Is the law firm pyramid collapsing? BigLaw is aging with more partners than associatesDecember 19, 2013
1988 was a peak year for associates in BigLaw.
The percentage of associates in the nation’s top 250 law firms was at its highest point that year, comprising more than 60 percent of the lawyers, Indiana University law professor William Henderson has found. Beginning in 2008, there have been fewer associates than partners in large firms.
Henderson discusses the issue in a monograph, in a post at the Legal Whiteboard and in an interview with Above the Law. “Large firms are not going extinct,” he writes at the Legal Whiteboard. “But as a matter of demographics, they are greying. If BigLaw were trading on the Nasdaq, the analysts would be very critical of this trend.”
The pyramid has been replaced by a diamond, Henderson says in the monograph, with “a relatively small number of entry-level associates, a growing bulge in the non-equity and counsel ranks, a sizable but largely invisible group of permanent staff attorneys, and a proportionately smaller equity class of partners who grow and control valuable client relationships.” In the short-term, the result is higher partner profits.
But Henderson sees the current leverage ratio as shortsighted and unsustainable in the long run. He cites a 2012 survey by American Lawyer Media in which 74 percent of managing partners forecast an increase in lateral hiring over the next five years, but only 15 percent foresaw hiring more first-year associates. “These numbers suggest that the market for lateral associates is in the process of thinning out,” he says, “and thus will not be a reliable source for high-quality legal talent.”
Henderson tells Above the Law why law firms aren’t acting on the problem. Top law firms are so large, he says, that it is “essentially impossible to have a partnership meeting over firmwide strategy.” The partners in control of law firms are 55 to 60 years old, he adds, and they have little incentive to act. They enjoy peak earnings and they have enough clients to last until retirement.
“If the executive committee meets and formulates a long-term strategy that requires retention of current earnings to finance,” he tells Above the law,”the 55- to 60-year olds who essentially have to pay for it may leave the firm, leading to a Heller-Howrey-Dewey-type run on the bank.”
Source: ABA Journal