I still vividly remember that day in 2008. The financial markets were melting down, and the country was in the grip of the mortgage crisis. I walked into my office and saw a memo on my desk from Big Law management. The memo was short, sweet, and to the point: All partners’ compensation would be cut 30%. Effective immediately.
I called all associates with whom I was working into my office. I gave them a dire warning: The way we practice of law had to change otherwise our careers were doomed. A paradigm change was necessary, indeed essential. Gone were the days of limitless litigation budgets and win-at-all-cost strategies. In were reduced hourly rates, alternative fee arrangements, budgets, and—above all—value driven legal representation.
Although we fundamentally changed our practice to embrace these new norms, it appears that many large law firms did so only superficially, and then only in the short term. It appeared that Big Law just could not shed its old ways of increasing hourly rates every year and pressuring partners to generate bigger books of business to justify their compensation. The race to bring in the most cash and impress management with big monthly invoices was soon back in vogue, and it has been for some time now. Big Law has continued to demand more hours and higher rates; clients have continued to demand more efficiency and hourly rate discounts. These two positions were irreconcilable and were doomed to reach a critical breaking point.
Then COVID-19 hit, and it’s déjá vu all over again. Businesses have been significantly disrupted, many of them having to close down or substantially change their operations to comply with government mandates to shut their doors. The result is that the need for efficiency in outside legal spend has reached a fever pitch. Big Law feels it too. The wave of pay cuts and layoffs has just begun (e.g., ‘Strong, Big-Name Firms’ Are Looking at Imminent Cuts to Partner Draws, Consultant Says). Thus, it appears that the severe displacement in the legal profession that occurred in the 2008-2009 period may be upon us once again.
We are fortunate to have jumped off the Big Law train and have now formed our own law firm to carry-on our robust practice on a platform that we believe is built for the future. Despite the serious COVID-19 contagion, our new firm, which is a traditional law firm in many respects, is structured in a way that gives us and our clients a lot of flexibility and room to grow in this new and challenging environment.
For example, we are not stuck with fixed hourly rates that can only change with the approval of a committee or a higher-up in management who have no relationship with the client. Instead, we can adjust hourly rates on a project-by-project basis to ensure that our clients’ needs are met. Or, we are happy to explore mutually-agreeable alternative fee arrangements that make sense for the client and for our firm.
The beauty of having our own shop is that, for the first time in our long and fun careers, we have the complete freedom to do what is right for our clients without interference from law firm management. Equally, we have a true partnership where we share profits and make all decisions after rigorous discussion with, and input from, all partners. (As a side note, our partners keep the lion’s share of the billings that they generate and collect!)
Times are tough. The news now is disheartening. But the entrepreneurial spirit lives on. We work hard every day to do the right thing for our clients, solve their problems, and to move forward with the optimism and faith that has endured in and carried this country for more than two centuries.
