Sunday, February 04, 2007
Associates of the World, Unite!
A few days ago, Brian posted here on the subject of the economics of corporate law firms. Sandy Levinson responded:
For so long as money is your only goal as an associate and a partner, these law giant corporate law firms are actually very efficient. If you want an actual life, you have the choice never get on the hamster wheel to begin with and simply live with a nice middle class income.
In one of the larger construction defect cases in which I was involved a couple years back, a couple of the large construction firms brought in their NYC counsel for a week worth of depositions. One of the witnesses cancelled out in the middle of the week and some of the associate attorneys simply took off to go skiing. After all, what is the use of having depositions in Vail, CO unless you can go skiing. The 80 hour a week NYC associates were amazed that we Colorado attorneys could just take off. Apparently, they are always on the clock.
Money is not everything folks. Indeed, if you live in one of those high cost east or west coast cities, the big associate money doesn't go very far at all.
My solo firm probably nets about 2/3 of a NYC associate's pay.
However, I work 50 hours to their 80.
Unless I have a court date, I can take off nearly any time I want.
They work in a small office inside some glass tower with no windows. I look at Pikes Peak from my office.
I pay 2/3 of their taxes on that income.
My house costs 1/3 per square foot of their digs.
My commute is 4 minutes to their hour or so.
My state law school loan is 1/4 of their "elite school" loans.
The Marxian perspective assumes that drone workers have no alternative. In fact, you do in this wonderfully free country.
I have a relative who works in labor who has actually talked about trying to unionize associates. That seems impossible though. I can't think of a less promising group of employers to try to unionize.
The reason people take these jobs from the top law schools is, as much as the salary and prestige, that they are the easiest jobs to get. By far. It seems to be noticeably harder to find a public interest law job that pays $35-40K, or a gov't job that pays a bit more, than a firm job. And even smaller firms with more sane hours--those jobs may exist but they're harder to find, and much more likely to be a field where everyone wants 3-5 years of experience and a degree from a fancy school is not considered a substitute.
The other thing about salary is that it's reliable: it's NOT acceptable for an employer to misrepresent your salary. It is considered acceptable to make misrepresentations about quality-of-life factors--or it's a don't-ask-don't-tell situation where it's considered poor form to make inquiries like that, whereas they'll tell you upfront about salary.
Though I guess most associates work at the firms they end up for a summer and see what they're getting into.
for once, i agree with mr. depalma.
i worked for several years in lower manhattan as a partner at what is considered a mid-sized firm for the type of litigation we did. my pay package was based entirely from year to year on a combination of the firm's total billings and my own, with the bottom line being whatever the lesser figure came out to be from a formula that nobody ever really seemed to understand.
the end result was that we worked ridiulous hours to reach an entirely unreachable billing goal. there were very few friendships within the firm. i can think of only two partners over the entire ten years i was at this firm i ever saw socially outside of the firm. the only person i keep in regular touch with since i left is my old secretary. collegiality was non-existent.
i walked away from my partnership to a small private practice out of the back of my house. my income is down. so is my blood pressure. when i want to take off a day i do. my wife and i make it a point to take at least one long weekend a month. i would like to think that my quality of life has increased exponentially, as has my health.
the only way the spiral gets broken is when those at these high falootin' white shoe firms figure out that they can easily live on $900,000 a year instead of a million. there's more to life than squeezing every last nickel out of it.
this strikes me as.... off. isn't the argument sandy's making that the associates are doing work that's in fact worth more to the firm than what they're billed, which the partners are skimming off in one form or another?
the shadow hours worked is only a contributing factor -- it seems to me that by far the more significant issue is that the associates are in fact doing some of the partner's work in one form or another. for example, the tradeoff between the time it takes to write a good memo and the time it takes to read it is pretty enormous.
your analysis strikes me as implausible -- you're proposing that entry-level workers are being paid literally twice their actual worth.
Are businesses and law firms irrational in overvaluing the rainmaker, and if so why. Arguably the rainmaker’s position in the law firm is analogous to that of an advertising agency for any large corporation. In a normal competitive market there is downward pressure being placed on an advertising agency due to competition from other firms, if an agency’s fees become excessive then the company can hire another ad agency without a significant loss in client base.
The market for legal services is not a normal competitive market because there are restrictions on solicitation and marketing of legal services. In the absence of a true competitive market, the law firm must rely on personal relationships between rainmakers and businessmen as a substitute for normal marketing. Law firms cannot change rainmakers the way companies change advertising agencies without a loss in client base. Rainmakers are thus placed in a special position in the legal services industry allowing them to charge excessive rents. The real way to change this market failure is to liberalize the restrictions on the soliciting and marketing of legal services and thereby destroy the leverage that rainmakers have in the legal market.
This analysis seems to miss the fairly obvious point that associates can bill $200+/hour only by virtue of being embedded in the firm context. Without the mentoring, rainmaking, and instiutitonal support of partners, no associate could possibly justify to a client billing at these rates.
I doubt that most 1st year grads could earn anywhere close to $160K as solo practicioners. Firms aren't just appropriating their labor; they are providing an opportunity for both training and value maximaztion.
David seems to think partners are obligated to provide such services for free. I think the market is doing fine in this particular respect. If associates don't like the big-law lifesyle or think they are getting shafted, they are sophisticated players who are fully able to explore a variety of other options, as Bart has pointed out.
The money earned by associates isn't being "expropriated"; it is, in brief, going to the rainmakers in the firm, who are a subset of the partners. (A "service partner" at most biglaw firms might be paid $400,000 to $600,000 of the $1 million in billable time that he or she works.) The associates, and most of the partners, are people who are very good at taking tests (e.g., LSATs or law school exams) in a highly-structured environment, but business demands a lot more than that in the way of inter-personal skills, dealmaking etc. The rainmakers are the people who supply those skills, and, like any sales force, they will only work if they are given a portion of the revenues.
I tell all my associate and service partner friends, when they complain: Forget the law--if you are willing to do sales work, you can double your salary right now. All financial institutions (e.g., brokerage houses, investment banks)pay immense sums to people with fancy degrees who are willing to do sales, but they find few takers, because most of the people who graduate from Yale and Harvard don't have the personality to enjoy that type of work.
I really do not think the law firm analysis fits the Marxian mold. First, as another commentator has noted the associates income is far in excess of the paycheck. Just the human capital developed and exposure to profitable opportunties are probably in excess of the salary. Marx certainty did not envision the workers of today becoming the "partners" of tomorrow. Indeed the whole notion is of one class exploiting another. In the law firm, you have members of the same class with some paying their dues in order to enjoy gains in the future. Not many workers in the Marxian model are involved in profit sharing in the form of year end bonuses. I'd say the proper analogy is to a fraternity -- brothers and pledges but really all one group or privileged people.
There's an issue in the Marxist perspective taht might be going unnoticed here. One of the reasons why Marx condemned capitalism was because the worker never felt that his work was an extension of his self in at least two respects. First, the kinds of monotonous mindless work that conventionally characterizes the factory wasn't permitting the worker to project his identity, his creativity into the work. Second, even those workers who created beauitful products (like a Steinway, for example) never felt that it belonged to him, even though he himself had created it.
Do both conditions apply for law firm associates? I would say probably yes for the first and definitely yes for the second. The whole issue of whether associates are being cheated out of their rightful share of the profits seems to me slightly misplaced. Look at law professors: they (or, if you wish, I) work ALL THE TIME. Yet we're never given a "share of the profits" in terms of the tuition that's collected. If I teach the largest section in professional responsibility at my sch (which I did last semester), I'm still paid the same. Or, I teach the smallest seminar at the sch (which I did my first semester), I'm still paid the same. But I hardly feel like Marx's awful proletariat. And I think that's because my work--my lesson plans and my articles--are creative and meaningful exercises for me. I don't know whether my teaching or my writing is especially good, but I do know that they are a creative extension of my identity and that I more or less possess them all to myself, without having my school or publishers claim exclusive rights to them.
Does this make sense?
Some firms are very up front about these economics. Cravath, for example, tells its incoming summer associate class that at best one of the 80 in the class will make partner, and that's they way it is planned. The consolation prize, however, is that Cravath wants to place the other 79 in positions where they will be clients of Cravath. The subtext is that the better and harder you work, the better non-firm job you'll land via the graces of a grateful firm.
All of this raises the question of why most law firms bill on an hourly basis. Many attorneys do a lot of work that is not essential for the ultimate task just because they can and it is billable. Curiously, the firm with the highest profits per partner, Wachtell, Lipton, is also among the least leveraged--it has an associate:partner ratio of under 2:1. Wachtell, though, often does not bill by hour--it bills by flat fee or percentage of transaction for many of its M&A and other corporate deals. (So does Cravath and Sullivan & Cromwell. I'm sure that other firms do too, but I don't think they do so as often or as easily.) The flat rate billing creates an incentive to minimize hours worked and to minimize staffing on deals (which increases hours for those on deals). Percentage compensation doesn't affect hours so obviously as I can tell.
(1)Despite its charms, this analysis unfortunately separates corporate lawyers from all other professionals suffering under post-fordist production methods. I would like corporate associates to see their fates linked to, for example, those of underfunded public defenders who are assigned more cases than they can competently handle and must work unreasonably long hours. Although he doesn't make this point, Robert Dingwall has written well on how various types of professionals work has been reorganized by economizing production methods.
(2) John and Jeff's comments above point to phenomena that are more linked to the particular situation of corporate associates and which, I think, are best exemplified by forced retirements in one's fifties about which Marc Galanter has written. Corporate associates are increasingly deing deprived of a career that develops "judgment." As such, their work increasingly resembles the alienation of "species-being" discussed by the early Marx. I addressed some of these issues in "'Proletarianizing' Lives: Researching Careers," 33 Law & Society Review 703 (1999).
1. In arriving at the 2x salary figure, are all firm admin costs divided up over associates, or only "associate-related" admin costs divided up over associates? If the former, it is another form of transfer up. Some firms hire "young partners" for exactly this reason - to spread the admin costs across more partners.
2. Hiring associates who earn 2x salary but few excess hours above that is in itself is a benefit where there is excess capacity (e.g., inflexible costs like empty office space, etc.) for the same reason, it makes the sunk cost of capital productive during periods of "lull" and available for busy periods.
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