I have posited before that
the traditional one-size-fits-all associate-to-partner model is coming
under increasing stress.
Evidently Allen & Overy agrees.
After suffering 25% attrition in its associate ranks last year, they
have announced after
a lengthy study that
they will be introducing two formal new career tracks for associates: "Managing
Associate" and "Of Counsel." The second first: "Of
Counsel," as has sometimes been the case here, will be for people
who are expected to make a serious ongoing business contribution but
who, for reasons of temperament or talent, don’t quite make the Equity
Partner cut. A&O Managing Partner David Morley commented pointedly: "It’s
not a reward for long service. It’s not an elephants’ graveyard." Yes,
quite. [Subtext: They are not damaged goods; as a client
I can rest assured that I’m still in good hands at A&O when an "of counsel"
is on my matter.] Point
taken.
However, this raises the metaphysical question of what distinguishes
an Of Counsel from a Non-Equity Partner. Even A&O admits the
possibility, however remote, that an "OC" could become an "EP," which
is likewise true of US-style "NEP’s," at least according to
the party line.
My
take on the distinction? On the surface, not much; the proof will
be in the execution over time. Indeed, the most salient point as
of now is purely and primarily one of terminology: The OC’s business
card and letterhead will say OC, while the NEP’s card and
letterhead say to the world, "partner." To the
outside world, partner is partner is partner, and the equity/non-equity
distinction is (intentionally?) suppressed.
So what? Actually, it matters: If I were in a bakeoff
for General Counsel of a Fortune 500 company, I’d far prefer my title
be a (non-equity) "partner" at
a name-brand US firm than "OC" at Allen & Overy, even if
there is no functional distinction: There is a chasm of semantic
distinction. So
give A&O credit for candor.
What, then, of "managing associates?"
"Managing associates will have increased responsibilities and
some access to partnership information and will be viewed as likely partnership
material."
In other words, these are the contenders.
Again, great credit is due A&O for being among the first to recognize—and
act on (always the tricky part)—the fact that the world of associates is
not divided in Manichean fashion into washouts and stars. While
it’s a fact of life in any hierarchical organization that not all can
ascend to the top, it has long struck me as the height of irrationality
to proceed from that truism to the conclusion that those who will not
ascend to the top should be discarded after about a decade, just as they
are hitting their career stride.
What to do with these "Of Counsel"’s? Actually, I have
two economically-driven suggestions:
- In today’s global (or large-national) firms, while it’s indisputably
the case that places like New York, London, and Hong Kong generate a
disproportionate share of business, we’ve known at least since we first
heard of Bangalore that there’s zero reason all the work has to be performed in
those global high-rent districts. Logically, some nontrivial
percentage of the OC’s (or NEP’s, as I consider them functionally interchangeable
within the firm) will be located in places like St. Louis, Atlanta,
or Dallas, with a lower cost-of-living and lower commercial overhead. And
they are, by hypothesis, thoroughly trained and inarguably competent: Why
couldn’t more "originating" partners staff their matters in the field
rather than in midtown Manhattan? The firm could then offer
either lower rates (enter acerbic comment here) or enjoy higher margins. - My second suggestion looks at the situation from the OC’s perspective
(and I duly credit the prefers-to-remain-anonymous reader who contributed
to my thinking on this; you know who you are). As matters stand,
an associate earns perhaps 30% of the amount he/she bills up to, say,
2,000 hours/year. No one would claim this is a remotely inadequate
return to the associate. On the other hand, once the billable
hours cruise above 2,000 or so, what is the associate’s "return" on
those extra hours? 5%? 10%? Certainly nothing like
30%; almost the entire value is captured by the firm. (I’m assuming
that at 2,000 hours, the associate is "paid for," in the sense
that benefits, rent, overhead, and a reasonable profit have all been
covered by the firm from the associate’s revenue, so the associate’s
marginal cost to the firm takes a dive.)But isn’t this illogical? Don’t we have our incentives mis-aligned? After
all, it’s the hours > 2,000 that are the really hard ones, the ones
put in on nights and weekends, the ones that are carved out of "personal"
time, the ones, in other words, where a little incentive would do nicely,
thank you very much. Assume a firm chose to share the same 30%
or so of revenue with an associate (or an OC) smoothly right on up
the curve? I predict some nontrivial proportion of OC’s would
take the firm up on the offer, as it were, to the enrichment of all.
The basic point dramatized by A&O’s move remains the key: Whatever
we as a profession decide to "do" with OC’s and NEP’s, there are surely
smarter, more economically and emotionally productive alternatives, than
continuing our devil’s bargain with up-or-out.
Kudos to A&O and you. Your statement “I’m assuming that at 2,000 hours, the associate is “paid for,” in the sense that benefits, rent, overhead, and a reasonable profit have all been covered by the firm from the associate’s revenue, so the associate’s marginal cost to the firm takes a dive” is interesting. What is the break even point for an associate? Do firms keep track of this at all? If it is less then 2,000 then firms should share (like you suggest) a bit more with the associates to give them an incentive, which then could be used to separate out the OCs and the NEPs. Firms should look for a break even point to also staff efficiently.
Much has been written about the merits of billing greater than the 2,000 hour minimum most large law firms require of their associates. Those in favor of doing so argue two main points: (1) billing high hours demonstrates the necessary commitment towards eventual partnership, and (2) large bonuses (e.g. $30-40k) are available to those billing 2,400 hours. Those not in favor of doing so argue in response that: (1) billing high hours doesn’t demonstrate that an associate is partnership material, rather, bringing in clients is the key, and (2) so-called “large” bonuses constitute a small percentage of the pure profit for hours billed above 2,000 generates for the firm.
In the end, having spent 5+ years in a large law firm before moving in-house, I learned that having clients is the only leverage any lawyer has in regards to his or her total remuneration. This rule applies whether the lawyer is an Associate, Of Counsel or Partner. Clients and the revenue they represent speak far louder than any number of billable hours.
The argument that firms should provide more an incentive in order to retain talented associates has little merit when confronted with the law of supply and demand. There appears to be no end to the steady supply of talented associates entering firms (whether as juniors or laterals), and until that changes, firms have no reason to provide any further incentive to keep the ones they have. Indeed, when associates reach their early-30s, their priorities often orient away from “paying dues” and more towards family and personal fulfillment. Thus, firms have no incentive to retain such senior associates. If law schools and state bars tightened admissions, this would choke off the steady supply, causing an increase in associate retention rates and partnership chances.
Dear “Jay:”
Many thanks for your comment; I appreciate your thoughts.
Without question, the key determinant of value in the eyes of the firm is ability to bring in business; nobody questions how many hours a rainmaker bills.
I wonder, however, whether the supply of associates is as bottomless as you posit. In particular, I think there IS a limit to the number of (senior) associates willing to work > 2,000 hours/year, and I also believe something important to the firm’s long-term health distinguishes them from their less committed colleagues. I still think one or more firms should at least experiment with offering this cohort more of an incentive by way of sharing some of the supra-normal revenue they are contributing to the pie; they might find they have a recruitment/retention advantage among an important subset of associates.
But again, thanks for writing.
best,
:Bruce
Bruce — Thanks for your response. The issue is not one of a limited supply of senior associates. In most large firms, there will always be service partners and Of Counsels who are willing to do the work. Similarly, there are senior associates in other offices who are also willing to do the work. In the minds of most large firm partners, associates are fungible billing units, existing solely to be leveraged in the pursuit of partner profits. Large firms have long-struck the balance between supply and demand (the supply of capable lawyers and the demand for higher compensation). In common practices such as corporate law and litigation (areas where >2,000 hours are very easily billed), there is absolutely no incentive to keep around a lawyer who only wants to service existing clients.