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When do firms receive money from a stock

when do firms receive money from a stock

The money is drying up—and America's most storied firms are terrified

O f all the occupational golden ages to come and go in the twentieth century—for doctors, journalists, ad-men, autoworkers—none lasted longer, felt cushier, and was all in all more golden than the reign of the law partner.

There was the generous salary, the esteem of one’s neighbors, work that was more intellectual than purely commercial. Since clients of white-shoe firms typically knocked on their doors and stayed put for decades—one lawyer told me his ex-firm had a committee to decide which clients to accept —the partner rarely had to hustle for business. He could focus his energy on the legal pursuits that excited his analytical mind.

Above all, there was stability. The firms practiced a benevolent paternalism. They paid for partners to join lunch and dinner clubs and loaned them money to buy houses. When a lawyer had a drinking problem, the firm sent him off for treatment at its own expense. Layoffs were unheard of.

Perhaps more importantly, the security of the legal profession lodged itself inside our cultural imagination. For generations, the law functioned as a kind of psychological safety net for the ambitious and upwardly mobile. If you wanted to be a writer or an actor or a businessman, you could rest assured that law school would be there if your plans fell through. However much you’d maxed out your credit card, however late you were on your rent, you were never more than an admissions test and six semesters away from upper-middle-class respectability.

“Stable” is not the way anyone would describe a legal career today. In the past decade, twelve major firms with more than 1,000 partners between them have collapsed entirely. The surviving lawyers live in fear of suffering a similar fate, driving them to ever-more humiliating lengths to edge out rivals for business. “They were cold-calling ,” says the lawyer whose firm once turned down no-name clients. And the competition isn’t just external. Partners routinely make pitches behind the backs of colleagues with ties to a client. They hoard work for themselves even when it requires the expertise of a fellow partner. They seize credit for business that younger colleagues bring in.

And then there are the indignities inflicted on new lawyers, known as associates. The odds are increasingly long that a recent law-school grad will find a job. Five years ago, during a recession, American law schools produced 43,600 graduates and 75 percent had positions as lawyers within nine months. Last year, the numbers were 46,500 and 64 percent. In addition to the emotional toll unemployment exacts, it is often financially ruinous. The average law student graduates $100,000 in debt.

Art Streiber

Meanwhile, those lucky enough to have a job are constantly reminded of their expendability. “I knew people who had month-to-month leases who were making $200,000 a year,” says an associate who joined a New York firm in 2010. They are barred from meetings and conference calls to hold down a client’s bill, even pulled off of cases entirely. They regularly face mass layoffs. Many of the tasks they performed until five or ten years ago—like reviewing hundreds of pages of documents—are outsourced to a reserve army of contract attorneys, who toil away at one-third the pay. “All these people kept on going into this empty office,” recalls a former associate at a Washington firm. “No one introduced them. They were on the floor wearing business suits. It was extremely creepy.” Still, any associate tempted to resent these scabs should consider the following: Legal software is rapidly replacing them, too.

Part of the reason the law-firm ecosystem has changed so dramatically in a single generation is greed: The most profitable partners steadily discarded their underachieving colleagues, because they didn’t want to share the spoils. And part of the reason is the brutal recession that began in 2007, prompting corporations to slash every conceivable expense, law firms included. But the biggest problem is that there are simply many, many more high-priced lawyers today than there is high-priced legal work.

The crisis in the profession isn’t likely to improve, either. In late June, the New York–based Weil Gotshal, one of the most alabaster of white-shoe firms, announced it was laying off 60 associates, about 7 percent of its total. A few dozen of the firm’s 300 partners will see their pay cut, in many cases substantially. The news shook the legal community, both because of Weil’s

pedigree and because it was one of the few firms that had weathered the recession intact. Almost as disconcerting as the firings was the way the firm’s executive partner, Barry Wolf, explained them. “We believe that this is not just a cycle, but that the supply-demand balance is out of whack across the industry,” he told The New York Times . “If we thought this was a cycle and our business was going to pick up meaningfully next year, we would not be doing this.”

There are many, many more high-priced lawyers today than there is high-priced legal work.

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.

So far, the transition has not been smooth. In fact, the more you talk to partners and associates at major law firms these days, the more it feels like some grand psychological experiment involving rats in a cage with too few crumbs.

I f you set out to pick a single firm to capture the escalating plight of Big Law, it would be hard to do better than the Chicago-based Mayer Brown.

At the time of its founding in the early 1880s, there were two basic approaches to running an establishment law firm. The prototype for the first was Cravath, which traced its lineage back to Secretary of State William Seward in the 1800s and became perhaps the most genteel firm in America. The “Cravath model,” which spread to other corporate firms on Wall Street, was to hire a large number of associates from the five or ten best law schools in the country and then weed them out, so that only the most brilliant legal minds ascended to its partnership. (Historically, about one in twelve associates made partner.) Those who didn’t advance nonetheless came away with the most sterling legal credential in the world. They had their pick of top government and corporate jobs, or partnerships at other leading firms. In the meantime, they were socialized into the mores of the gentleman lawyer—rivals referred to Cravath as “graduate school” for attorneys—while the firm made a killing by billing them out at top-of-the-market rates.

The alternative approach might be dubbed the “Chicago model,” after the city that housed the most white-shoe firms outside New York, though it took hold in most other large cities, too. 1 Befitting its Midwestern roots, the Chicago model was less competitive. Although the top Chicago firms could be quite choosy in their hiring, says Indiana University’s Bill Henderson, they typically had far more partnership slots available for the associates they brought on and promoted many more of them. As a result of this lower “leverage”—the ratio of non-partners to partners—the Chicago firms were traditionally less profitable. But they were less rigid and hierarchical, and gave associates more responsibility sooner.


Mayer Brown was the paradigmatic Chicago firm. Thanks to its ever-accumulating pile of clients, money, and influence, Mayer Brown could afford to be exceptionally generous to its lawyers, and it took great pride in nurturing them. For decades, its nickname was “Mother Mayer.” Every morning at 9 a.m. the most senior partners mixed with the lowliest associates over donuts and Danish in an eighteenth-floor coffee room. At night, they would huddle at Binyon’s, a nearby restaurant, to dine on the firm’s tab. “It would envelop you, take care of you forever,” says a former partner. Admission to the partnership after seven years was the natural order of the universe as Mayer Brown understood it. “The ground rules were: Do legal work of a high quality. Work reasonably hard, and keep your nose clean. Don’t make stupid mistakes,” says Alan Salpeter, who joined the firm in 1972 and became one of its highest-billing partners. “I was not exceptional.”

Category: Forex

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