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After the Boom: A New World Order

By Megan Kinneyn | Nov. 2, 2007

Law Office Management

Nov. 2, 2007

After the Boom: A New World Order

As the baby boom generation moves into retirement, law firms will have to change in fundamental ways to remain competitive. Say good-bye to the traditional up-or-out partnership model.

The legal profession is facing a confluence of demographic trends that is likely to fundamentally reshape law firms. Shifts in generations, market forces, job opportunities, and associate attitudes are among the factors that together will lead to changes in firm management, staff incentives, and career development. To weather the looming storm, California lawyers will have to acknowledge and prepare for the changes that will give law firms of the future a more corporate feel.
      The first element of this tempest is a shift in supply and demand resulting in a seller's market for legal talent that is likely to last for the next decade or more. Over the past 20 years, large law firms in the United States have grown substantially, with the average size of a National Law Journal 250 firm increasing some 270 percent, from 173 lawyers in 1985 to 467 in 2005. In the same time frame, however, the annual number of graduates from accredited law schools has grown less than 10 percent?from 36,687 in 1985 to 40,023 in 2005, according to the American Bar Association. The result is that demand has increasingly exceeded supply, leading to intense competition among firms for legal talent and the ratcheting up of associate compensation to astonishing levels.
      At the same time this war for talent has intensified, however, opportunities for young lawyers to advance in firms have, ironically, narrowed. Driven by market pressures to improve profitability, firms have slowed growth in their equity partner ranks by shifting to a two-tier partnership structure, "de-equitizing" selected partners, raising the bar for equity partner admissions, and creating a variety of permanent nonpartner positions. American Lawyer reports that 84 percent of its Am Law 200 firms?including Latham & Watkins, Morrison & Foerster, and Pillsbury Winthrop Shaw Pittman?have two-tier partnerships. And, in most large firms, growth among equity partners now is less than half that in the nonequity ranks. But if the odds of making equity partner in U.S. law firms are diminishing, that fact is tempered by the reality that young lawyers increasingly don't seem to care.
      Today, for the first time in the history of American legal practice, four distinct generations of lawyers are working together in law firms: the pre-boom traditionalists born before the end of World War II, the boomers born after the war, the Gen Xers born roughly between 1965 and 1980, and the Gen Yers born since 1981. With distinctly different defining experiences and values?as well as different notions of leadership, authority, and work style?clashes between these generations are already forcing firms to rethink how they go about their business.
      The generational differences are perhaps most evident in the fact that, according to almost all recent surveys, a substantial number of today's associates are not sure they want to become partners, even assuming they're afforded the opportunity. This new reality undermines the traditional assumption that the primary motivation for young lawyers to join firms, work hard, and sacrifice their personal lives was the possibility of partnership dangling in the future. Many associates are now questioning whether the prize is really worth the effort.
      As a result, the "implicit bargain" between young lawyers and their firms has changed, says Steve Armstrong, director of career development at Wilmer Hale, which has an office in Palo Alto. The traditional motivation of potential partnership has been replaced by a new attitude that goes something like this: "I will come and work hard for you, not because I expect to become a partner but rather to gain useful experience and training that will better prepare me for my next job?whatever that may be."
      To be sure, associates are changing jobs with increasing regularity. Forty percent of all entry-level associates?and 52 percent of all lateral hires-leave their firms within three years, according to a National Association of Law Placement study that looked at associate attrition from 2000 through 2005. At five years, the figures are even bleaker: 78 percent of entry-level associates, and 84 percent of laterals, have departed.
      There's an additional complication: As the boomers move into retirement during the next ten years, the changing of the guard may well lead to what some are calling a demographic train wreck. The next generation of lawyers?Gen Xers?is only about half as large as that of the boomer generation. As the managing partner of one leading national firm put it recently, "What I really worry about is where the next generation of leaders for our firm is going to come from."
      Anticipating and adjusting to these demographic changes will be a major challenge for firms over the next decade or so. Already in some large firms, imaginative and innovative strategies are beginning to emerge?such as increasing the number of job options for attorneys, providing more flexible working arrangements, and doing more to develop in-house talent. Eventually, however, firms of all sizes will have to adapt, and the resulting changes will likely reshape the firms themselves in important ways.
      Partnerships' Demise
      It seems clear that the traditional up-or-out partnership model may soon be unsustainable. Signs of this are already visible: Many firms have created separate categories of income and nonequity partners and have introduced other permanent nonpartner lawyer positions sometimes called counsel, senior associate, and staff attorney.
      Indeed, firms are coming to realize that it no longer makes much sense to insist that all firm lawyers be capable of being owners, particularly as requirements for equity partnership have become more demanding. As other professional-service businesses have known for some time and law firms are just now discovering, there are useful and important roles in large firms for permanent professionals at many levels of skill and capability.
      Flex Time
      In response to the increasingly competitive battle for talent, firms also will be forced to adopt more flexible approaches to working with nonpartner attorneys. We can see this trend already in the growing use of contract lawyers by firms of all sizes across the country?lawyers who are hired as independent contractors for a specific case or group of matters and who have no guarantee of permanent employment. But the new flexibility can be seen in other areas as well, such as in firms' growing willingness to structure variable work schedules and part-time arrangements for associates and other lawyers; to grant leaves of absence; to allow for job sharing, telecommuting, and other virtual-workplace practices; and to ease restrictions on other outside employment.
      Career Development
      Faced with mounting rates of associate attrition, firms will also have to devote much more attention to career development programs, particularly for their younger lawyers. This could portend a move away from the conventional lock-step approach to associate advancement, replacing it with a competency-based model. In Blackwell Sanders's associate-competency model, for example, lawyers move up only as they master predetermined experience requirements. As more firms move in this direction, they will likely ratchet up the scope and quality of their professional-development and training programs. Firms that take professional development seriously and structure comprehensive programs to meet the needs and expectations of their younger lawyers will clearly have an edge.
      Leadership Training
      Finally, in an effort to ensure the kind of leadership that will be required to succeed as large and complex businesses, law firms are likely to pay much more attention to formal leadership-development programs for partners being groomed to assume leadership roles. Baker & McKenzie and Goodwin Procter are among the many firms already sending their partners to leadership-training programs run by major business schools and other organizations.
      In short, firms are responding to the changing demographics confronting the profession in many important ways. The resulting organizations are likely to be more corporate in their approach to job categories, more flexible in their work-ing arrangements, and more focused on the development of their most critical assets-their people. Firms that meet these challenges in creative and resourceful ways will have a significant competitive advantage in the years ahead.
      James W. Jones is a senior vice president at Hildebrandt International, a global management-consulting firm focused on the legal market.

Megan Kinneyn

Daily Journal Staff Writer

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