“No one seems to be worrying about the next generation of lawyers.” – Richard Susskind, The End of Lawyers? Rethinking the Nature of Legal Services.

I’m not writing about this topic because my daughter just happens to be a 1L at Seton Hall University Law School, although it does weigh on my mind. Surely you have noticed the overwhelming disproportion of associate and staff layoffs compared to partners. (BTW, we need to come up with a novel adjective, something other than black: Black was Thursday, Monday, and Tuesday in the stock market crash of 1929; and Black Friday connotes retail profits in the shopping day after Thanksgiving.)
At Adam Smith, Esq., Bruce MacEwen writes about the “The Great Deleveraging” of biglaw. He’s building a case for non-lawyer capitalizion and public ownership, and perhaps it is time for something along the lines of the Clementi Review in the U.S. In today’s blog, he develops an insightful take on leverage:

Why does leverage matter? For starters, as I noted in my 2005 column I quoted at the outset, leverage is your best friend in good times and your worst enemy in bad times. While we’ve heard the drumbeat of client complaints about paying for useless junior associates for years, this is suddenly the kind of environment where it will grow sharp teeth and bite hard. Either: (a) massive litigations will not be pursued because they’re too complicated, uncertain, protracted, and expensive; and/or (b) if they must be pursued, contract attorneys, staff attorneys, and outsourcers will provide the human throw-weight needed for massive document review; and/or (c) corporations will simply insist that document review be completed for flat fees of $X/unit [$1.00/page? $0.50/page?]. In any event, no one I talk to–absolutely no one–believes that the litigation “factory” model with one partner overseeing half a dozen or more associates who are billing ’til the cows come home will be a predominant source of revenue going forward.All well and good, but I think a more interesting calculation compares the ratio of non-equity partners to equity partners.

Now let’s consider the impact of non-equity partners. MacEwen asks, “First, why have no firms announced partner layoffs? Isn’t this the worst kind of cronyism, safeguarding one’s peers, taking it all out on the “little people,” and demonstrating lousy business judgment to boot, when the cost savings realized by offing (say) 10 associates could probably be realized by tossing a single partner overboard. ” What is the impact of non-equity partners on the firm? MacEwen says they are the most expensive form of leverage. But the consequences they have on the culture of the firm are most instructive as MacEwen calls it:

  • The culture shifts from “excellence or else” to “good enough.” I don’t think that “good enough” is sustainable in this environment.
  • In the palmy days of 2001–2007, having a flexibly extensible non-equity tier served as a crutch for firms that wanted to avoid making difficult decisions about people or having awkward conversations with them. I don’t think that those difficult decisions and awkward conversations can be postponed in this environment.
  • One of the reasons we’re seeing widespread associate layoffs–apart from the pure economic imperative to cut costs in order to match revenues to capacity–as to do with morale. It’s dreadful to morale to walk the halls seeing a bunch of your colleagues with too little to do, who are then guiltily sneaking out at 5:30. The non-equity tier, with nothing to aspire to and perhaps psychological speculation on my part, which I am shockingly unqualified to offer) feeling themselves ever so slightly “damaged goods” only exacerbate this. None of us, none of our firms, have room for morale-busting zombies in this environment.
  • The ranks of the non-equities grew not by design but by happenstance and, frankly, inattentiveness. While it may be true, as Oliver Wendell Holmes famously remarked, that “the life of the law has not been logic, it has been experience,” it’s time to apply some analytic logic, some serious and rigorous strategic evaluation, to the weed on steroids that has been the growth of the non-equity tier in too many firms over the past palmy period. And no, we cannot afford to do otherwise in this environment.

So there you have it – one of the best analyses of the future of the pyramid in the legal industry and a harbinger of things to come in Q2 as the recession continues. And now a word on the War for Talent: Fresh talent and innovation will still be necessary. As Susskind writes, “It is our children who will shape the profession, because they are tomorrow’s lawyers and clients….In the world of technology today and in law tomorrow, the child will be father of the man.”