Law Firms
Hildebrandt: Cut Associate Salaries Now
Posted Mar 9, 2009 1:17 PM CST
By Rachel M. Zahorsky
“If you don’t cut associate starting salaries now, you are nuts. They were too high. Now we have to pay for it.”
Bradford Hildebrandt’s admonition on costly associate salaries was repeated over and over as top law firm management met at Hildebrandt's Law Firm Leaders Forum in San Francisco last week to talk about the long-term implications of the economic downturn and the actions firms will need to take in order to adapt to a changing world.
“This is really the opportunity to look at associate salaries, and go to folks and say, ‘we are anticipating lower demand, we have to rationalize the expense base,’ ” said Danilo DiPietro, client head and managing director of Citi Private Bank's Law Firm Group.
DiPietro’s proposal came on the heels of decreased demand for legal services, fee collection and productivity in the first month of 2009, according to the Hildebrandt Institute’s and Citi's most recent law firm data. Bankruptcy was the only practice group to see positive growth in January.
Associates weren’t the only targets of suggested cost-cutting measures at the two-day conference. “Reducing partner ranks at equity partner levels is necessary,” DiPietro said, “That will be happening at an on the radar level in the next year.”
A second phenomenon that will impact U.S. lawyers in 2009 and beyond is the escalating growth of India’s professional class, particularly highly-educated, English-speaking lawyers.
“One year from now, the U.S. will no longer be the world’s largest English speaking country,” predicted New York Times best-selling author and trained lawyer Dan Pink. The former Al Gore speechwriter noted that India has five times more law graduates every year than the U.S.
One firm already utilizing India’s massive legal workforce to reduce internal costs is corporate law firm Haynes and Boone. Managing Partner Terry Conner said the firm currently works with 20 dedicated India-based lawyers on matters in which a legal mind would be helpful, but U.S. associates either don’t want to or aren’t benefiting from the tasks.
“ILO is not displacing U.S. associates,” Conner said, noting the cool reception the project received from some of the firm’s associates, “but it would have implications for firm long-term staffing models.”
The India outsourcing has not yet affected recruiting at the firm, Conner added.
The 14th annual forum was co-chaired by Hildebrandt and Ralph Baxter, chairman and chief executive of Orrick, Herrington & Sutcliffe. It drew nearly 110 attendees, including law firm managing partners and chief executives, legal scholars and corporate general counsel.
Follow Rachel Zahorsky's Twitter feed and see more notes about the conference @LawScribbler.
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Comments
B. McLeod
Mar 9, 2009 1:25 PM CST
Duh.
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Duh
Mar 9, 2009 2:44 PM CST
I’m convinced B. McLeod is:
1. Not a lawyer. Too much free time spent on internet message boards.
2. Multiple people. Since no verification of identity anyone can say they’re B. McLeod.
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B. McLeod
Mar 9, 2009 3:11 PM CST
Wrong as to 1. As for 2, only B. McLeod can say it truly. Whether I am, in actuality, multiple people is an intriguing consideration. (Would certainly explain how I can be so active on internet message boards).
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Jake Myers
Mar 10, 2009 1:26 AM CST
If outsourcing legal work to India is anything like outsourcing programming work to India; at least I know I’ll have a job in the future cleaning up the muck they produce. In my former life as a programmer, I frequently had the unlucky task of making Indian code maintainable, readable, and usable. Initially, clients appreciate the speed these guys can produce work, but the costs to change or maintain that work cancel out any savings. I hope that the situation is not the same for these law firms (not really).
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B. McLeod
Mar 10, 2009 8:51 AM CST
Comment removed by moderator.
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Steve
Mar 10, 2009 12:21 PM CST
“Managing Partner Terry Conner said the firm currently works with 20 dedicated India-based lawyers on matters in which a legal mind would be helpful, but U.S. associates either don’t want to or aren’t benefiting from the tasks.”
Really? Go ask one of the thousands of associates who have lost their jobs or JDs still looking for their first one if they’ll do it.
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Sean S.
Mar 13, 2009 4:56 AM CST
I couldn’t agree with Steve (#6) more. Mr. Conner can only imagine the anxiety that the class of 2009 is facing right now. Vast layoffs are pitting the skills of the newly branded lawyer against people many years their senior, both in age and experience. Most certainly, there is not a legal job out there that you will have much difficulty filling with a U.S. associate.
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Reed Iculous
Mar 13, 2009 6:07 AM CST
So let me get this straight. Law firms pay big money to “consultants” such as Hildebrandt and Altman & Weil, so they can tell them they are spending too much money on associates. Is that right?
Associates = timekeepers = $ in the door
Consultants = expense = $ out the door
Uh…..maybe I am delusionsal, but seems like a no brainer.
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anon
Mar 13, 2009 7:17 AM CST
Law firm leaders forum = antitrust???
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Mike
Mar 13, 2009 7:20 AM CST
+1 to Jake @ 4
In my prior career, I led a team of people in Bangalore. They were terrible. No amount of additional training helped. Unfortunately, my prior employer made a huge investment in staffing that operation and forced it on those of us in the US.
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Mike
Mar 13, 2009 7:21 AM CST
When will the consultants tell the equity partners to take a bit less PPP?
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B. McLeod #2
Mar 13, 2009 8:24 AM CST
“Fight Club was the beginning, now it’s moved out of the basement, it’s called Project Mayhem.”
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SER
Mar 13, 2009 8:32 AM CST
I agree with Jake - outsourcing software dev and testing to India was a nightmare… although it did keep us busy after the bubble burst with a LOT of clean-up work… seems like a waste to have legal work outsourced to India and then have US lawyers clean it up. Double the expense for the same amount of work - that will help cut costs in the future! Yeah right.
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Ruthie
Mar 13, 2009 8:40 AM CST
Kudos to #4, for pointing out that shipping work overseas is penny-wise and pound-foolish. From a different prospective, the medical profession found out that saving money by shipping records and diagnostic work overseas was no bargain when one cut-rate Indian firm threatened to release patient confidential files onto the internet if the Provider didn’t meet their sudden increase in prices. And as my Spouse, the engineer pointed out, they really don’t speak English, as we understand it. If your judge bemoans the state of brief-writing now, wait until the next unlawful detainer complaint he hears is full of references to the “flat,” and the “sup.”
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Conan
Mar 13, 2009 8:53 AM CST
shipping records overseas especially confidential information I think is a security risk because then that foreign gov’t could also use against the country if there was a disagreement (yes you can steal a disk of info that is true but the firm that has the records is outside of U.S. criminal jurisdiction.
As for associates being paid too high…the model is unsustainable - the associates get worked to death and they demand money as a result. Maybe the industry should face the fact that legal practice shouldn’t be as profitable as it is trying to be in general (i.e. partners can’t expect to make as much dollars as they do now).
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Ronnie
Mar 13, 2009 8:58 AM CST
As to ##6 and 7, true but….... You cannot blame Mr. Conner for believing that associates wouldn’t want to do the work that has been outsourced. For many many years, this was true. Young associates didn’t want to do the grunt work, day to day parsing through documents out the wazoo for a case. It was indeed beneath them. Heck, that’s how I stayed employed for a year, doing the work that the real associates wouldn’t. Surely times have now changed. Now I’m sure many people would do the grunt work, but at what price? Would they for $17-$18/hour, what I was paid. Many would, I’m sure. Some would still think it wasn’t enough to make the trauma worth the effort, and decline. People’s perceptions don’t change as quickly as reality does, and I think Mr. Conner’s statement exemplifies that.
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JME
Mar 13, 2009 9:41 AM CST
Actually, Indians speak English, we Americans do not. We speak American. I lived in England for five years, and trust me, that phrase about two peoples separated by a common language is very true! Just as a simple example, I went to Scotland for a holiday, three American friends with me. Two brought their English girlfriends. As I was helping the girls unload their gear, one asked me to knock her up in the morning. I agreed, to the consternation of my friend. As we left the girls, he asked me what the heck? I wasn’t her boyfriend, so he didn’t understand why she’d ask me that. I said she simply wanted a wake-up call.
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B. McLeod
Mar 13, 2009 10:58 AM CST
Aye, JME. On the other hand, when a Yankee girl says that, well, Bob’s your uncle.
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Mark
Mar 13, 2009 10:59 AM CST
I’ve used Indian companies before in the electronics industry, they are cheap, fast, and speak really good English. Initial quality is not-optimal, but it’s all about partnership - they grow and learn - you just have to plan for it. With respect to sending confidential docs abroad, yes there are certain things related to the homeland security and the defense of the nation that require due diligence, but most of ‘big laws’ customers have Indian operations. I hate off-shoring by the way, and constantly strive to keep jobs here, but I also need to keep profitable and produce products and services for people at a price they are willing to pay. Finally I just signed a new contract with an Indian company this week, I took the decision not to run it past the Lawyer this time, it’s just too expensive vs. the risk. Welcome to the harsh world of business guys, it’s all about survival - and your senior partners know it.
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Cut
Mar 13, 2009 11:28 AM CST
A consultant to law firms is finally telling them to cut associate salaries? Wow…what a new and novel concept. These firms should have been listening to their biggest clients who have been saying this for a very long time. What other industry does someone with little to no prior real world work experience come out with a grad degree and get paid $150k/yr. Not many med students get that and they spend a lot longer in school and incur more education expenses and have a much more demanding first few years when they enter the profession. Big firms could hire 2 associates for every one and lower their fees.
I’m in-house and in this economy I am getting a lot of calls from people who find me on the state bar’s lawyer directory. My info is limited to my practice areas, it does not say I’m in-house, the name of the corporation, or that I’m with a firm. So people with real estate issues call me thinking I’m a solo who will charge them less. In the past two weeks alone I have received several calls, not only from individuals but small local developers who are fearful of what a mid and large size firm will charge them for representation. So the mid and big firms keep laying off because they’re loosing business. It is true, you reap what you sow and these firms are reaping weeds.
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JohnyLaw
Mar 13, 2009 1:55 PM CST
“If you don’t cut associate starting salaries now, I cannot afford to buy my fifth house” said the greedy, petulant partner.
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Johny Law
Mar 13, 2009 1:56 PM CST
“If you don’t cut associate starting salaries now, I cannot afford to buy put gas in my yacht” said the greedy, petulant partner.
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Johny Law
Mar 13, 2009 1:58 PM CST
“If you don’t cut associate starting salaries now, I cannot afford to buy gold plated shower curtains” said the greedy, petulant partner.
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