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Potomac Law Group: A Modern Twist
- n the Traditional Firm
“I’m certain I speak for the entire legal profession when I say that the fee is reasonable and just.”
- 1. BIGLAW: THE GOLDEN YEARS
Potomac Law Group: A Modern Twist on the Traditional Firm Program - - PowerPoint PPT Presentation
Potomac Law Group: A Modern Twist on the Traditional Firm Program - - PowerPoint PPT Presentation
Potomac Law Group: A Modern Twist on the Traditional Firm Program on the Legal Profession, Harvard Law School November 19, 2013 1. BIGLAW: THE GOLDEN YEARS Im certain I speak for the entire legal profession when I say that the fee is
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THE “CRAVATH” MODEL AND THE RISE OF THE BILLABLE HOUR
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Key elements of the BigLaw Model
- Attract, recruit, and train top legal
talent
- Pyramid structure with more
numerous associates handling the bulk of the client service work
- Creation of a “tournament” to
incentivize associates to work toward partnership
- Apprenticeship system
- Partnership structure with
comparatively few equity partners
- Billable hour at the core, with very
high hourly rates
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¡ ¡ ¡ ¡
25000 82000 1986 2008
4 Source: American Lawyer, Rise and Fall, June 1, 2012; AmLaw Daily, April 29, 2009.
DECADES OF EXTRAORDINARY SUCCESS WITH THE TRADITIONAL MODEL
Attorney headcount AMLAW 100 Gross revenues AMLAW 100, $ billions 7.2 67 1986 2008 228% 831%
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325 368 416 470 532 602 681 770 871 985 1114 1260
366 388 412 437 463 492 522 553 587 623
1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
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Profits double in real terms
Source: AMLAW 100 Survey (end points, middle years estimated); Bureau of Labor Statistics.
AVERAGE ANNUAL PROFITS PER PARTNER vs. INFLATION
AMLAW 100; $ Thousands
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BUT CLIENT FRUSTRATION WITH BIGLAW FEES BUILDING
As outside legal costs skyrocketed…. …clients brought more work in house…
- Years of steady
rate hikes
- Growing need for
legal services
- Increased
government regulation of industry
- Greater
litigiousness
- Globalization
- Trend toward
papering
- Increased interest
in alternative fee arrangements
- Resistance to
paying for junior attorneys
- Refusal to pay
copier, research, and other add-on charges
- Openness to
considering alternatives to BigLaw 2.93 3.52 2005 2007 In-house lawyers per $1 billion of revenue … and began exploring ways to keep fees down
Source: Altman Weil Legal Department Benchmarking Survey, companies with annual US revenue >$5B 6
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AND GROWING DISAFFECTION IN THE ATTORNEY RANKS
- Increased annual billable hour requirements
- Lengthened partner track
- Longer odds of making partner
- Introduction and proliferation of 2-tier partnerships
- Rigid work schedule arrangements (little receptivity
to flex schedules, telecommuting, etc.)
- Greater lateral movement leading to less
collaborative behavior
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85 88 125 125 125 145 160 1996 1998 2000 2002 2004 2006 2008
8 Source: National Association for Law Placement (data for firms with more than 250 attorneys).
- More than
double the rate
- f inflation over
the same period (2.6%)
- Non-law firm
legal jobs by comparison: (40% prosecutors, etc.) Average first-year associate salary (NY) $ Thousands Other expensive decisions
- Long-term (30-
year) leases of pricey office space
- Maintenance of
legacy IT systems; reluctance to embrace new technologies
- Art work and other
expensive furnishings
- Foreign expansion
AT THE SAME TIME, BIG FIRMS LOCKING IN EXPENSIVE INFRASTRUCTURE FOR THE LONG-TERM
88% increase over the period, compared to inflation (37%), non-law firm legal jobs (e.g., prosecutor, 40%)
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“This is where things started getting really weird.”
- 2. THE TIDE TURNS
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382 260 279 189 256 190 140 206 127 146 520 357 300 382 201 250 235 150 215 184 902 617 579 571 457 440 375 356 342 330 Dewey & LeBoeuf Allen & Overy White & Case DLA Piper Clifford Chance Latham & Watkins Orrick Herrington Linklaters Baker McKenzie Mayer Brown
PROMINENT BIGLAW LAYOFFS POST-RECESSION
Total attorneys and staff laid off, by firm, 2008-2011
Staff
10
Attorneys
Source: LawShucks.Com, 2009 Layoff Tracker.
Layoffs at 76/100 AMLAW firms overall
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NOTABLE DISSOLUTIONS 2008-2012
- Guaranteed minimums to
lateral partners
- Large contingent fee
case wrapped up
- Litigation, IP, Antitrust
giant
- 700 attys; $573M rev
- 17 offices worldwide
- Difficulty meshing firm
cultures post-merger
- High-priced laterals
- General practice firm
- 1,040 attys; $782M rev
- 26 offices worldwide
- Post-merger integration
troubles
- Ill-timed partner
defections
- Infrastructure projects,
electrical utilities
- 550 attys; $400M rev
- 8 offices worldwide
Contingent of 15 intellectual property partners defected to Covington & Burling
- General practice firm
- 730 attys; $508M rev
- American Lawyer Top
20 “A-List” firm 1890-2008 1956-2011 1909-2012 1924-2008 Firm Contributing factor Description
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“We do all those old tricks electronically now.”
- 3. THE RISE OF THE NEW MODEL FIRMS
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BigLaw
- Cloud-based
- Software as a service
Technology Office space Billing Lifestyle
- Legacy IT systems
- Support staff required
- Slow to adapt
- Expensive Class A
space downtown
- Excess capacity
- Home offices
- Client sites
- Flexible office space
- Largely tied to high
hourly rate
- High leverage
- High minimum billables
- Rigid schedules
- Pressures for client
development
- Up-or-out culture
- Reduced hourly rates
- Fixed fee, tiered billing, and
- ther Innovative fee
structures
- No/reduced billable hour
minimum requirements
- Part-time/flexible schedule
- ptions
- Telecommuting
NEW MODELS OFFER IMPROVEMENTS ON MANY DIMENSIONS
New model firms
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RISE OF THE NEW MODELS
New model law firms High end legal staffing Legal process
- utsourcers
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Type of work Routine Sophisticated Medium complexity Segment
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PLG AT A GLANCE
Model Client base Attorneys Practice areas
- New model law firm focused on the
cost-effective delivery of high-end legal services to corporate clients
- Launched in March 2011 with 10
attorneys
- Launched with 2 small local clients
- Today national base of public and
private companies and institutions
- 40+ today, drawn from the nation’s top
firms and in-house departments
- Average tenure of 15 years, with a
minimum of 8
- Full service, with an emphasis on
transactional work
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THE PLG MODEL: EFFICIENT DELIVERY OF LEGAL ADVICE
Note: Figures approximate and in current dollars. ¡
600 20 205 15 40 20 300 Bill rate at Sidley Reduced cost of space and furnishings Reduced partner leverage Elimination
- f summer
program, etc. No junior associates to train Lower pay Bill rate at PLG Example attorney: Luisa Caro, formerly 7th year at Sidley Austin Hourly bill rate ($)
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WHO COMES TO PLG? COMMON ATTORNEY PROFILES
Big firm escapee Semi-retired Balance seeker Attorney entrepreneur
- Enjoys the practice of law, but not the big
firm environment; enjoys being associated with an upstart
- Typically rose through the ranks at a big
firm, went in-house at a high-level, may have taken a buy-out years later post-merger
- Doesn’t want to sacrifice outside interests to
the practice of law
- May want to practice on a flexible schedule
- Novel ideas for developing business that
don’t fit into BigLaw mold
- May be interested in nurturing a business,
sometimes legal-related, on the side
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- Joined Oct. 1
from Wiley Rein partnership
- Happier
developing business at $485/hour than $685/hour
- Ability to use
creative alternative fee arrangements
- Greater
freedom to
- perate, ability
to work from home office
PLG: GREATER OPPORTUNITY FOR ENTREPRENEURIAL ATTORNEYS
Sample attorney profile #1 ¡
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- Harry’s
innovative health care compliance program squelched by BigLaw
- Margins “too
small,” and program viewed as a distraction from more profitable hourly work
- Encouraged and
fostered at PLG
PLG: GREATER OPPORTUNITY FOR ENTREPRENEURIAL ATTORNEYS (CONTINUED)
Sample attorney profile #2 ¡
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- Geoff, a patent
attorney, developed technology solution to aid patent litigation
- Raised angel
money to pursue development
- Splits his time
between PLG and his own business venture
PLG: GREATER OPPORTUNITY FOR ENTREPRENEURIAL ATTORNEYS (CONTINUED)
Sample attorney profile #3 ¡
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PLG MARKET RECEPTION SINCE LAUNCH
2 8 10 18 28 39 52 65 79 94 110 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 Clients signed inception-to-date, at quarter end Notable clients
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"We all expected [work] would pick up meaningfully this year, but it clearly hasn’t. I think we've come around to the view that this is the 'new normal.' ”
- - Weil Gotshal Executive Partner Barry M.
Wolf, June, 2013
CHANGING PERCEPTIONS WITHIN BIGLAW
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APPENDIX
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RISE OF THE NEW MODEL FIRMS
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Complexity of work Degree of virtual-ness H H L L Entrepreneurial attorneys finding better ways to bundle and deliver high end legal services to corporate America, mostly by focusing on the cost side of the equation Big firms flat- footed, not nimble
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BUT BENEATH THE SURFACE, UNSETTLING TRENDS DEVELOPING BY 2007
Ballooning costs Growth in in- house depts Declining loyalty Greater scrutiny of legal spend
- Expensive, long-term office leases
- Expensive installed infrastructure (e.g.,
associate salaries, summer programs)
- Slow adoption of new technologies
- In-house departments growing
steadily in head count, prestige
- More legal work captured internally
- Partner defections, portable books;
all spurred on by PPP rankings
- War for talent, increased
guaranteed minimums to laterals
- Legal depts run more like a business,
with greater focus on cost, value
- More work bid out, etc.
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BigLaw ill- prepared to comfortably weather a significant economic downturn Rigid work structures
- Firms slow/unable to embrace flexible
schedules, telecommuting, part-time
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Ready availability of legal talent Commercial- ization of the legal profession Increasing client dissatisfaction with rising legal fees Advances in technology (telecom, file sharing, internet, etc.) Pressure on the traditional law firm model; opportunity for new entrants
CHANGING WINDS IN THE LEGAL INDUSTRY CREATE FAVORABLE CONDITIONS FOR NEW DELIVERY MODELS
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120 190 89 209 75 80 16 80 203 250 140 200 80 122 90 80 323 440 229 409 155 202 106 Skadden Arps Baker McKenzie Latham & Watkins Jones Day Sidley Austin White & Case Kirkland & Ellis Mayer Brown Weil Gotshal Greenberg Traurig
REPORTED LAYOFFS AT AMLAW TOP 10 IN 2009
Total attorneys and staff laid off, by firm
Staff
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Attorneys
AMLAW 100 Rank #1 #2 #3 #4 #5 #6 #7 #8 #9 #10
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4 5 4 4 6 3 2 3 2 10 Litigation Government Contracts Patent Corporate Contracts/Licensing Tax Real estate Trademark Labor & Employment Other
FULL SERVICE OFFERING, WITH A TRANSACTIONAL EMPHASIS
- No. of attorneys, by subject area
Most active areas
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