Partners in law firms are enjoying a golden age. Driven by an unprecedented and prolonged corporate finance spree, top-end international firms are plugged into a rich source of premium deals. bear this out. According to Legal Week, 15 firms in the UK bill over £100 million in fees, while profits per partner in the so-called ‘magic circle’ firms are edging ever closer to the £1 million mark. At Slaughter and May, still the most profitable City firm, partners reportedly averaged £870,000 in the financial year 1999-2000, while both Allen&Overy and Linklaters were close behind at around £750,000.
These are impressive figures, but the higher they go, the heavier the pressures they place on the firms’ management committees. Top-end deals, from top-end banks and corporates, are the lifeblood of this market. And winning this work means heavy investment in international capability, marketing, IT and, most importantly, recruitment. Law firm economics mean that assistants have to be attracted and retained in ever greater numbers. The problem is that the recruitment market is wising up.
High starting salaries alone are no longer enough to win over an increasingly cynical pool of high-calibre conscripts.
When Legal Business magazine published its survey of assistants at UK law firms in July this year, there were some interesting and, for law firms, worrying findings. The most profitable firms are, demonstrably, not the happiest places to work. According to the survey, which sent out questionnaires to all assistants at the top-35 UK firms, the five magic circle firms fared, at best, moderately well in the overall rankings. Assistants at these firms spend an average 60 hours a week in the office, and, not surprisingly, this is taking its toll.
At Allen&Overy, for example, where the assistants are, ostensibly, happier than at any of its immediate rivals, one assistant is quoted as saying: “The amount of work and hours in the office are a constant complaint, but let’s face it – we’re not paid the amount, we’re paid to work 9.30 to 5.30.” Meanwhile, a more outspoken assistant at another top-five firm says: “Legal firms have got themselves into a mess. Assistants get treated like dirt, but because the competition is so fierce, no one is prepared to do something about it. It stinks!”. And while lawyers are well paid compared to most of the population, they aren’t compared to the investment bankers they work alongside on big M&A and capital markets deals. And work at the legal end of deals is rarely glamorous.
Certainly, the number of disaffected assistants is on the rise. This plays into the hands of law firms that are desperate to recruit at assistant level – but, at the same time, it creates a pressing need for serious rethinking on just how law firms should be run. Assistants know what to expect these days, and they won’t be fobbed off with airy promises about partnership prospects.
For managing partners, it is a troublesome enigma. In the US and the UK, law firms are losing more assistants than ever before. Hikes in salaries and bonus schemes are not, on their own, enough to stem the tide. The lure of investment banks, multinationals and dot coms is strong, offering, as they do, steady, high incomes, equity stakes, and, in the case of multinationals at least, predictable hours and assured career development – on top of established benefits packages.
It is now commonplace in the US for investment banks to pay off graduates’ student loans, at a cost of tens of thousands of dollars.
Contrast that with the following words from one assistant at a top-five UK firm, and the extent of the problem is evident: ‘It is worth noting that [our] deal comprises neither a pension nor a bonus.’
If assistants are unhappy, what should their masters do about it? In a bid to counter this trend, law firms are having to rethink their philosophies. Yet the dynamics of the legal business are tough to break. The pressure to bill a rising tide of billable hours, combined with a lack of interesting work, are facts of life in the big powerhouse firms. The logistics of leverage, which depend on a growing assistant-to-partner ratio, demand this status quo. Unfortunately, though, the equation is flawed. The workforce won’t take it anymore. Without any realistic prospect of partnership at the end of the associate tunnel, too many young lawyers are looking elsewhere – not just at other firms, but beyond the confines of a profession that appears to be out of step with lifestyle priorities.
Cameron Stracher, a former associate of Covington and Burling in the US, who subsequently wrote a book on associate life called ‘Double Billing’, summed up the situation in a recent interview when he said: “What’s happened is that law firms are beginning to realize that a lot of their mid-level associates are jumping ship, and more and earlier than they would like. A perfect time for an associate to leave, as far as a law firm is concerned, is the seventh year, when you’ve squeezed the last dollar from them and they’re on the verge of becoming partner.
If that starts going down, so associates are leaving in their fourth or fifth year, then it becomes problematic. That’s happening in New York and elsewhere in the US.”
The truth is that money alone is no longer enough. Law firms have been hiking their associates’ starting salaries in the expectation that, at a certain level, they will arrive at a figure that attracts top-quality recruits and, more importantly, compensates them for the toil that lies ahead. Starting salaries have been pushed ever higher, particularly so as the New York firms have moved into the London market in significant numbers looking to build English law operations from scratch. But young lawyers are still leaving – most damagingly at the mid-to-senior end, once firms have invested substantial amounts in their training and development.
Last year, New York’s Shearman&Sterling set the market talking with a radical new employment package designed to stem the tide and boost job satisfaction. It could well be the way forward. The principal goals were to create longer, more satisfying careers, better communication of career prospects, flexibility of careers and financial rewards for boosting the firm’s performance.
Entry-level associates at the firm now receive long-term bonuses after five years’ service, drawn from a total pool of around US$2 million per year. The package also includes mandatory leave for study or travel after five or six years and the promise of a minimum three months in another of the firm’s offices or practice groups, with the firm covering the cost of relocation. After six years’ service, each associate will receive a comprehensive career review – with straight talking about their partnership prospects, and all associates will, after two years, benefit from a flexible career path, proving a chance to work part-time or flexi-time options.
Taken together, the various elements of the package add up to a very significant rethink in the way that law firms view themselves going forward. Perhaps most importantly, it represents a structured commitment to dealing with an issue which won’t just go away. If other top-end firms want to stay in the job market, they will, in all likelihood, be forced to follow suit.
