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Working From Home Is The Easy Part if Big Law Goes Virtual

July 30, 2020, 8:57 AM

Welcome back to the Big Law Business column on the changing legal marketplace written by me, Roy Strom. This week, we look at how the competition for talent may change if law firms adopt “virtual offices.” Sign up to receive this column in your inbox on Thursday mornings.

I wrote a couple weeks ago about Husch Blackwell creating a “virtual office” with some 40 lawyers giving up their permanent office space. The move positions the firm to accommodate lawyers who don’t want to give up their newfound work-from-home lifestyle.

Since then, several people said they expect other firms to venture into virtual offerings.

“There’s no doubt some aggressive firms will see the opportunity to achieve significant lateral growth with ‘virtual’ models,” said Robert Kamins, a former Big Law chief operating officer who founded consultancy Vertex Advisors Group. “Several firms have been talking about that and this will likely accelerate the effort.”

I’ve wondered how those moves will change the competition for talent. What would lawyers want out of their firms if a bigger computer monitor is all they can expect from a job change? How would law firms make their pitch to new recruits?

I know firms haven’t been out there snatching up talent based on the allure of their offices, but it’s hard to deny that workplace life and culture (as well as some pretty fancy real estate) is a part of the package.

And that seems to be changing at a lot of firms, which are expecting fewer lawyers working in the office.

In the first quarter of this year, 65% of firms told Cushman & Wakefield they expected less than 10% of their lawyers to be working remotely at least two days a week in two years. In a survey taken after the coronavirus pandemic began, 90% of respondents anticipate more than 10% of lawyers will be remote at least twice a week in two years. Nearly a fifth of firms expect more than 40% of lawyers to be remote at least twice a week.

Regardless of whether they go into an office, here’s one thing lawyers will still be interested in when fielding recruiters’ calls: more money.

A group of existing virtual firms may have a competitive edge on that front. They often allow lawyers to keep up to 80% of the work they generate and handle themselves. But those attorneys also only eat what they kill—they don’t get the safety net of a guaranteed salary.

Atlanta-based Taylor English added a virtual model to its brick-and-mortar office three years ago. The firm has two distinct compensation formulas, one for lawyers who work in the office and another for those who clock in at home.

Chris Wilson, who leads the firm’s virtual model, doesn’t think Big Law firms will be able to offer a compensation package on par with what a virtual system can provide.

“I just don’t think long-term they will be able to compete because they don’t have the economic structure,” Wilson said. “At some point in the future, I’m going to have a recruiter talking to that partner who is working remotely and say, ‘Wouldn’t you love to do what you’re doing now and keep 80% of your revenue?’”

Paul Eberle, the chief executive of Husch Blackwell, said in an interview that virtual firms’ compensation model may be best suited for “a sole practitioner who wants to maximize their income.”

But that’s not how he would describe the attorneys working via Husch Blackwell’s virtual office, dubbed “The Link,” which largely consists of a products liability defense practice that had been based out of eight offices. Eberle said that team found new ways to collaborate through the remote environment.

“It is about providing an enhanced platform to encourage and provide more teamwork, which in our space is what clients are coming to us for,” Eberle said, noting the move wasn’t motivated by cost savings or other compensation changes.

I’m doubtful Big Law firms would achieve enough cost savings from smaller offices to dramatically alter their prevailing compensation models. One-third of firms are planning no change to their real estate portfolio as a result of Covid-19, the Cushman & Wakefield survey said. Only 12% of firms are planning to shrink their real estate by more than 30%.

The average law firm spent more than 6% of gross revenue in 2019 on real estate, Cushman & Wakefield says. For the average AmLaw 100 firm, that would amount to more than $77 million in annual real estate costs. If that hypothetical firm reduced that expense by 25%, it would work out to just over $14,000 in savings per lawyer or $63,000 per equity partner. Hardly a game-changer.

Compensation will not be a big problem for big firms in the short term, Kamins said, because Big Law partners also value prestige, resources, and relationships. That could change down the road as firms try to fairly allocate overhead costs between virtual lawyers and those still coming into an office.

“We’re going to see a warping of Big Law, and it’s exciting,” Kamins said. “It’s finally going to push forward a lot of changes that should have happened a long time ago.”

On First-Years

Last week, I wrote about malpractice insurers’ relative lack of concern about lawyers working at Big Law firms without having passed the bar exam. Milbank is the rare Big Law firm starting its new crop of associates on the regular schedule in October, meaning it will have several fresh faces who have yet to pass the bar. The firm has a history of associate-pleasing moves, having been the first to move to a $190,000 salary for first-years in 2018.

Scott Edelman, Milbank’s chairman, said the firm wanted to honor its commitment to new lawyers and recognized that remote work may be a reality well into next year. Milbank also had enough work to go around, driven by healthy restructuring, finance, and capital markets practices.

Edelman said the firm doesn’t treat first-years who haven’t passed the bar any differently than others. This year, test-takers in February will get three weeks off to study for the exam if they come on board in October.

“They’re looking forward to the income,” Edelman said. “And to put them off by three months would be a really tough thing for them.”

Worth Your Time

On The New York Mets: The pandemic-shortened baseball season is off to a rocky start, but there is plenty of drama in the legal representation associated with the sale of the New York Mets. Brian Baxter reports on Wachtell’s ties to Alex Rodriguez, Jennifer Lopez, and hedge fund billionaire Steven Cohen, all vying to purchase the ball club.

On Bar Exams: A total of 23 states went ahead with in-person bar exams this week, despite the threat posed by the Covid-19 pandemic, Sam Skolnik reports. The disarray has many questioning the need for the exam. Even the states that brought the exam online faced challenges, with Michigan’s test reportedly disrupted by a cyberattack.

On LGBTQ Lawyers: Stephanie Russell-Kraft spoke with more than a dozen LGBTQ attorneys from Big Law about the progress made towards inclusion and the barriers that still remain.

On Restructuring Big Law Restructuring Practices: Demand for bankruptcy lawyers is through the roof, and Big Law firms are scrambling to keep up by reassigning lawyers from other departments and creating task forces to staff cases, Alex Wolf reports.

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 editors responsible for this story: Rebekah Mintzer at rmintzer@bloomberglaw.com; Chris Opfer at copfer@bloomberglaw.com

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