1.800.973.1177CAREER COUNSELOR’S CORNERPAGE 1 continued on backThe notion that a partner or associate mustproduce 2,000 or 2,400 hours of billable workyearly virtually assures that some clients willbe overbilled.…Of course, almost all firms have stated poli-cies that forbid…unethical and illegal billingpractices. The extent to which these policiesare actually followed depends on the firmculture, on unspoken messages that leadersof the firm send to its lawyers.…When money becomes the primary goal, alaw firm may end up choosing to systemati-cally inflate client bills and even to bill forexpenses not actually incurred for thoseclients.--Seth Rosner, American Bar AssociationJournal, May 1992One of the most important aspects of yourlegal career-and among the most mysteriousto young attorneys-is law firm economics.The economics of your particular law firmwill have a profound significance in termsof what happens with your legal career.Because of this, smart attorneys and lawstudents should have a good understandingof law firm economics before joining any lawfirm.Law firm economics often confuse attor-neys because they have very few ways ofgetting the information necessary to fullyunderstand them. Law firms certainly donot tell their associates how the economicsof their business work -- many do not eventell their partners. This is something that israrely, if ever, taught in law school. Despitethe drought of information, to succeed in alaw firm environment, you must have a goodunderstanding of many of the unspoken rulesthat govern law firm economics.There are several different models that lawfirms follow. The purpose of this article is toexplore the common economic model thatgoverns large and midsized law firms at thelaw clerk, associate and partner level. Thepurpose of this article is not to explore howstaffing of paralegals and legal secretariesworks inside law firms-which is a separatetopic entirely. I should note that this is nota pleasant article for me to write becausemuch of what it says is a critique of the legalprofession. Nevertheless, the truth cannotbe ignored and you will have a difficult timesucceeding at a high level inside a law firmunless you understand its economic model.The Importance of the Billable Hour to LawFirm EconomicsIt is important to always be aware that mostlarge and midsized law firms are run to beprofit centers and to make as much moneyas possible. In this regard, the way law firmsmake money through their arrangementswith clients must be understood. There aremany different sorts of billing arrangements,from fixed fee to contingency. Nevertheless,in almost all cases, large to midsized lawfirms prefer the billable hour approach.Historically, law firms simply billed clientsby what they perceived as the “value” of thework they were doing. Occasionally, lawfirms would quote a fee upfront and thatwould be what they charged. In still other in-stances, at the conclusion of a case a partnerin a law firm might even look at the size ofthe file they and their associates had workedon an tell their secretary something to theeffect of: “That feels like about a $2,000 file.Send them a bill for that.”There was a time when the billing done byattorneys was not based on the billable hour.Not too long ago (within the past 40 years), agradual transition occurred to lawyers basingthe value of their time this way.In the nineteenth and early twentieth cen-turies, lawyers routinely billed their clientsrelatively standard fees based upon theirexperience performing a particular service.For example, a simple will might cost $50at the turn of the century; an uncontesteddivorce, $200; and, a house closing, $100.Some clients, however, complained that suchfixed rates led to price fixing and extraordi-narily high hourly rates for some lawyers.For their part, lawyers responded with theBr’er Rabbit defense. “Please, oh, please,”they pleaded, “don’t throw us into that briarpatch of hourly rates. Oh noooo!” Citingthe concern over price fixing charges, theyagreed to hourly rates as a standard for theindustry and touted it as a consumer-protec-tion measure.Donald E. deKieffer, How Lawyers ScrewTheir Clients, p.28Because of this sweeping change, the legallandscape has been altered quite dramatical-ly. Today, the economic engine inside mostThe Impact Law Firm Economics Can Have on Your Legal Career[A. Harrison Barnes]Attorneys who choose to work in law ﬁrms often do not know what they are getting themselves into. From summer associates to senior partners, provingyour economic worth to your ﬁrm is often difﬁcult, but always necessary. Find out what you need to do to show your law ﬁrm that you can ﬁt into theireconomic model and that you are worth keeping around.
1.800.973.1177CAREER COUNSELOR’S CORNERPAGE 2 continuedlaw firms is based on the billable hour.As an aside, I can tell you that I am not sureif this was the best move. In my position as alegal recruiter and having spent the past sev-eral years talking to countless attorneys on adaily basis, I do not think I have ever encoun-tered a single situation where an attorney wastold they were billing too much-or that theyworked too much time on a single project.Conversely, I have come across countless ex-amples of the reverse occurring. Compensa-tion and even many hiring and firing decisionsinside most law firms are now based more onproduction than value produced for the client.Law firms are almost never guilty of paddingtheir bills and the time their associates workon various matters. I have never heard of anepisode of this occurring. However, law firmsdo as institutions push both their partners andassociates to pad their bills. Since the clientis being charged on the basis of the billablehour, the client will receive an accurate billfor the hours reported by the attorneys whoworked on a given matter. Whether or not thisbill accurately reflects the amount of timenecessary to complete a given task is anotherstory.The point of this discussion is that once youare inside a law firm, it is essential that youunderstand the importance of the billablehour in the law firm’s profitability as well asthe law firm’s personal evaluation of you. Aswill be explained below, the significance of thebillable hour will be different at each point inyour legal career.The Economic Signiﬁcance of Various SeniorityLevels Inside a Law FirmMost American law firms are set up in theexact same way. First, the law firm gener-ally will have a least a few law clerks who arelaw students or young attorneys awaiting barresults. In large law firms, most law clerksare called summer associates. Second, thelaw firm will have junior, midlevel and seniorassociates. Third, the law firm will haveattorneys at a counsel level and partners.There may also be levels of partners, such asincome partners and equity partners. At eachstage of seniority within a law firm, your valuewill change and the economic expectations thelaw firm has of you will change.1. The Law ClerkMost organized law firms have law clerks. Lawclerks are typically called summer associatesin larger law firms; however, many large lawfirms employ clerks during the school year, aswell. The law clerk typically makes anythingfrom nothing in smaller firms to a weeklysalary that can be in excess of $2,000/week insome of the larger firms.From the law firm’s perspective, the purposeof the law clerk position is that it allows thelaw firm to do recruiting while simultaneouslyhaving the opportunity to “try before they buy.”Law firms will generally use law clerks fortasks which are not necessarily profitable forthe law firm, but usually helpful. For example,a summer associate may be used for researchthat the firm needs done on an importantmatter. A law clerk may also be used duringthe summer or school year for mundane tasksthat the firm does not want its associatesworking on.One of the largest points of the summer as-sociate and law clerk program, though, maybe somewhat unspoken. I would argue thatthese programs exist because law firms needto evaluate whether law students can play theeconomic game inside of a law firm.A couple of years ago I received a telephonecall from a summer associate inside a largeManhattan law firm who had just receivedtheir first review from their summer law firm.The law firm was unusually harsh on thissummer associate and made several trivialcomments about her attitude, drive and focus.In fact, the law firm said so many negativethings I asked the summer associate to stoptalking after five minutes or so. It was clearshe would not get an offer to join the firm fol-lowing the summer if she continued this way.“How many hours did you bill?” I asked.“I have been billing about 35 hours per week,”she said.In my position, I learn to recognize the warn-ing signs and had some very brief advice forthis summer associate. I asked the summerassociate a few brief questions about how as-signments were handed out and then offeredthe following advice:“Get all the work assignments you can thatare not billable to firm clients. The reason youwant these is because you do not want to beunethical. Then, for every nonbillable assign-ment you get, work like there is no tomorrow.Bill at least 70 hours a week for the next 5weeks of your summer. Work weekends andwhenever you get a chance. That is all youneed to do.”At the end of the summer, out of the 18 sum-mer associates in her class, she was one of 5to get an offer. The firm’s praise of her at theend of the summer was glowing and very, verystrong.This is, of course, a very sad commentary onthe status of the American legal profession. Invirtually every case where I have counseled anattorney in serious trouble with their law firm,I have found that a large portion of the reasonthey are experiencing difficulty has to do withhow hard they are perceived to be working,the number of hours they are billing and-byextension-the amount of money the law firm ismaking off them. This is something law firmstake very seriously. In only one instance out ofthe 100+ placements I have personally madeover the past three years has one of my candi-dates ever been fired. When I spoke to the lawfirm about why the associate was being fired,
1.800.973.1177CAREER COUNSELOR’S CORNERPAGE 3 continued on backone of the first things they complained aboutwas the fact that the associate frequently leftthe office before 5:30 pm. I did not need tohear much more.Many associates inside law firms often findthemselves in a position where they are claim-ing that they do not have enough work andthat partners are not assigning work to them.When questioned closely, I often find thatthese same associates are often perceived asnot working hard enough (i.e., billing enoughhours) on the assignments they receive frompartners. Because partners are individuallyand as a group compensated based on theamount of work the associates they assignwork to do, many partners would rather as-sign work to an associate who is going to workextremely hard on something and bill manyhours-rather than an associate who will figureout a way to get the work done quickly and justas effectively.Whether one calls this a conspiracy orsomething else, in many law firms, associatesare expected to bill the maximum amount oftime they can to given projects, whether it iswarranted or not. This is reinforced throughbonuses that are given to the hardest workingassociates (those who bill the most hours)and in other more subtle ways (such as notassigning work to associates who will not billmany hours). As an attorney working inside alaw firm, you are choosing a career where alarge portion of your [perceived] value to thefirm comes through how many hours you billand not necessarily your legal skill.2. The Junior AssociateOne of the most basic rules of law firms isthat, often, nothing is as it seems. This isespecially true with the junior associate. Lawfirms love to tell their junior associates thatthey are unprofitable and that the law firmdoes not make money off of them. In somerespects, this is true. However, the real factof the matter is that junior associates areprofitable-but not as profitable as midlevel orsenior associates.Junior associates are one of the most impor-tant components of the law firm economicengine. There are several reasons for this;however, the main reason for this is simplythat clients do not have a very good under-standing of the law firm economic engine. Nomatter whether the clients are large or small,they do look at the bills that law firms sendout. Let me share with you the billing ratesof a particular law firm that I am somewhatfamiliar with:Law Clerk (Summer Associate) $140/hour1st Year $170/hour2nd Year $215/hour3rd Year $265/hour4th Year $310/hour----Partner $400+/hourIn most law firms, a partner can do most legalassignments for clients much faster than thejunior associate could. In fact, I dare say that,in many cases, a junior associate could workon a certain matter for one or two days that apartner could figure out in 15 to 20 minutes. Ifyou are an associate with more than one yearof experience in a large law firm, you shouldbe aware of this. You have undoubtedly seennumerous associates in your own firm workseveral hours more than they would need toon an existing assignment.In some respects, then, the employing ofjunior associates by law firms would not makea lot of sense, then. Every year large cropsof junior associates are hired by law firmsall over the United States to begin work onimportant legal matters for the firm’s clients.These associates need a great deal of trainingto become effective at their work. However,junior associates are an excellent source ofprofit for law firms.In thinking about the above billing rates, youneed to consider it from the point of view ofthe law firm and also the client. I personallyhire attorneys all the time for the companiesI work for. When you hire a law firm, you aregenerally working directly with a partner whowill figure out the “most efficient way” to getthe work done for you. Early on in your legalmatter, there are usually a variety of legalmatters that can be researched and analyzed.The partner likely already understands theseissues; however, he or she will generally saysomething like this to the client:“Before we figure out what we are going to do,it would be best to get the answers to the fol-lowing questions …. I could work on it but mybilling rate is quite high. I would recommendthat I ask junior associate X to do the work.Their billing rate is almost ½ of what mine isand …”The work is then handed off to a junior associ-ate. The junior associate knows that they arevalued by their firm based on their individualproductivity (i.e., how many hours they bill)and they have every incentive to work justas hard as they can and bill as many hoursas they can on the project. The partner thencan do more interesting work and rest as-sured that as many hours as possible will begiven to the task and the bill correspondinglyincreased. None of this is to say anything dis-honest is occurring; however, on many levelsit could be conceived as such:1. The junior associate may be asked to re-search questions which the partner does notreally need to know the answers to;2. The junior associate may not have highlydeveloped research skills and will spend moretime than necessary on the project;3. The associate will be under the belief (inmost law firms) that the memo they producefor the partner will need to be 100% flawlessin its language and grammar and may spend2-3 times longer just perfecting the memo’ssyntax rather than simply giving the partnerthe answer;4. Upon answering the question, the partnermay think of new issues they want the associ-
1.800.973.1177CAREER COUNSELOR’S CORNERPAGE 4 continuedate to explore.You should get the idea. Whether it is legalresearch or another task, after a certainamount of work by the junior associate, a billis produced. When the bill is produced thepartner may have the following conversationwith the client:“Well, I am certainly glad we used junior as-sociate x to do this work. There turned out tobe many more issues that we need to considerwhich I was unaware of. I really wanted toensure we did a good job here and I know itis a bit more than you wanted to spend, so Ihave reduced junior associate’s billable hourson this by 20 percent. I really appreciate youtrusting us with this assignment.”This sort of conversation repeats itself all overthe United States probably thousands of timesa day. The economics of the junior associatemake a tremendous amount of sense from thelaw firm’s perspective-especially if the juniorassociate is playing the game (and if they havea steep learning curve with each assignmentthey are, almost by definition going to be play-ing the game). The amount of work the juniorassociate may do on a given project is nothingshort of extraordinary. The junior associatecan make the partner look like the “good one,”however, because their billing rate is so muchlower. In addition, the junior associate willspend far more time than necessary on mostprojects and therefore actually end up makingthe law firm more money. In the process, thelaw firm is able to train the junior associate onthe client’s dime.I want to assure you that there are many lawfirms out there that do not necessarily followthis model or approve of it. Nevertheless, thisis the norm at most law firms and the abilityto marshal large platoons of junior associateson various projects can be quite profitable tolaw firms.3. The MidLevel AssociateAfter getting between 2 and 3 years of ex-perience, an associate becomes a midlevelassociate. If you speak with junior associatesfrom top law schools working in major lawfirms throughout the United States, they willoften say things like “I am just doing this fora year or two.” One reason for this state-ment is that they see so many of their fellowassociates leaving for careers outside of thelaw once they become midlevel associates.Many of these attorneys leave because oncethey are midlevel associates, they are underthe firm’s microscope and have entered aworld where they are actually beginning to beexpected to do the work of competent lawyers.The midlevel associate is also at a level wherethey cannot fool either the client or the lawfirm with their legal skills developed duringhis or her time as a junior associate. By thistime, the midlevel associate is expected to bea highly developed billing machine, relate toclients and do good legal work.Midlevel associates can be quite profitable toa law firm, as they fill a very good niche for thelaw firm. First, the midlevel associate can begiven assignments by partners and then evendelegate a lot of this work to junior associates.Partners enjoy not having to deal with juniorassociates because they do not, for the mostpart, know what they are doing. If a midlevelassociate is good, they will have the ability togauge how much work the partner expects tooccur by both them and the junior associate(s)on a given matter. Second, the midlevel as-sociate is usually competent enough to getmost of the work done-or figure out how toget it done - without asking a lot of questions.Third, the midlevel associate’s billing rate isnot as outrageous as a senior associate or apartner’s billing rate. Therefore, they are alsoa good candidate for giving clients the appear-ance of being available to do work at a lowcost (albeit, work more complicated than thattypically given to junior associates).Most law firms have a party line that saysthe most profitable type of associate is themidlevel associate. Midlevel associates arealmost always the best candidates for legalrecruiters because they offer several advan-tages that other types of candidates do notoffer law firms. First, midlevel associates aretrained and know what they are doing. Second,midlevel associates can be assigned workwithout being threatening to partners (mostof the time). Third, midlevel associates canbe hired without being threatening to seniorassociates and upsetting the balance of powerand appearance of upward mobility inside alaw firm.Consider again these hypothetical billingrates:Law Clerk (Summer Associate) $140/hour1st Year $170/hour2nd Year $195/hour3rd Year $235/hour4th Year $265/hour5th Year $295/hour6th Year $325/hour7th Year+ $345/hourCounsel $365+/hour----Partner $400+/hourAs you should be able to see above, the billingcluster for the midlevel associate (3rd through5th year) does not appear nearly as threaten-ing to the client as does the billing rates forthe senior associate (6 year +) or the partner.Paradoxically, the midlevel associate is alsoquite effective and, in many cases, almost aseffective as the partner.Consider a hypothetical $100,000 matter apartner of the firm brings in. Here is onescenario regarding how the billings may bedivided up:
1.800.973.1177CAREER COUNSELOR’S CORNERPAGE 5 continued on back$100,000 Matter Distribution$15,000 15% Percent of Billings Of MatterGenerated$30,000 30% Percent of Partner’s IndividualBillings (What the partner works on them-selves)$55,000 55% goes to Firm Overhead and Part-nership DistributionsUnder this economic model (and every firm’seconomic model is different for partners,but each has some similarities to the modelabove), the partner is compensated mosthighly for the matters they work on them-selves. They are compensated less individuallyfor the work that others do on their matters.Here, the partner has more incentive to workon matters themselves and bill at a higherrate than they do to have others within thefirm work on a matter.Every type of work assignment a partner getswill be different. For example, some projectsmay require a partner do all of the work them-selves. For the most part, though, in order tohold onto clients, a partner will need to giveothers within the firm work. Partners insidelaw firms are all running little individualbusinesses. If partners price their servicestoo high, then clients will go elsewhere. Ifthe partner does not price their service highenough, then the partner will lose money. Thegoal is to find a balance.The utilization of midlevel associates issomething that is actually beneficial to clientsin many cases because the work will be donemore efficiently and effectively than by ajunior associate. Because of the effectivenessof the midlevel associate, firms utilize themquite often and in most law firms, very little oftheir work needs to be written off or justifiedto clients because it is well done.4. The Senior AssociateThe senior associate represents a verydangerous beast to most law firms. A seniorassociate generally has at least 6 years ofexperience. At the senior associate level, mostattorneys know exactly what they are doingon various projects. Their legal knowledgemay be as good as, or at least comparable to,partners. However, there is very little demandin the marketplace for senior associates,which is largely due to the operation of firmeconomics.Senior associates represent a problem for lawfirms because the billing rate of a senior as-sociate will often approach that of a partner.If partners are required by their law firmsto bill a certain number of hours, they willbe unlikely to give work to senior associatesbecause it will cut into the partner’s individualproductivity. Unless a firm has a great deal ofwork coming from clients that are ready to paylarge hourly rates, partners would rather dothe work themselves than give it to a seniorassociate.In the law firm environment, the senior as-sociates must get as many billable hours aspossible in order to survive. In order for thereto be a lot of work for these senior associates,the law firm must have a lot of work that canbe billed out at high rates. Even if the law firmdoes not, the presence of a senior associatecreates pressure on partners to generatework to give to these senior associates. Thesenior associates that are the best at gettingwork will have the highest billable hours andbe the most likely to survive inside the lawfirm.It is also because of their high billing ratesthat senior associates in most large law firmsbegin feeling pressure to generate their ownclients. The senior associate who is able togenerate massive amounts of work-whetheron their own or by being given work frompartners in the firm-will be the one who isseriously considered for partner or a counselposition. If the senior associate cannot gener-ate this work, they will be asked to leave atsome point because they will not make senseto the firm from an economic standpoint.5. The Partner and Counsel Level AttorneysMany partners will tell you that they wishedthey were associates again. The most suc-cessful partners will not. At the partner level,the responsibility will be to perform good legalwork and continue to generate work whetherit be from other partners or outside clients. Inaddition to being self-sustaining, the partneris also expected to feed the economic engineof junior to senior associates with work (at thelargest firms).What The Economics of Law Clerks, Associatesand Partners Means to Your Legal CareerYour success in a law firm will be based-atevery single step of your legal career-uponthe ability to generate revenue through thebillable hour. This is much harder than it mayfirst appear.As a law clerk or summer associate, you willbe evaluated based upon your work productand how much other people like you. Youwill also be evaluated on whether or not youshow promise to work under the law firm’seconomic paradigm. The summer associatesand law clerks I have seen not get offers inmy career were the associates who did not fitin under the law firm’s economic model. Theytold partners certain work did not need to bedone or did projects for the firm with littleenthusiasm.At the junior associate level, your respon-sibility will be to do the work you are askedto do and to work as hard as you can on thework you get. In most large law firms, thejunior associate working ridiculous hours issomething that is certainly romanticized. Thereason this is seen as such a good thing, andthat the culture of most law firms portrays itas such, is because this is something that isquite profitable to law firms. Law firms makea great deal of money from junior associates
1.800.973.1177CAREER COUNSELOR’S CORNERPAGE 6toiling long hours. In order to succeed in alarge or midsized law firm, you are going toneed to work hard.Midlevel associates are given work because(1) they are efficient and (2) can do the workcompetently in most cases. While midlevel as-sociates may be profitable to most law firms,their real value is to the client, as they can gettheir work done competently at a reasonableprice. In order to succeed as a midlevel as-sociate you are going to need to be competentand work hard.Senior associates must ensure they get asmuch work as possible to survive. The abilityto get work will determine their success.Whether it comes through other lawyers in thefirm, or the work is generated on their own,the need is the same. The same holds true forpartners.Depending upon the size of the law firm, theimportance of the economic model remainsthe same: To work as much as possible. Whenan attorney chooses which law firm they wantto work for, the most important thing theyshould be considering is whether they canrealistically move up the given law firm’s foodchain with their given set of skills and workability. Given the economics of most law firms,this will not be possible.From most law students’ and lateral associ-ates’ perspectives, the very best firms to workat are the largest and most pretigious lawfirms. These are also the firms, coincidentally,that have the highest salaries and the mostfleshed out economic models. This may be thebest choice for you, or it may not.For any lawyer, the key to survival is to gener-ate work. The work can only be generatedif there is work to give. In large law firmswith massive clients, they will usually havea limited amount of work to give out at thepartner, counsel and senior associate level.The amount of work available to give out willincrease dramatically at the midlevel and ju-nior associate level. In order to succeed underthis economic model, by definition you needto work hard at the junior associate level. Youthen need to become competent at the mid-level and get as much work as possible.The senior associate to partner and counsellevel involves the ability to continue working.Because this is so difficult, it is at this pointthat many attorneys go in house or to smallerfirms. The lure of an in house position is anescape from the competition to get work. Thelure of a smaller firm is most often lower bill-ing rates which means that clients are morewilling to give the firm’s attorneys work thatwould otherwise go to larger law firms andthus can be worked on by senior associatelevel attorneys with much lower billing rates.Another lure of the smaller law firm for seniorassociates is that they can attract their ownclients with lower billing rates. At a large lawfirm that does work for large clients, the bill-ing rates may be so high as to all but cancelsout the idea of bringing in all but the largestclients.At the end of the day, you need to understandthat surviving under the law firm economicmodel is almost entirely dependent upon yourability to continue working-and working asmuch as possible. How you achieve that is upto you. You are not going to get more work,though, unless you prove you will work hard,play the economic game and get the peoplewith the work (whether they are other attor-neys inside your firm or outside clients) to likeyou and give you work.