By now the news is well and long since out (WSJ
Law Blog, AboveTheLaw)
that Howrey has decided to fundamentally change the nature of the first
and second year associate experience, by focusing on training and an apprenticenship
model in exchange for a substantial cut in salary. DLA Piper has
also announced it
will be reducing the size of its associate classes and discarding lockstep,
while Orrick announced, effective July 1, that it would ditch
class years in favor of three bands of talent: associate, managing
associate, and senior associate, with competency gates between the bands.
And just a day or two ago, across the pond, CMS Cameron McKenna, Eversheds,
and Simmons & Simmons said they are all moving to merit-based pay:
Nigel Moore, HR partner at Camerons, said: “Someone being assessed
by how competent they are rather than on the basis of years on the clock
strikes a chord with the kind of person who wants to work here. From the
client’s point of view it also ensures they get the best man or woman for
the job.”
Nearly a year ago, I
wrote about the precursor to the Howrey effort, but I believe this is
a signal development and therefore worth spending a bit of time exploring.
Welcome to the first shots being fired in what I predict will be the coming
War of the Dueling Business Models.
Well, if we care to be a bit less melodramatic, the reality is that the venerable
and century-old Cravath system, which we all followed for so long for an admixture
of reasons surely including inertia, the hope that some of the prestige/mystique
would rub off, and a systemic failure of imagination, may be reaching the end
of its life cycle. Now
firms have to do things differently, which means being more focused on their
core strengths, more attuned to their clients, and, yes, not necessarily doing
what everyone else is doing. This of course is the single most powerful
reason for the durability of the Cravath system.
The standing joke is that when one presents a new idea to a businessperson,
their first question is, “I hope no one else is doing this!”, whereas
when you present the same idea to a lawyer, the question is, “But who
else is doing this?” Or, as I heard it expressed slightly differently
just this week–and trust me, you cannot make this stuff up–when
a particular managing partner was criticized because his firm wasn’t terribly
innovative, he replied, “It would be useful to have guidance from other firms
on their efforts at innovation.” (I promised you you can’t make
this up.)
But back to departures from the Cravath system. Will we see much more
of this?
As a recent Vice Presidential candidate surely would have put it, “You
betcha!”
Why?
Because we have come to the end of the road for business as usual.
Every firm–not just Howrey, DLA, and Orrick–is experiencing a
severe problem as the deferred starting dates of summer associates and first-years
begin to collide with (what would be the normal) starting dates of subsequent
classes. While few firms have acknowledged this publicly, and fewer still
have discussed how they’ll deal with it, one almost inevitable consequence
is that two or more classes will be in competition with each other for the
slots of one class–and a “downsized” set of class slots at
that. What’s the answer?
A simple,
but accurate, way to think about summer associate programs is through the familiar
analogy of the pig in the python:
- Virtually all firms have a surfeit of associates as it is, both because
of reduced demand and the utter and complete disappearance of natural attrition
(nobody but nobody is quitting voluntarily in this environment); - Summer associate programs were put together before the meltdown and are,
to put it diplomatically, not attuned to current reality; - Every summer associate that could fog a mirror while keeping their clothes
on used to get an offer; that cannot and will not be the reality going forward;
and - The common, understandable, and entirely rational spate of year-long deferrals
is going to create a pileup a year from now.
In other words, if your firm has deferred the Class of 2009 from September
2009 to mid-2010, what are you going to do about the Class of 2010? Defer them
to 2011? And the Class of 2011? As my high school physics teacher used to say
in his inimitable New Jersey accent, “You can’t play dat game fuh-evah.”
One approach would be to tell two classes that they’ll be competing for the
(reduced) slots previously available to one class. This has a brute-force appeal,
in that it solves the problem expediently and you have the pick of twice as
many candidates for, say, half the slots. But it stinks of betrayal.
So firms that have announced deferrals are going to face, sooner rather than
later, the two-years-on-one pileup: Not just one but two pigs in the python.
There is no Platonically ideal solution to this arithmetic and calendar-driven
problem. But I haven’t thought of, or heard of, a better answer so far than
that of simply taking a year off on-campus recruitment.
The most forceful
and cogent objection, and I readily agree it’s got teeth, is that no firm can
afford to forego one entire year of seeking out the best available talent coming
out of the nation’s law schools. If your firm so chooses to jam two years’
worth of graduates into one year’s worth of opportunities, so be it, and that’s
surely one rational response among others. My only thought is that If
someone does have their heart set on working for your firm, they’ll still know
where to find you, and last I noticed we had not outlawed the lateral marketplace.
Radical as it may sound, I think some firms will “take a year off.” Not
just asking their incoming associates to defer for a year, but re-synching
their recruiting to their demand by opting out of recruiting altogether for
a year. Really, how many alternatives are there? You can renege
on commitments already made to students who are, at least to some extent, known
quantities in favor of unknown future quantities, or you can continue to appear
for on -campus recruiting knowing in the back (or front) of your mind that
you will be making few or no offers: Both appear economically irrational
and morally dubious to me.
MIght it not be better to be open about The Pig and conform everyone’s expectations
to reality by announcing a one-year recruiting sabbatical?
Indeed, Morgan Lewis has announced it’s
canceling its summer associate program for 2010:
In a letter to law school deans, Morgan Lewis’ firmwide hiring partner Eric
Kraeutler said the firm first wanted to fulfill present obligations.“We continue to be committed to law school recruiting and entry-level
hiring. However, our highest priority is to provide opportunities for our
existing associates and 2009 summer associates,” Kraeutler wrote.
You have promised (your word is your bond, isn’t it?) slots to the current
class, whereas you haven’t promised, so far, anything to the succeeding class.
This must be what Eric Kraeutler was thinking when he said they would put existing
and 2009-promised associates ahead of future unknowns. (Disclosure: Eric and
I were Princeton classmates, but I haven’t spoken to him about this column, although
I’ll send him the link once it’s published.)
From our flank now comes the salvo, Welcome
to the Future: Morgan
Lewis Signals Armageddon, which opens with this and gets only more
apocalyptic from there:
There’s no way to
overstate the importance of last week’s announcement by Morgan,
Lewis & Bockius that the firm was canceling
its summer associate program and on-campus interviewing (OCI) for the
summer of 2010. … OCI is not just any activity for a big law firm. It
is, in the language of modern business, the core process of a large
law firm. The whole value proposition of a large law firm is built
around the syllogism: “We hire the smartest people from the best schools.
They work the hardest and do the best work. And we charge the most money.”
In case you missed it, this would indeed be Armageddon. If
“the core
process”
is broken, then to be sure “the whole value proposition of a large law firm” is
on its deathbed.
What, then, to do? From the premise that we are experiencing apocalypse
now, we learn “the urgent necessity to ‘mark to market,’ to correctly set
prices based not on wishful thinking or yesterday’s sense of entitlement but
on reality.” The
implications of this new-found operational discipline and rigor, which are
then enumerated, include, among other things:
- Telling publishers and technology vendors there are too many of them and
that there will only be one winner “and you have 15 minutes to decide if
you want to be that guy.” - Beating up on landlords, including unilaterally halving rents per square
foot and unilaterally abandoning space, all presumably achieved in a consequence-free
zone.
Culminating in “If you didn’t realize this before, Morgan Lewis just stamped
it on your forehead.”
A bit of perspective, prithee?
To begin with, we are not the newspaper industry, or even the investment banking
industry: We are not dealing with existential threats to our continued
existence in a 21st Century global economy.
Indeed, if you believe any of the following:
- Globalization is here to stay;
- Regulation is going to become more complex, not simpler;
- Cross-border transactions and cross-border mobility of people, ideas, and
capital will accelerate; - North America, South America, Europe, and Asia are each centers of financial
and economic power in their own way;
then you have to believe the future for our industry has never been brighter.
Are our business models changing?
I believe they are, and I also believe
the risk of attempting to meet the changing client- and economically-driven
zeitgeist of our industry through denial and passivity has never had a shorter
half-life. I’d actually give denial a half-life of two–five years. (And
to think that GM had 30!)
But our value proposition, apocalyptic commentators to the contrary, is in
many ways more powerful than ever. The smartest people from the best
schools, working very hard and doing great work, are worth whatever the market
will bear. And so far as the eye can see, the market for that extremely
limited supply of focused and applied expertise will bear a lot.
