Allure of Big Law Has Lost Its Lustre

The secret is out, and in a big way. Large law firms can no longer promise the job security and generous compensation of previous generations.

We were outed yesterday by Margaret Wente yesterday in The Globe & Mail, the newspaper considered to have the highest circulation among the economic elite and law firm partners on Bay Street. Wente laments the demise of all professionals as the sure route to a lush lifestyle, but has a particular bone to pick with a legal career,

Think twice before you encourage your daughter to go to law or med school, especially if she’ll have to borrow heavily to do it. On top of that, these young professionals are starting their working lives later than ever before. By the time they are credentialed and hit the work force, they’re in their early 30s.

“There’s a real disconnect between the perception and the reality,” says one senior lawyer. “You have to be pretty creative when you’re thinking of law as a career choice.” Translation: If you think you’re going to land a $100,000 starting job on Bay Street, you’d better have Plan B. It’s more realistic to aim for association or government work – where salaries are a lot lower. (By the way, you’ll have to do your articling in Sudbury.) And even if you start out in the big time, the ladder to partnership is being pulled up. These days, it can take 10 years to become an equity partner in a major firm – if you make it. Most don’t.

In 2007, Alec Scott commented in Toronto Life on how difficult it can be to make partner in these firms,

…the competition is fierce. These days, the system is set up so that it’s almost impossible to get to the top of the pyramid. Warren Bongard, vice-president of the legal headhunting firm ZSA, estimates that only one in 10 associates who start with a downtown firm will make partner, as opposed to roughly one in three back in the day. Where once partnership was offered (or not) after six years in the practice, now it’s more likely to take seven to nine years of slogging. “Workwise,” says Bongard, “firms get more leverage from their associates by delaying the partnership decision.”

That was 2007, before the recession, and before big law firms realized they had to cut their associate ranks significantly, so the statistics for making partner in the next decade will likely be even more dismal. Other firms, especially some of the litigation boutiques requiring rights of appearances before different courts, realized that it’s far more inexpensive to hire multiple articling students to sit in scheduling or motions court than it is to employ associates who have higher expectations for compensation. Not enough articling students to offset the articling crisis, in Sudbury or elsewhere, but enough to guarantee that enough 2008-2010 calls in Ontario have noted the lack of horizontal mobility and recently bottom-heavy structure of some firms. Wente talks about the impact of these changes on articling, and how technology and outsourcing has made it even worse,

In the United States, where law schools are churning out two graduates for every job, the law-school bubble has become a dramatic bust. The situation is better here, but the big trends are the same. In Ontario, hundreds of articling students can’t find spots. Top earners at top firms are making more than ever, but everybody else is treading water. More and more lawyers are being treated as commodity service providers, and they’re being squeezed for volume discounts. Some are already being forced to compete with legal outsourcing firms (India does it cheaper) and computer technology, which can now perform sophisticated document searches more efficiently than human beings.

Of course it’s not just the lawyers who are being automated, it’s the service economy itself. Sandra Contenta of The Star commented yesterday on the transformation facing the securities industry,

Algorithms are the stuff of artificial intelligence. If machines, like those in science fiction, were to suddenly denounce humans as pests, it would be algorithms talking.

…

The “wake-up call,” as Wolburgh Jenah puts it, sounded May 6, 2010. That day, U.S. equity markets plunged almost 10 per cent in a heart-stopping few minutes. It’s called “the flash crash.”

It happened when the off-the-shelf algorithm of a mutual fund company, Waddell & Reed Financial Inc., began selling 75,000 E-mini futures contracts — valued at $4.1 billion — on a day when the European debt crisis had already made markets volatile.

…

It’s impressive stuff. But a science fiction writer would ask: Is it the algorithms that made them move mountains? Who is really in charge?

Whoever is really in charge, you can be certain that algorithms are far less interested in running a par for the course with the senior partner of the Bay Street law firm. The algorithm certainly doesn’t maintain contracts with firms out of loyalty because they both went to Upper Canada College together. These clients want numbers, primarily in the areas of fee savings and metrics on their returns.

Senior members of the bar may scoff, claiming that “kids these days just don’t know the value of hard work.” But job opportunities are not the only thing that distinguishes this generation of lawyers from the previous ones. In 1997 professional programs in Ontario had their tuition deregulated. What that meant was that law school tuition skyrocketed, and law firm compensation certainly did not increase proportionately. Wente comments on the rising debt of this generation’s new lawyers,

Meantime, law-school tuitions have soared (the University of Toronto charges $25,000) and the competition to get in is ferocious. Three years of undergraduate work doesn’t cut it any more. Today, you’d better have an advanced degree (or two) if you want to get into a top school. All this adds up to more time in school and more debt. By the time your daughter is called to the bar, she may have $80,000 or more in debt, with income prospects that are far lower than she expected.

A 2004 study funded by the Law Foundation of Ontario and the Law Society of Upper Canada looked at the fallout from law school deregulation. The unsurprising result of deregulation is that law school composition is now more closer geared to the higher earners in Canada. We are already the 1% in so many ways, but this just confirms it. Starting a second or third degree, whose tuition in a single year exceeds all of the previous years combined, simply doesn’t make economic sense for families where children are paying their own buck or expected to assist in household expenses.

You might expect that visible minorities and immigrant enrollment in law schools would decline due to deregulation, but the study found an increase of increase in South Asian and Chinese visible minorities. Thanks to Canada’s point-based immigration system (which credits immigrants’ previous education and skills but then designates many of them to instead drive taxis when this education isn’t recognized), many visible minorities in Canada still believe that a profession is one of the more stable routes to successful lifestyle.

Perhaps nobody told them that the chances of them making partner are even worse than their peers, unless someone has developed an algorithm for that as well. Few of these students have any lawyers in the family, and if they do the chances are they’re driving cabs as well, so they have little basis for comparison. The assumption, and one which many in the field benefit from, is that if they simply work hard they will succeed. Wrong. Claire Brownell shed light on this dirty secret recently in The Windsor Star,

 The University of Windsor asked law students whether the hiring process for articling positions was fair. The frustration in the responses was overwhelming.

“You have to wonder how people with Cs get into Bay (Street firms) but top grads (who happen to be from marginalized communities) are still seeking articles,” reads one response. “It seems a lot of female minorities have not got articling positions,” reads another.

The real kicker though is a 2010 study by Rachel Gotthilf which looked at rising tuition rates at UofT law and found that the professed reason for the increases – to improve legal education at the school to compete on an international level – were simply not achieved. Let’s not forget David Segal’s remarks in the New York Times last summer,

With apologies to show business, there’s no business like the business of law school.

The few redeeming qualities that big law firms have is institutional knowledge and resources. They should know, more than anyone, how much their business model is in trouble. But whether they are using their resources to address these problems is uncertain.

Throwing money at law schools might be great for branding or ensuring that a students receive a $0.20 (cost) mug in return for their $2,000 tuition increase in any given year. It does not solve the problem that big law hardly seems like the rational or intelligent choice. And perhaps this should be their biggest concern, because the most intelligent and ambitious law students, who by sheer numbers will be equity-seeking groups like women, visible minorities, and LGBT students, simply won’t see big law as the most intelligent option. There may be an entirely different type of brain drain occurring here.

Between 1880-1950 the Jewish community in Montreal faced blatant racism and discrimination from Canadian law firms. Mario Nigro and Clare Mauro detailed their plight in the McGill Law Journal, and note that many turned to sole practice and received lower compensation for the same work offered by larger firms. During the Great Depression one Jewish lawyer in Montreal commented,

Although every man thinks that his business is the hardest to be in, I seriously believe that the law business is the toughest one for any young Jewish man. It is full of that sense of insecurity which is almost as base as not having any money at all. Here one either starves to death or goes nuts because one has to wait around until clients come.

When the clients are looking for cost cutting and flat fees from mid-size to small firms, Big Law is the one waiting around these days. And although they do pay, when it’s compared to the amount of debt that students have accumulated most will be paying off the loan for years to come, it is arguably a worse situation than the sole practitioner with no debt simply looking to develop their practice.

In today’s market it almost seems like the lawyer graduating from one of the more inexpensive schools (it’s all relative) and offering competent legal services for less than the large law firms may be able to pay off their debts, and create a profitable practice, before their peers who beeline directly to Big Law for their temporary stint there. But the entire dynamics and business model of large law firms is predicated on the ability to attract bright and talented associates who will produce work that generate profits for the equity seeking partners. If Big Law is no longer the preferable option for these young lawyers, that entire business model is in trouble. Eli Wald, who traces  the growth and development of both the WASP and the Jewish law firms in the U.S., and the decline of both, states in the Stanford Law Review,

To the extent that large law firms are no longer able to offer their lawyers meaningful opportunities to exercise and develop practical wisdom and professional judgment, that is, insofar as they are not able to sustain a credible promise to produce high quality work and provide quality training and mentorship to their associates, and as the number of large law firms continues to grow, decreasing the ability of each individual firm to represent a high number of elite clients, the large firms may find themselves unable to sustain a credible claim to elite professional status. Having shelved its elite religious, socioeconomic, and cultural identity, the large law firm now possesses only its elite professional identity. If stripped of elite professional status, the large law firm might find it harder to attract cohorts of top graduates from elite law schools, and, over time, might find it harder to sustain its client base.

Is that a model that any young lawyer, irrespective of their ethnic background, gender, or sexual orientation, would want to blindly sign up to? Is it one for which they would willingly dedicate enormous amounts of time and sacrifice family and personal relationships?

Charles Dickens describes in The Life and Adventures of Nicholas Nickleby the epiphany of Ralph Nickleby before his suicide, who for most of the story cared about nothing but money,

Gold, for the instant, lost its luster in his eyes, for there were countless treasures of the heart which it could never purchase.

If lawyers realize the opportunities that await them outside of Big Law, including pro bono work, promoting access to justice, and sometimes work that is just more interesting, the luster of these firms may dim, unearthing all sorts of treasures in other places.