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99 Columns Later, I Admit Big Law Is Moving at Record Speed

Oct. 7, 2021, 9:30 AM

Welcome back to the Big Law Business column on the changing legal marketplace written by me, Roy Strom. This week, we celebrate our 100th column and look at what surface-level shifts in the business of law say about Big Law’s changing biases. Sign up to receive this column in your inbox most Thursday mornings. Programming note: This column will be off next week.

One character trait I admire in people is being able to admit when they are wrong. We’re all wrong sometimes. I’m wrong a lot. It’s healthy to admit it. So, in honor of my 100th column here at Big Law Business, I’m going to own up.

The first sentence in my first column, back in July 2019, turned out to be wrong—or at least poorly timed.

I wrote: “Almost any change to the prevailing Big Law business model takes a long time. Like, a really long time.”

Less than a year later, I was writing about firms deciding to basically stop paying their equity partners. Pretty big change. Didn’t take a long time!

Two years, two months, and one life-changing pandemic later, Big Law has never changed so quickly.

It’s worth examining the scope of decisions Big Law managers have made over the past 26 months. They have been drastic and happened in the relative blink of an eye in Law Firm Years.

While many of the changes appear surface-level—working from home is not a big deal when we all do it—they reflect deeper reconsideration of some of the worst instincts and biases that I’ve long railed against in the Big Law business.

The speedy pace of change raises an important question: After altering their businesses in response to a pandemic, will Big Law partners be more comfortable making other big changes?

Take a quick trip back to March 2020 with me. When the pandemic was expected to cause a significant downturn in the legal business, I hypothesized the Big Law lateral market could see its own shelter-in-place moment.

It happened. Lateral moves at the top 50 law firms through three quarters of 2020 fell by a third from the same 2019 period, according to data provided by Firm Prospects, which tracks such activity. Goodbye whirlwind national office tours; who needs ‘em?

Firm managers reinvented the hiring process on Zoom. When former Jenner & Block chair Craig Martin opened a Chicago office for Willkie Farr & Gallagher in March 2020, he told me: “It’s been a virtual relationship.” This was less than two months after Tom Hanks got Covid, that indelible flashbulb moment.

The disruption to the law firm business didn’t last. And when demand reached levels we haven’t seen in a decade, the lateral market roared back to life.

It has not let up. The top 50 law firms in the U.S. made 4,600 lateral hires through the third quarter in 2021, a 54% increase over the previous four-year average, according to Firm Prospects data.

Even Cravath, Swaine & Moore is hiring rival talent! (OK, they lost a homegrown star, too.)

“Big deal,” you might say. Why do managing partners get credit for responding to market conditions? Really, all that happened was work started piling up at these firms. Management hired people to get it done. That’s a fair interpretation.

But Big Law managers have faced criticism from some quarters—namely, myself, and often those hustling to undo the prevailing business model. Firms have been called stubborn and unresponsive.

And if you look closer, the way firms have responded shows they have altered some prominent and long-held beliefs.

The ego-based requirement that a law firm purchase flashy office space just to send a W-2 to a new state is quickly fading. Nobody was thinking in early 2020 that law firms’ office-first culture was somehow breathing its last breath. Today, you’d be hard-pressed to find a managing partner who wouldn’t hire a great candidate in a strange city.

Quinn Emanuel went to Atlanta and ended up with a residential address. Kirkland & Ellis, the largest firm by revenue (the ultimate arbiter of “prestige”), launched this year in its least “prestigious” city … twice! No offense, Austin, Texas or Salt Lake City, but Big Law hasn’t exactly banged your doors down over the years.

Big Law in many ways is captured by its own allegiance to prestige. But one outdated view—that the best lawyers, by definition, live in the cities the best law firms already operate in—has evaporated quicker than the golf season in Chicago’s unseasonably warm fall (knock on wood, I have a tee time Monday).

Another prestige-based concept has come under further scrutiny during the pandemic: Lockstep compensation. Davis Polk modified its pay scale after making more money in 2020 than ever before—and after seeing a Silicon Valley partner leave for another firm, Freshfields, that had already loosened its pay scales.

I know lockstep firms say they pay their lawyers the same amount to foster a more collegial workplace. And that is probably true enough. But it is also meant to buttress their prestigious brand.

What does it mean to pay every lawyer based strictly on how long they’ve been at a firm? That the only thing that’s important is how long the lawyer has been able to soak up the experience of working for that firm. It’s not what the lawyer brought to the table; it’s how long “the firm” has been willing to associate with them.

Giving up lockstep, even in some small way, is a tacit acknowledgment that individual lawyers have more power over longstanding institutions than they used to. It’s a sign of a change in thinking.

“Whether it’s opening new offices, changing their approach to compensation, or how they position themselves with talent, there are firms that used to not really care what the market was doing because they didn’t need to,” said Kent Zimmermann, a consultant for law firms at the Zeughauser Group. “Now they have an imperative to be much more in touch with the market and how to best remain competitive in it.”

If this more nimble way of thinking becomes more pervasive, it could lead to bigger changes. Law firms have more biases to address—and they are doing it.

Technophobia, by necessity, has been tamped down with partners working from home for two years. They’re far from digital natives, but it must be assumed progress has been made in the years-long effort to stop partners from printing out emails. Gartner predicts in-house legal budgets will rise threefold by 2025; law firms will be forced to meet their clients in the digital spaces they increasingly inhabit.

Credentialism is in retreat. Firms, still pressured to bill tremendous hours, are looking to hire lawyers from more than just the “top 14” law schools. Firms are expanding their hiring pools as they take more seriously efforts to become more diverse workplaces.

Workaholism has been one of the worst symptoms of the pandemic. But law firms are at least paying lip service to addressing an unhealthy round-the-clock culture. After their recent hiring spree, it’s likely firms will find themselves at some point with too many lawyers. How many they keep on the payroll will be telling. They should offer more flexible positions, with salaries adjusted to match.

One other systemic way of thinking has been more quietly under attack: the idea that “bigger is better.” I’ve opposed “growth for growth’s sake” for a long time. It’s still pervasive. But more law firms during the pandemic started to acknowledge a fundamental business idea: Profitability is more important.

Quarles & Brady, a Milwaukee-based Big Law firm, will begin to use profitability in its compensation decisions next year, said Chris Emerson, who was hired to help build out the firm’s profitability metrics as senior director of legal operations and innovation. A leader of the networking group Legal Value Network, Emerson said the concept has caught on at more firms during the pandemic.

Initially, the profitability focus was driven by fears that clients would push back on rate increases after the pandemic-induced recession. Then profitability caught fire when partners wanted to know how they can keep making more money than ever.

Emerson thinks the new focus might open doors for new business models that have yet to thrive, such as products sold on a subscription basis or taking on “commodity” work at similar profit margins as the much-revered “complex” work firm leaders like to talk about.

“It is a building block. It’s one of those cornerstones,” Emerson said. “If you don’t have a focus on profitability, and all money is good money, then why would you ever do it?”

Yes, 115 weeks ago in my initial column, I said law firms were lazy. I also advocated for firms to “act decisively,” writing: “The slow pace of change in Big Law is not an excuse to stand still.”

Managing partners deserve some credit. They did not stand still. More change is to come in the next 100 columns. Stay tuned.

Worth Your Time

On Work From Home: Ruiqi Chen writes that some associates are looking to switch jobs instead of go back to the office more regularly.

On Work From Home II: Ropes & Gray is sticking with November for its date to bring lawyers back into the office. Ropes & Gray chair Julie Jones said in an email to the firm, “We believe that being together is essential to our culture.”

On Austin: Nushin Huq looks at Gunderson Dettmer’s entrance in The Lone Star State capital as a litmus test for whether the local tech start-up scene can support a Silicon Valley firm’s second hub.

That’s it for this week! Thanks for reading and please send me your thoughts, critiques, and tips.

To contact the reporter on this story: Roy Strom in Chicago at rstrom@bloomberglaw.com

To contact the editor responsible for this story: Chris Opfer at copfer@bloomberglaw.com;
John Hughes in Washington at jhughes@bloombergindustry.com

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