The American Lawyer is out with
their annual survey of the AmLaw 200 managing partners (147 responded
this year—summary Q&A results here),
and while the news is almost overwhelmingly good (at least if you’re
a partner in the AmLaw 200, and not a client of them), there’s what
may be a storm front on the distant horizon.
First, the good news:
- 89% are "optimistic" about next year, and 0% pessimistic; the
other 11% are merely "uncertain." - And why shouldn’t they be optimistic? A stunning 95% expect
profits per partner to grow next year, and 68% expect PPP to be up
more than 5%. - 78% expect deal flow to increase "moderately," 8% "significantly,"
and only 13% expect it to "stay flat;" precisely 0% foresee a decrease. - 99% (99%!) expect to raise billing rates in 2006,
by about 5% on average. - Only 5% expect their incoming associates’ class to be smaller than
this year; slightly over one-third anticipate it will be the same size,
one-quarter say it will grow less than 5%, but fully one-third say
it will grow by more than 5%. - But those associates won’t cost much, if any, more per capita: 37%
anticipate no increase in starting salaries, 27% an increase of less
than 5%, and 36% an increase of more than 5%. Given that starting
salaries have essentially been frozen since 2000, this indicates
a relatively militant cost-containment mentality. (Although
essentially everyone admits that if one major firm jumps ahead, the
thundering herd will follow.) As for what associates have to
say about this?“Associates are definitely getting fed up with how flat salaries have been,” says an associate at O’Melveny & Myers. “It’s not because we don’t think we’re paid enough, it’s watching the partners’ share increase while ours stays the same. We’re more like regular employees as the years go by and not partners in training.”
This comment exposes the potential storm clouds. As the pithy
and insightful Aric Press puts
it, "the war for talent has returned." And it’s
a war both for partners and associates. As for partners, there
are just not enough "game-changing" candidates for most firms to differentiate
themselves through lateral acquisitions—though that scarce has
discouraged them from trying. (One-quarter of the firms fess
up to being on the prowl for a "merger," and my strong suspicion is
that that number would double if not triple if the question were recast,
and truth serum administered, to include "acquisitions of small [non-equal]
firms" and "material lateral groups.")
The market
for partners, in other words, has reached a type of mature equilibrium. You
may like it or—judging by the number of firms citing the inability
to grow as fast as they’d like in key markets including China, London,
and New York—you may not, but this seems to be reality for now. In
other words, deal with it.
The associate market is where it gets more interesting, and dicier. Since
I can’t phrase it better than Aric, I’ll let him say it:
"Firms complain bitterly that these young lawyers are leaving
before the firms can fully recoup their investments in them. They have
no one to blame but themselves. The profitability model is built on
churn."
And don’t kid yourself: The associates know that as well as you
do. They’re "infantry fodder," and the partners’ munificent compensation
intrinsically depends on washing out as many associates as
possible, stopping just short of completely and utterly blowing up the
potential-partnership-carrot.
Sure, you’re saying, but this model has worked for decades and decades;
what, me worry now?
Permit me, or rather, The
Wall Street Journal, to suggest
what’s different this time: Gen X (roughly, those aged 25 to
40). They are not your Baby Boomers in attitude. Gen
X’ers do not identify themselves by what they do,
insist on work/life flexibility and balance, and will willingly forgo
promotions to maintain that balance. When asked to rank the ten most
important characteristics of a job, Gen X substitutes "flexibility"
in the slot where Boomers put "meaningful work."
What, then, is to be done?
McKinsey suggests a
new breed of software tools, which include deep skills assessments
and artificial intelligence algorithms, to better match knowledge workers
with projects. What does this mean?:
"By sifting through a database of employee skill sets, the
tools generate staffing solutions to meet current demand and to anticipate
priorities for emerging projects. The deployment of these solutions
at a technology-consulting firm has cut project completion times by
10 to 40 percent and overall resource requirements by 25 to 40 percent."
And, this article was written three years ago—the tools have
only improved.
It gets better. The tools don’t just assign warm bodies based
on availability; they intelligently select people best-suited to each
project, weighing a combination of prior experience (so they know where
to begin) and opportunities for professional development (so people
are challenged and can grow and expand their competency set). And
that’s the key. Challenged, growing associates are less tempted
to leave—and more likely to look like bona fide partnership material
8 or 10 years from now. After all, they literally will
have done more different things and know more as a lawyer.
McKinsey uses the hypothetical (or is it?—sometimes I wonder
with McKinsey) of "a corporate-law firm that has a lackluster development
or retention strategy and high levels of attrition among its [associates]." Stopping
well short of the more ambitious goal of giving the tempted-to-bail
associates more challenging work, McKinsey posits what could happen
if the software were simply able to identify a pattern of associates
who work with a particular combination of senior partners suffering
an abnormally high (even for this firm!) defection rate. Knowing
such a pattern exists, the firm might be able to reduce attrition simply
by changing assignment patterns. And as we, and McKinsey, know,
less attrition means increased utilization means increased realization
and collection.
What customer relationship management tools are to business development,
and what risk management tools are to finance, human-capital tools
may be to staffing and assignments. All your firm has to sell
is talent. Consider arming yourself with this new weapon in that
war.
