professional
concerns. This balance has shifted, in the sense that firms are less able to organize and
run themselves in accordance with professional values with minimal attention to market
forces. This does not mean, however, that law firm practice has declined from a
profession to a business. Rather, it means that the market conditions under which firms
attempt to mediate business and professional considerations differ from those of a
generation ago.
Not all firms will necessarily attempt to give meaningful weight to professional
values. Furthermore, even those that do will not necessarily succeed in striking a
credible balance. Our research suggests, however, that it matters to many partners that
their firms make the effort to do so. This report has suggested some ways in which firms
may seek to respond to that desire by creating and generating a culture that tempers
the effect of market forces. We expect further analysis to deepen our understanding of
those efforts and the challenges and complexities that they entail.
In particular, we believe it will be fruitful to examine in more detail particular ways in
which law firms attempt to transmit distinctive cultural values and the challenges in
doing so in firms of close to 1,000 or more lawyers. We also anticipate that it will be
useful to explore how firms’ success in these efforts may vary among different practice
groups, office locations, status of partners as income or equity partners, networks of
personal relationships, and other aspects of law firm life.
As David Cooper and his colleagues observe, “There is no unique and unchanging
meaning to ideas such as professionalism or partnership” (Cooper, Hinings,
Greenwood, & Brown, 1996, p. 634). It is possible for professionalism in the law firm
setting to be completely assimilated to business demands by conceptualizing firms as
one particular type of business organization that is distinctive only in the type of
professional service that it provides. It is also possible, although perhaps more difficult,
to fashion a notion of professionalism that acknowledges business realities but also
incorporates a conception of lawyers as distinctive in their commitment to certain
traditional values internal to the profession. Our research suggests that modern law
91
firms, to varying degrees, are attempting to work through a response to this challenge.
As such, they are engaging in yet another chapter in the ongoing process of
determining what it means to be a law firm lawyer.
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