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Article Excerpt
INTRODUCTION
I. THE RISE AND FALL OF LEGAL PROFESSIONALISM A. The Transformation: The Tournament Intensifies B. The Effects of the Transformation 1. Billable hour escalation 2. A lack of racial and gender diversity 3. High associate attrition rates II. THE DEMAND SIDE: CORPORATE CLIENTS A. What Reforms Do Clients Want? B. Will Clients Push Firms to Reform? C. Will Firms Comply with Client Demands? III. THE SUPPLY SIDE: LAW STUDENTS A. What Reforms Do Students Want? B. Will Students Push Firms to Reform? C. Will Firms Comply with Student Demands? CONCLUSION
INTRODUCTION
In 1991, Marc Galanter and Thomas Palay declared a "crisis" in the legal world. (1) Their landmark book, Tournament of Lawyers, described how structural changes within the profession forced America's largest law firms to abandon professional norms in pursuit of ever growing profits. (2) Galanter and Palay's arguments confirmed fears that the legal "golden age" of the 1960s had given way to a model based on unchecked competition and growth. (3)
In spite of these developments, and partly because of them, the legal profession also faces an exciting new opportunity. (4) The shift towards commercialism has introduced external market forces to an industry long insulated from them. (5) If mobilized properly, the consumers of corporate legal services can use their new market power to address some of the most critical problems facing the elite firms, especially the lack of diversity within firm leadership, rising associate attrition rates, and an over-reliance on the billable hour. (6)
The "professionalism" that dominated elite firms in the middle of the twentieth century undoubtedly encouraged civility and trust between lawyers. But it also operated as a mechanism for shielding the narrow financial interests of big-firm partners and for marginalizing lawyers based on religion, race, and gender. Until recently, these norms were so deeply entrenched in large firms that outsiders could not seriously challenge the inequities and inefficiencies of the existing system. In today's market-driven model, however, two groups have developed the leverage necessary to push for change: general counsels of large corporations, who purchase the labor of large law firms, and elite law students, who supply this labor. They can squeeze firms simultaneously from the supplyside and the demand-side to correct some of the excesses and shortcomings of the current economic model.
On one side, corporate decisions about hiring outside counsel determine the demand for legal services. (7) The rapid expansion of elite firms over the past three decades has created intense competition for premium legal work. Corporate legal departments can now choose between a wide array of elite firms, which provides general counsels with substantial leverage to negotiate retainer agreements. These in-house lawyers seek to hire firms that are productive, efficient, and diverse, partly because they believe these traits are good for business, and partly because they worry that law firms lag so far behind the rest of the business world on such metrics.
On the other side, the rapid increase in firm size has made law firms increasingly dependent on hiring an escalating number of new elite (8) law student recruits. Most prestigious law schools have not increased their enrollment to meet the rising demand, (9) which has created scarcity in the labor market for new elite law graduates. One well documented effect of this scarcity has been spiraling entry-level salaries, although this is not the only consequence of the tightening market. Increasingly, new elite law graduates are seeking more than well paying jobs; they want positions at companies that maintain a diverse workforce and that respect the balance between work and family.
A unique set of economic conditions has created a buyer's market for in-house counsel and a seller's market for elite students. Corporate clients and law firm recruits have a substantial alignment of interest in improving the workplace environment at large firms, and the two groups can use their superior bargaining positions to collectively advance economically sound and socially responsible objectives. While neither has been successful thus far in producing the widespread changes they seek, we argue that a coordinated strategy between these two groups can effectively bring pressure to bear and produce measurable progress toward these goals.
Recent events suggest that both clients and students are beginning to exert their market power to push for reform:
* In late 2003, Catherine Lamboley, general counsel of Shell Oil, surprised the legal world by changing the way her company hired outside counsel. Rather than simply selecting firms on traditional criteria such as the success rates of its practice areas, or the duration of a firm's relationship with the company, Shell announced that it would also seek out counsel with a diverse work force. She gathered Shell's outside counsel in one room and then told them they had two hours to explain their plans for increasing the number of women and minorities assigned to Shell's legal work. When the dust settled, Lamboley cut dozens of firms from Shell's roster, including Baker Botts, Houston's most venerable firm and one of the company's closest legal advisors. (10)
* In January 2007, Mark Chandler, general counsel of Cisco Systems, announced in a speech at Northwestern Law School that his company was moving away from paying outside counsel by the hour for most of the company's legal work. Chandler would instead pay a flat rate for various legal services, describing the profession's reliance on the billable hour to be "the last vestige of the medieval guild system." (11) In his speech, he argued that flat rates would help Cisco's bottom line, partly because ending the billable hour would cut attrition rates at large law firms, which, in turn, would reduce the cost of legal services. (12)
* Around the same time, a group of female students at Yale Law School published their first annual ranking of the ten most family friendly firms. (13) They based their rankings on a series of criteria, including the number of weeks a firm offered for maternity and paternity leave, the existence of onsite childcare facilities, and whether attorneys working part-time had made partner during the last five years. (14) The group released the rankings at the height of the on-campus recruiting season in order to influence the employment decisions of their classmates. (15)
* In October 2007, another group, this one based at Stanford Law School, released its own online rankings, grading every major firm in the nation's six largest legal markets by several quality-of-life criteria, including the average annual number of hours billed by associates, rates of pro bono participation, and demographic diversity. The group, which calls itself Building a Better Legal Profession, was led by the authors of this Note. Like Yale Law Women, the Stanford group timed the release to coincide with on-campus recruiting, and over 100,000 visitors viewed the rankings their first month online. (16) The organizers encouraged their classmates to take the group's "report cards" into consideration when selecting a future employer, arguing that if elite students chose firms with the highest quality of life and greatest diversity, then the firms that scored less well in their rankings would have to improve in order to remain competitive.
These new efforts suggest a shift in the power dynamics at the top of elite law practice. For years, this segment of the legal industry failed to solve some of its most intractable problems: the under-representation of female and minority attorneys, rising attrition rates, and the dominance of the billable hour. Now the profession's buyers and suppliers are stepping in to fix the problems themselves. As Mark Chandler noted at Northwestern, the economics of large law firms are creating "unhappy lawyers and unhappy clients." With pressure coming from both sides, firms have to change. "The center," Chandler explained, "will not hold." (17)
This Note considers exactly why the "center" will not hold. It describes the changing dynamic between law firms and external market actors in three Parts. In Part I, we trace the rise and fall of professionalism in the legal industry, with a particular focus on how economic pressures created a workforce that was overworked, dissatisfied, and unrepresentative of the general population. Part II examines the purchasers of legal services---corporate clients--and why they have gradually started to use their market power to change law firm practices over the past two decades. Part III considers the primary supplier of large firms--law students--and their nascent efforts to organize collectively for workplace reforms. We conclude by considering the overlapping interests of students and clients and suggesting that these two groups can use their power to promote a new ethos of inclusion and effective client service in the elite corporate bar.
I. THE RISE AND FALL OF LEGAL PROFESSIONALISM
Since the nation's founding, lawyers sought to create what Alexis de Tocqueville described as an "aristocracy of profession," an industry built upon its elite status and ability to exclude. (18) They erected high barriers to entry first through the apprenticeship process of the nineteenth century, and later through law school accreditation and bar passage requirements. (19) This professionalization created a cartel of elite law firms that controlled the upper segment of the legal market through the first half of the twentieth century. (20) But, as Galanter and Palay described, new developments have transformed firms over the past forty years. The growing demand for corporate legal services, combined with increased transparency in elite firms and the changing demographics in the legal labor market, triggered a decline in professionalism and opened the industry to outside economic forces.
A. The Transformation: The Tournament Intensifies
Before examining the present state of the elite legal industry, it is helpful to examine the earlier "golden era" of economic insulation. By 1960, the nation's most elite firms adopted a structure pioneered by Cravath, Swaine & Moore several decades earlier. The "Cravath system" divided firms into two groups: associates, who came to the firm directly from law school (or a judicial clerkship) and received an annual salary, and partners, who were more experienced attorneys and shared in the firm's profits. Associates typically outnumbered the partners, and only a select few would advance to the lucrative partnership. (21) This competition for eventual financial payout, also known as a "tournament model," provided incentives for the younger attorneys to work long hours and the older attorneys to train new attorneys without fear that they would leave early and take clients with them. The ratio of associates to partners, or "leverage," became an important predictor of a firm's profitability, as increasing the number of salaried associates often resulted in greater returns for the partners. (22)
The elite firms were also deeply secretive. Only partners knew exactly what determined promotion decisions, and most of them did not know how much money their colleagues made in a given year. Clients knew even less. Firms often billed companies based on fixed rate schedules developed by regional bar associations, (23) and it was not uncommon for firms to furnish bills without itemized expenses. Corporate clients shouldered the high cost of legal services, partly because it was considered unseemly to complain, and partly because they had no other choice. (24)
Firms adopting the "Cravath system" remained ethnically and religiously homogenous well into the middle of the twentieth century. Most legal work involved corporate deal making, and as a result the firms recruited associates whose credentials (25) and pedigree matched the Anglo-Saxon background of the businessmen they served. As Eli Wald describes elsewhere in this Issue, the self-perpetuating recruitment process ensured ethnic homogeneity, even as Jewish and Catholic law students began graduating at the top of their classes. (26) Women and racial minorities were virtually non-existent in both elite law schools and elite firms.
Starting around 1960, however, the culture and economics of large firms began to transform. The first major change was an unprecedented surge in the demand for corporate legal services. Businesses faced increasing government regulation in various areas, including civil rights, employment law, product liability, intellectual property, corporate contracts, (27) antitrust, and municipal bonds. (28) Law firms grew nationally and internationally to serve the needs of their clients, expanding their associate classes and encouraging greater specialization by developing distinct practice areas. Between 1960 and 1985, the number of law firms with more than fifty attorneys increased twelve-fold, from approximately 40 to 508. (29) In 1985, the legal profession contributed twice as much to the American economy as it did in 1960. (30)
The increasing demand affected both the companies that hired law firms and the firms themselves. Corporate executives expanded the power of their in-house counsel, hoping that their company lawyers could help navigate an increasingly litigious business environment and better control the high cost of hiring outside counsel. (31) The newly influential general counsels soon shifted more work in-house, (32) which was cheaper,33 and used the new competition between large firms to negotiate better rates for the remainder of their companies' legal work. These internal changes had an impact on private law firms. As they faced new market pressures from clients, big firm partners were forced to re-evaluate some of the less efficient aspects of their practice and their profession.
One of the first major changes to occur involved the system of billing clients. General counsels demanded a better method for determining the cost of legal work, and fixed fee schedules simply could not account for the ever growing and complex list of services that firms provided. (34) Drawing on recent research in organizational theory, some firms began to implement an hourly billing system, believing that this arrangement would make it easier for their clients and partners themselves to keep track of costs, and would also be more profitable for firms. (35) The system caught on. Firms that initially declined to switch were essentially forced to in 1975, when the Supreme Court ruled that the fixed fee rates once advocated by bar associations violated the antitrust laws. (36) The billable hour became the industry standard. (37)
The second major change involved increased transparency within elite firms. In 1977, the Supreme Court struck down another rule adopted by bar associations, one that prohibited lawyers from advertising to the public. (38) Firms could now discuss their work with journalists without facing reprimand by bar associations. (39) Within two years of the court decision, entrepreneurs launched two new legal publications, The American Lawyer and National Law Journal, both of which focused less on recent developments in the law and more on personalities. (40) The magazines reported on subjects previously considered taboo, including the size, starting salaries, total revenue, and client lists of elite firms. The publications ranked firms on a variety of metrics, providing an endless source of bragging rights or shaming tools for status-conscious attorneys. American Lawyer's "profits per partner" calculations soon became one of the legal profession's most salient measurements of a firm's success. (41)
The explosion of information spurred further competition within and between firms. Lawyers sought to improve their position relative to their colleagues and to other high-status workers, particularly the investment bankers and bond traders who grew wealthy in the early 1980s. (42) Firms pursued topdollar clients and premium projects in pursuit of higher profits per partner, and then worked their young attorneys increasingly long hours to make the projects profitable. (43) In 1961, a full-time lawyer billed 1200 hours annually. (44) By the mid-1980s, associates at large New York law firms averaged 1800 billed hours annually, (45) and a decade later, associates averaged between 2000 and 2500 hours. (46) Even Chief Justice William Rehnquist was taken aback by these developments, suggesting in the mid-1980s that partners treated associates like a manufacturer would treat "one hundred tons of scrap metal." (47) "If you use anything less than the one hundred tons you paid for," he commented, on the partners' mindset, then "you are simply not running an efficient business." (48)
The declining work conditions made the prospect of partnership less appealing for young attorneys, which forced firms to raise entry-level salaries in order to attract the top recruits. (49) First-year associate salaries increased from $10,000 in 1968 (50) to $71,000 in 1988, (51) a seven-fold jump, and then doubled in the subsequent two decades, rising to $160,000 by 2008. To subsidize these pay increases without sacrificing the all-important "profits per partner," (52) firms expanded the size of their associate classes at a faster rate than the partnership ranks, creating more leveraged--and often more lucrative--firms. (53)
But the quick expansion and the pay raises had the unintentional effect of bifurcating associate classes. Young attorneys at large firms typically fell into one of two groups: those who genuinely aspired towards partnership and those who sought a quick financial payout but had no designs on management. (54) This second cohort was less interested in seeking out the best assignments, mentorship, and training. These short-term employees--"paperwork associates," as David Wilkins and G. Mitu Gulati have called them--wound up with the firms' drudge work, such as due diligence or document review, even though they worked the same long hours as their partnership-oriented colleagues. (55) Many of these lawyers reported high levels of job dissatisfaction and eventually quit. (56)
The third and final major change was the diversification of the legal profession. Since the demise of the "golden age," a growing number of religious, sexual, and racial minorities have reached the highest echelons of elite firm practice. (57) This increased diversity added new perspectives and new insights in the operation of these firms.
Different groups enjoyed differing degrees of success at integration, however. Jewish lawyers succeeded only after creating their own large law firms, which specialized in lucrative practice areas that WASP lawyers considered ungentlemanly. (58) Women and racial minorities increased their numbers slowly, although they remained far from achieving parity between the percentages of minority partners at elite firms and their representation in the population at large. (59) By the mid-1980s, the American Bar Association (ABA) sought to encourage this progress, inserting a new Goal IX into its mission statement, committing itself to increase the number of women, minorities, and disabled persons in the profession. (60) In addition, regional bar associations often created voluntary targets for increasing the percentage of female and minority attorneys at each firm. (61)
For a variety of reasons, however, female and minority associates continued to leave firms at disproportionately high rates. Sometimes they found themselves relegated to a "paperwork" track that foreclosed the possibility of partnership. (62) Women often left because they were unwilling or unable to combine the intensified hours of the elite law firm with their family responsibilities. (63) Part-time programs rarely solved the problem because they were stigmatized (64) and often suffered from "hours creep." (65) Similarly, minority lawyers found it difficult to navigate the competitive pressure without mentors and the social networks that would enable them to develop a book of business. (66) According to Wilkins and Gulati, partners often failed to invest in the professional development of their minority lawyers, assuming perhaps that they were disinterested in corporate legal services. (67) The partners assumptions became self-fulfilling, however, and the firm management remained homogenous even as associate classes diversified. These challenges continue to the present day.
B. The Effects of the Transformation
By 1991, the transformation described above had wreaked such havoc on the legal profession that Galanter and Palay declared it a "crisis." (68) In 2008, many of the same issues remain. The three most salient problems today are rising billable-hour expectations, a lack of racial and gender diversity among the partnership ranks, and high associate attrition rates.
1. Billable hour escalation
Fifty years ago, an ABA study found that large firm lawyers could not reasonably work more than approximately 1,300 fee-earning hours a year. (69) Over time, however, the hours that firms expect of their associates has increased substantially. Patrick Schiltz, a former law firm partner recently appointed to the federal bench, described the problem in his polemic On Being a Happy, Healthy, and Ethical Member of an Unhappy, Unhealthy, and Unethical Profession:
Conventional wisdom just a few decades ago was that lawyers could not reasonably...
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