THE END OF BIG LAW JULY 28, 2013
My cover story in the current issue of The New Republic, about what it’s like to work in a large law firm during an age of austerity, has generated a lot of interest both inside and outside the legal profession. Among the outsiders, the response has generally been along the lines of, “Good God am I glad I never went to law school.” Among insiders, the reaction has been divided. Many current and former lawyers at big firms have told me the picture I’ve painted is distressingly accurate. Others—particularly those who work in the legal trade press—have complained that my thesis is overstated.
This group had three main objections to the piece, all related. The first was that my specific prediction for the speed and depth of Big Law’s coming collapse was too pessimistic. The second was that my piece was ignorant of history: I argued that the profession had been remarkably stable and cushy up until the last few years—up until last week, in one critic’s cartoonish retelling—at which point the whole industry abruptly gave out. But, these writers point out, Big Law has gone through tough times before. Finally, the critics argued that Big Law has always bounced back after these rough patches, and that the numbers show law firms recovering nicely this time too. I was wrong to see an existential crisis in what was simply a cyclical downturn—one that’s mostly behind us, moreover.
The first objection concerns the following riff in my piece:
There are currently between 150 and 250 firms in the United States that can claim membership in the club known as Big Law, the group of historically profitable firms that cater to the country’s largest corporations. The overwhelming majority of these still operate according to a business model that assumes, at least implicitly, that clients will insist upon the best legal talent instead of the best bargain for legal talent. That assumption has become rickety. Within the next decade or so, according to one common hypothesis, there will be at most 20 to 25 firms that can operate this way—the firms whose clients have so many billions of dollars riding on their legal work that they can truly spend without limit. The other 200 firms will have to reinvent themselves or disappear.
I don’t think many people disagree with what I wrote up through the word “rickety.” (Though more on that below.) The outrage seems to be over the idea that only ten percent of today’s major firms will survive the coming decade.
I’d say two things in response. First, there seems to be a misunderstanding of what I’ve actually written. The point is not that, of the top 250 firms in the country, only 25 will survive the next decade, period. It’s that only 25 will be doing roughly what they do today—using the same business model, charging roughly the same hourly rates (or more), with roughly the same proportion of partners to associates to clients. Some of the other firms will certainly go kaput. But most will probably adapt in some way. It just won’t be a way that really warms the hearts of the lawyers who currently work there. Indeed, the firm that I used as a case study in my piece—the Chicago-based Mayer Brown—is, like many of its competitors, already experimenting with ways to become more efficient. I’m not sure its lawyers love the upshot of these experiments, even if they concede that they’re necessary. Long story short: The model is dying even if most of the firms survive in some form.*
Secondly, the two lines in which I hazard this specific prediction are probably the least consequential of the entire piece. Predictions are hard, as the Yankees catcher once said, and by their nature highly speculative. Let’s say I’m way off and we end up with 50 firms a decade from now who can operate the way they do today, not 25. Would that be much more comforting to the people who work in Big Law? Hard to believe it would.
As for the objection that my piece was ahistorical, this is also off the mark. These critics failed to get past the opening riff in my piece, in which I describe the profession at the height of its 20th-century cushiness—generous perks, limitless expense accounts, no hustling for business, no layoffs. But the point isn’t that this world existed up until very recently. The point—as the reader could discern from the very next paragraph—is that this image of the industry as stable and secure “lodged itself inside our cultural imagination,” where it remained until pretty recently. That is, long after the law ceased to be the professional version of some Princeton eating club, American college students and recent college grads continued to think of it that way, or at least as a contemporary equivalent to that world. And they weren’t crazy to do so. Becoming a lawyer was still one of the better deals going in an increasingly brutal labor market, even if it no longer quite lived up to the cultural mythology.
Far from being at odds with the economic history of the legal profession over the last 30 years, my piece is actually quite consistent with it. That history looks roughly as follows: Up until the late 1970s, Big Law was a relatively cushy and stable profession, if not massively profitable. Then, during the 1980s, as globalization made the economy much more complicated, and as finance capitalism restructured corporate America (via leveraged buyouts and the like), spending on legal services mushroomed. The share of GDP that went to lawyers increased by about two-thirds between the early ‘80s and the early ‘90s. But, thereafter, most of the structural transition to today’s competitive global economy was behind us, and the underlying demand for legal services flattened out again. That’s why the legal industry stayed in a funk even after the 1990-1 recession ended.
Still, most people eventually forgot that the industry had entered a new era of modest long-term growth because it was obscured by two economic bubbles—the tech bubble of the late 1990s and the real estate bubble of the early-to-mid-2000s. Now that both bubbles have burst, the industry isn’t likely to grow faster than the growth rate of the overall economy, a rate that can’t support the increase in profits and revenue (per partner) that we've seen over the last two decades. Hence the problems I write about in my piece.
This is why, to move to the third objection, it doesn’t strike me as very plausible that the industry will simply bounce back the way it has after previous recessions. The world I describe in the piece is basically the world the legal profession has been drifting toward for two decades.* In fact, there are good reasons to think the trajectory has taken a turn for the worse lately—that the legal profession won’t even grow at the same rate as the economy. For example, legal expenses didn't used to be a big enough share of a corporation’s bottom line to be worth vetting very closely, which encouraged firms to pad their bills. Now, according to The Wall Street Journal, clients are using sophisticated legal software to do the job for them, allowing them to effortlessly flag all sorts of dubious charges. That can’t be good for big law firms.1
Similarly, corporations now have more alternatives to hiring law firms than ever before—like contract attorneys and the “legal process outsourcers” who procure them—and they’re using them increasingly often. Between 2004 and 2010, according to data collected by Bill Henderson of Indiana University, law firm employment dropped by 4 percent, or about 47,000 jobs. During the same period, employment in “all other legal services” (like outsourcers) increased by 50%, or about 8,000 jobs. Obviously, some of that change was driven by the pinch of the recession. But it’s hard to imagine clients reversing these trends as the economy recovers. Recent history suggests that outsourced jobs tend to stay outsourced, whatever the original reason for the move.
Big Law boosters point to the fact that revenue at the country’s 100 biggest firms grew by 3.4 percent last year—a reasonable increase, if hardly the 8-12 percent increases of the early-to-mid-2000s. But when you unpack the number a bit, it looks even less impressive. It turns out that the bump was driven primarily by a huge fourth quarter after three middling ones. And that big fourth quarter was, in turn, the result of some idiosyncratic factors—like a rush by corporations to complete transactions before the dreaded fiscal cliff took effect on January 1, and law firms aggressively seeking payment before the end of the year (for similar reasons).
Meanwhile, other data show the problems for the legal profession continuing. Of the law students who graduated in 2008, 75 percent of found a legal job within nine months, according to the National Association for Law Placement (NALP). For those who graduated in 2012, the number had fallen to 64 percent, a record low. Of course, Big Law firms typically hire associates well in advance, so these numbers partly reflect the hiring environment that existed a year or more earlier. And, in fairness, NALP reports that hiring at big firms did recover a bit for the class of 2012 after a terrible 2011, even if it was still well below the 2009 level. Still, the fact that the market for lawyers was historically weak more than three years after the recession is pretty alarming. NALP refers ominously to a “new normal” in law-firm hiring.
One final point worth keeping in mind any time someone points to history and insists the future will look pretty similar: Historical arguments tend to be right up until the moment they’re not. To take one random example, consider the insistence by so many people in the mid-2000s (many of them tied to the real estate industry) that housing prices couldn’t fall across the country all at once, since it had never happened before. That didn’t work out so well then, and you’d think it would give Big Law defenders pause now. You can’t just look at historical patterns. You’ve got to look at the reasons why the patterns existed. And if those reasons no longer apply, you’re going to find yourself in real trouble. Just ask all the happy people who bought condos in Ft. Lauderdale back in 2006.
Noam Scheiber is a senior editor at The New Republic. Follow @noamscheiber. Please join Noam and TNR's Legal Affairs editor, Jeff Rosen, for a discussion of Big Law's future at the National Constitution Center in Philadelphia on Tuesday, July 30. Click here to RSVP.
*Sentence added for clarification.