The Past 50 Years in a Nutshell

"The Industrialization of the Law Firm" is the ambitious, but fair, title of a piece by A. Harrison Barnes, Esq., founder of BCG Search.  His conclusion?: 

"Today's law firm environment is, in a sense, now being controlled by Adam Smith's 'invisible hand'--for better or worse."

He leaves little doubt, I must hasten to add, that he firmly believes it has been for the worse:  The law firm environment "has become a very tormented place," loyalty has "deteriorated dramatically," and the "Greedy Associates" chat boards are emblematic of the parlous state of the profession.

First, Barnes' argument in a nutshell; then, my take.

Barnes starts by introducing an elysian "pre-industrialized" law firm, an "insular" and "predictable" place where associates joined out of law school, made partner almost without exception, and stayed until retirement.  Lateral hiring was unthinkable, lockstep compensation ruled, and bills were for the [perceived] value of services rendered.  The first stage of "industrialization" occurred from the 1950's to the 1970's, as American corporations grew and demanded correspondingly larger scale from their law firms of choice.  Firms in turn expanded by hiring more associates—but then came the realization that not all associates could make partner, lest profits per partner take a nose-dive.  From this pressure emerged the classic "Cravath model," wherein associates are paid handsomely in exchange for the tacit understanding that virtually all will fall short of partnership.  With the increase in leverage provided by more associate bodies came, as well, the billable hour as the default fee-setting mechanism.

The second stage of "industrialization," from the 1980's to today, saw the introduction of two-tier (equity and non-equity) partnerships—according to Barnes, largely instigated by consultants promising increased profits through increased leverage.  [Preliminary results from the Law Firm Research Project belie this promise, but that is a separate topic.--Bruce]  The toxic result of this nefarious "stratification" of the partnership was compounded by the death of lockstep compensation and the introduction of performance-based compensation.  Performance-based compensation, in turn, fueled the growth of lateral mobility, through both a "demand" and a "supply" effect:  The demand being firms' need for high-performance teams, and the supply being such teams who deemed themselves insufficiently appreciated at their current firm.  Firm mergers, as well, took wing.

Now, as noted, Barnes points with alarm and views with despair these developments.  You should not be shocked to learn that I have a different view.  My recap?

I for one know in which world I prefer to live.  That said, Barnes' lamentations about the incivilities of today's world, including most gravely the deterioration of loyalty to and by firms, are real.  But to postulate that the "Greedy Associates" boards constitute the best representation of the state of the profession today is nonsense on stilts.  Indeed, this reminds me of the (deeply uninformed) debate over "outsourcing" jobs—and yes, Barnes does not hesitate to get in a last jab on this very point.  One should not make public policy based on analysis-by-anecdote, and one should not assess the evolution of the profession during the past 50 years based on internet chat boards.

My reaction to the "industrialization" story Barnes recounts is, in fact, entirely different:  What took so long?  I suspect Adam Smith himself would have a similar view.