“It is apparently common in some major New York firms to expect associates to bill in excess of two thousand hours per year, and the ratio of associates to partners in some law firms is increasing sharply”
“Institutional loyalty appears to be in decline. Partners in law firms have become increasingly “mobile,” feeling much freer than they formerly did, to shift from one firm to another and take revenue-producing clients with them.”
“Is the instinct of the young lawyer faced with staggering hours to favor exhaustive and exhausting research over exercising the judgment necessary to decide whether ten more hours of research will really benefit a client.”
–William Rehnquist, 1986
As we discussed in a prior post, with pressures to increase profitability at law firms intensifying, forward-thinking clients – led by innovative general counsels, legal COOs, and legal operations professionals – have strived to become more business-savvy in their management of legal budgets to counteract rising legal costs. A primary method is through utilization of data and analytics.
It might surprise you to learn that former Chief Justice William Rehnquist observed the connection between a changing legal profession and the need for empirical data before almost anyone
else. In 1986, he spotlighted the evolution of business models in law firms and the resulting pressure on lawyers and clients when he spoke at Indiana University’s School of Law.
His long-forgotten speech is a dazzling analysis applying legal ethics, economics, and business strategy to a changing legal profession followed by a call to action.
He noted the following trends, among others:
- Increased lateral movement among partners who had portable books of business
- Pressures on associates to bill over 2000 hours
- Increased firm leverage as firms carried more associates per partner
- Overlooking of conflicts given size and profit pressure
Rehnquist presented an extraordinary hypothesis that these trends posed foundational challenges for the profession, both lawyers and clients:
[T]he word being passed around some big law firms is that “”you only eat what you kill.” It is only natural that lawyer practicing in these firms will be more conscious than ever of the need to bring in their share of revenues. It would not be surprising if this sort of pressure led to ethical difficulties. Similarly, if one is expected to bill more than two thousand hours per year, there are bound to be temptations to exaggerate the hours actually put in.
Rehnquist suggested that these business models had led to increased legal costs.
He frowned on the lack of “empirical data” to verify or disprove that hypothesis, and the over-reliance on “anecdotal” information. He noted the role of an educated client: for the legal market to work, it was important to have both an “informed buyer” and “informed seller.” He recommended that collecting and tracking greater empirical data would be of “benefit to the profession at large and to society as a whole.”
Rehnquist’s prescience about how the industry was changing are even more striking when one considers that the industry was quaint compared to the industry today. Rehnquist expressed amazement in his speech at firms reaching the size of 200-300 lawyers, far larger than when he was in private practice.
The profession and pressures have exploded since then. Thirty years later, firms are routinely 3X-10X that size, with profits having increased at a similar multiples. With the increased stakes and even greater pressures, Rehnquist’s observations on the need for increased data are more important than ever.
We have seen that evolving business models and related business pressures on law firms result in tremendous variation in how similar firms provide legal services. Given this reality, tracking metrics related to the business model pressures of firms and cascading that information to decision makers is an essential part of managing legal spend today by business-savvy legal departments.