Supply, demand, and the changing economics of large law firms.

• Author: Bruck, Andrew

INTRODUCTION I. THE RISE AND FALL OF LEGAL PROFESSIONALISM A. The Transformation: The Tournament Intensifies B. The Effects of the Transformation 1. Billable hour escalation 2. A lack of racial and gender diversity 3. High associate attrition rates II. THE DEMAND SIDE: CORPORATE CLIENTS A. What Reforms Do Clients Want? B. Will Clients Push Firms to Reform? C. Will Firms Comply with Client Demands? III. THE SUPPLY SIDE: LAW STUDENTS A. What Reforms Do Students Want? B. Will Students Push Firms to Reform? C. Will Firms Comply with Student Demands? CONCLUSION INTRODUCTION

In 1991, Marc Galanter and Thomas Palay declared a "crisis" in the legal world. (1) Their landmark book, Tournament of Lawyers, described how structural changes within the profession forced America's largest law firms to abandon professional norms in pursuit of ever growing profits. (2) Galanter and Palay's arguments confirmed fears that the legal "golden age" of the 1960s had given way to a model based on unchecked competition and growth. (3)

In spite of these developments, and partly because of them, the legal profession also faces an exciting new opportunity. (4) The shift towards commercialism has introduced external market forces to an industry long insulated from them. (5) If mobilized properly, the consumers of corporate legal services can use their new market power to address some of the most critical problems facing the elite firms, especially the lack of diversity within firm leadership, rising associate attrition rates, and an over-reliance on the billable hour. (6)

The "professionalism" that dominated elite firms in the middle of the twentieth century undoubtedly encouraged civility and trust between lawyers. But it also operated as a mechanism for shielding the narrow financial interests of big-firm partners and for marginalizing lawyers based on religion, race, and gender. Until recently, these norms were so deeply entrenched in large firms that outsiders could not seriously challenge the inequities and inefficiencies of the existing system. In today's market-driven model, however, two groups have developed the leverage necessary to push for change: general counsels of large corporations, who purchase the labor of large law firms, and elite law students, who supply this labor. They can squeeze firms simultaneously from the supplyside and the demand-side to correct some of the excesses and shortcomings of the current economic model.

On one side, corporate decisions about hiring outside counsel determine the demand for legal services. (7) The rapid expansion of elite firms over the past three decades has created intense competition for premium legal work. Corporate legal departments can now choose between a wide array of elite firms, which provides general counsels with substantial leverage to negotiate retainer agreements. These in-house lawyers seek to hire firms that are productive, efficient, and diverse, partly because they believe these traits are good for business, and partly because they worry that law firms lag so far behind the rest of the business world on such metrics.

On the other side, the rapid increase in firm size has made law firms increasingly dependent on hiring an escalating number of new elite (8) law student recruits. Most prestigious law schools have not increased their enrollment to meet the rising demand, (9) which has created scarcity in the labor market for new elite law graduates. One well documented effect of this scarcity has been spiraling entry-level salaries, although this is not the only consequence of the tightening market. Increasingly, new elite law graduates are seeking more than well paying jobs; they want positions at companies that maintain a diverse workforce and that respect the balance between work and family.

A unique set of economic conditions has created a buyer's market for in-house counsel and a seller's market for elite students. Corporate clients and law firm recruits have a substantial alignment of interest in improving the workplace environment at large firms, and the two groups can use their superior bargaining positions to collectively advance economically sound and socially responsible objectives. While neither has been successful thus far in producing the widespread changes they seek, we argue that a coordinated strategy between these two groups can effectively bring pressure to bear and produce measurable progress toward these goals.

Recent events suggest that both clients and students are beginning to exert their market power to push for reform:

* In late 2003, Catherine Lamboley, general counsel of Shell Oil, surprised the legal world by changing the way her company hired outside counsel. Rather than simply selecting firms on traditional criteria such as the success rates of its practice areas, or the duration of a firm's relationship with the company, Shell announced that it would also seek out counsel with a diverse work force. She gathered Shell's outside counsel in one room and then told them they had two hours to explain their plans for increasing the number of women and minorities assigned to Shell's legal work. When the dust settled, Lamboley cut dozens of firms from Shell's roster, including Baker Botts, Houston's most venerable firm and one of the company's closest legal advisors. (10)

* In January 2007, Mark Chandler, general counsel of Cisco Systems, announced in a speech at Northwestern Law School that his company was moving away from paying outside counsel by the hour for most of the company's legal work. Chandler would instead pay a flat rate for various legal services, describing the profession's reliance on the billable hour to be "the last vestige of the medieval guild system." (11) In his speech, he argued that flat rates would help Cisco's bottom line, partly because ending the billable hour would cut attrition rates at large law firms, which, in turn, would reduce the cost of legal services. (12)

* Around the same time, a group of female students at Yale Law School published their first annual ranking of the ten most family friendly firms. (13) They based their rankings on a series of criteria, including the number of weeks a firm offered for maternity and paternity leave, the existence of onsite childcare facilities, and whether attorneys working part-time had made partner during the last five years. (14) The group released the rankings at the height of the on-campus recruiting season in order to influence the employment decisions of their classmates. (15)

* In October 2007, another group, this one based at Stanford Law School, released its own online rankings, grading every major firm in the nation's six largest legal markets by several quality-of-life criteria, including the average annual number of hours billed by associates, rates of pro bono participation, and demographic diversity. The group, which calls itself Building a Better Legal Profession, was led by the authors of this Note. Like Yale Law Women, the Stanford group timed the release to coincide with on-campus recruiting, and over 100,000 visitors viewed the rankings their first month online. (16) The organizers encouraged their classmates to take the group's "report cards" into consideration when selecting a future employer, arguing that if elite students chose firms with the highest quality of life and greatest diversity, then the firms that scored less well in their rankings would have to improve in order to remain competitive.

These new efforts suggest a shift in the power dynamics at the top of elite law practice. For years, this segment of the legal industry failed to solve some of its most intractable problems: the under-representation of female and minority attorneys, rising attrition rates, and the dominance of the billable hour. Now the profession's buyers and suppliers are stepping in to fix the problems themselves. As Mark Chandler noted at Northwestern, the economics of large law firms are creating "unhappy lawyers and unhappy clients." With pressure coming from both sides, firms have to change. "The center," Chandler explained, "will not hold." (17)

This Note considers exactly why the "center" will not hold. It describes the changing dynamic between law firms and external market actors in three Parts. In Part I, we trace the rise and fall of professionalism in the legal industry, with a particular focus on how economic pressures created a workforce that was overworked, dissatisfied, and unrepresentative of the general population. Part II examines the purchasers of legal services---corporate clients--and why they have gradually started to use their market power to change law firm practices over the past two decades. Part III considers the primary supplier of large firms--law students--and their nascent efforts to organize collectively for workplace reforms. We conclude by considering the overlapping interests of students and clients and suggesting that these two groups can use their power to promote a new ethos of inclusion and effective client service in the elite corporate bar.

1. THE RISE AND FALL OF LEGAL PROFESSIONALISM

   Since the nation's founding, lawyers sought to create what Alexis de Tocqueville described as an "aristocracy of profession," an industry built upon its elite status and ability to exclude. (18) They erected high barriers to entry first through the apprenticeship process of the nineteenth century, and later through law school accreditation and bar passage requirements. (19) This professionalization created a cartel of elite law firms that controlled the upper segment of the legal market through the first half of the twentieth century. (20) But, as Galanter and Palay described, new developments have transformed firms over the past forty years. The growing demand for corporate legal services, combined with increased transparency in elite firms and the changing demographics in the legal labor market, triggered a decline in professionalism and...