Recently New York behemoth Weil Gotshal & Manges announced that it was “shortening its partnership track” from 9½ to 7½ years. Commentators have responded skeptically (law-firm consultant David Barnard of Blaqwell doubts whether the approach will improve overall associate retention; Vivia Chen says “all this just sounds too peachy to be true”).
I think the doubters are wrong, and that while Weil’s “partnership track” change (I’ll explain the reason for the scare quotes later) may not be that big a deal by itself, the reasons for it that the firm has plausibly articulated and their broader implications mark important evolutionary developments that we can expect to become more widespread in the industry.
As part of the great educational machine that manufactures new lawyers, we law teachers should want to know whether any of this is good for the young lawyers entering BigLaw. Our students will naturally want to know as well. As I’ll explain after the jump, the answer is yes and no, but the no is mainly a function of the economic environment to which all BigLaw firms must react these days (and thus isn’t really a result of any law-firm policy or policy change), and the yes is important and being largely overlooked.
Some historical background. To understand what’s happening and why, we need to remember the historical background against which Weil’s policy changes are being deployed.
The Cravath System (1920s-1970s). From the beginnings of the modern American corporate law firm about a century ago, a central feature of its economic and management model has been a rather odd retention and promotion mechanism commonly referred to as an “up or out” “partnership track.” The plan was and is generally known as the “Cravath System,” after Paul Cravath of Cravath Swaine & Moore, who is credited with having articulated its principal features in the 1920s.
In this model, “classes” of new law graduates were hired straight out of law school or after a short judicial clerkship (almost never later), and actively trained in the services the firm provided to its corporate and wealthy individual clients, gaining valuable experience in the process. From the outset, it was fully understood that only a few members of the entering class would “make partner” after a predefined, fixed term (initially 7 or 8 years, and later stretching to 9-12 years at some firms), at the end of which the firm would announce a definitive decision about the future tenure of every remaining member of the class at once. Those who were not promoted to partner understood they would be expected to leave the firm, typically for medium-sized or smaller private firms or company law departments, and often with well-deserved strong references from the BigLaw firm that was letting them go. Partners were effectively ensured a position for life, and almost never changed jobs until they retired. Lateral moves to another law firm were unheard of. In other words, the “partnership track” had a rigidly defined length, known to all from the outset, and at the end of the track the runners were either ejected from the race or vaulted into the partnership for the remainder of their careers. The race may not always have been to the swift (Paul Cravath himself inveighed against "too great cleverness" in partnership candidates, preferring "safe, sound, and steady" gentlemen with the right background and breeding), but everyone knew exactly where the finish line was.
What is striking about this structure is not only how widespread it was, but how counterintuitive and unusual it was and still is in the broader employment market. The Cravath System was nearly universal among law firms serving medium-sized and larger companies and wealthy individuals from the 1920s through the 1970s. It required firms to seek out substantial numbers of talented and hardworking young lawyers, devote extensive resources to training and acculturating them, and then abandon that investment by letting most of them go at a time when a great many of them were known to be experienced, efficient, useful, and agreeable to the firm's clients.
To many of you this story is at least somewhat familiar. But please pause for a moment and reflect how frankly bizarre and apparently wasteful this retention and promotion strategy is, and how different it is from most other work environments’. After all, if you’re doing a good job, making yourself useful, and keeping your customers happy, in most workplaces your employer very much wants to keep you. (Why this radically different approach became the standard, and essentially the only, retention and promotion model for larger law firms for at least half a century should strike you as an interesting question. Unfortunately, it proves exceptionally difficult to formulate a satisfying answer—which makes it even more interesting. Sadly, we don’t have time or space here to explore it further. If you’re curious, David McGowan and I have tried to catalogue the theories offered and how well they fit the facts here at pages 41-64.)
The Cravath System stretches and deforms to accommodate changing circumstances (1970s- c. 2010). Beginning in the 1970s, a number of things caused the Cravath model to bend and strain at the joints. The birth of the administrative state and developments in the law, as well as increases in the size, information-retention powers, and complexity of BigLaw clients and the deals and disputes in which they engaged, caused BigLaw training, staffing, and pricing to evolve as well. By the 1990s, BigLaw firms were hiring bigger and bigger classes of new graduates, paying more and more to fill those classes with highly credentialed young lawyers, and then devoting most of their time to routinized, repetitive, glorified clerical work gathering and organizing information and documents out of the huge stores of durable information the digital revolution was spawning. Most left voluntarily within four years. The term within which an associate’s “up or out” decision was made stretched out longer and longer, with a more and more indeterminate endpoint. Partnership, conversely, became both less committed and less secure, with increasing volumes of lateral partner movement between firms and partner “de-equitization” or outright dismissal within them.
The New Normal (c. 2010-present). The Great Recession finally forced institutional clients to reevaluate what they were paying for what they were getting from BigLaw. They began to conclude, and are continuing to conclude in greater and greater numbers and with greater and greater actual effect on buying decisions, that there is no need to pay full junior associate rates (as much as $250 to $400 per hour by 2010) for routinized, repetitive work such as document review, due diligence, and customization of form contracts and licenses. That work is being redirected to less expensive in-house staff (“insourcing”), legal process outsourcers (“outsourcing”), and specialized lower-priced BigLaw “discovery counsel” (“downsourcing”) at a fraction of previously prevailing rates. Clients increasingly refuse to pay for junior associates to do anything, complaining about funding their training and literally instructing firms not to put their services on the bill. They are focusing their legal spend where it brings more value—on more experienced and efficient senior associates, “counsel,” and partners. BigLaw no longer needs huge classes of untrained new graduates, and is finding increasing use and profit in lawyers with experience, skills, and judgment. At the same time, partnership is becoming ever more rarified, precarious, and uncertain, with partners’ performance scrutinized and rewarded more and more painstakingly (with an emphasis on the pain). (If you’re interested in exploring this history and evolution in greater if not excruciating detail, try here at pages 8-41, or here at pages 581-99.)
What Weil is doing and why. Against this backdrop, what Weil Gotshal’s management is doing, and saying about why they’re doing it, makes a great deal of sense. The headline-grabber is the announced shortening of the “partnership track” from 9½ to 7½ years, but just as important is the suite of policy changes announced with it, and the professed reasons for them. As described by managing partner Barry Wolf, under Weil’s new retention and promotion policy, after 7½ years an associate can be promoted to either partnership or a “counsel” position. The new partners will be nonequity (sometimes called “income” or “fixed-income”) partners, meaning that their compensation is much less dependent on the firm’s profits year to year than equity partners’, and that there are some management decisions on which they will not have input. They are expected to advance to full equity partnership within a few years.
Eighth-year associates promoted instead to “counsel” follow one of two paths. Counsel with specialized knowledge or skills (the reports don’t give examples, but specialties like tax and employee benefits come to mind, and my guess is we can expect to see the policy applied broadly and flexibly to anyone whose knowledge and skills continue to be useful and profitable to the firm and its clients) may stay in that position “indefinitely,” or may be promoted to partner later. Other counsel (apparently those with skills or knowledge that is less specialized or unusual) will have three years within which to either make partner or depart, effectively extending their "partnership track" another three years at the firm's option. All counsel will make more money than they did as associates, including a “stay bonus” (as much as $50,000, which would be an additional 10% or so of their likely salary) after their second and third years to encourage retention.
The policy also includes an expectation that all associates will be told during their fifth year what their “prospects for advancement” are after 7½. Managing Partner Wolf said that, going forward, “most” fifth-years still at the firm will be “encouraged to stay through their seventh year”; and that “substantially all of our associates who are here at seven-and-a-half years will be promoted” to either counsel or partner. He added that the firm expects to make about as many partners as previously, and (as far as I’m concerned much more importantly) more “counsel” than before.
Wolf was at pains to emphasize that this is not an “up or out” policy “designed to weed people out,” but rather a retention plan designed to encourage more mid-level (fourth- and fifth-year) and senior associates who are doing a good job to stay at the firm longer by reducing the uncertainty of their medium-term futures there.
So what does this all mean? What it means is that associates at Weil Gotshal can expect an assessment of their medium-term prospects at five years, and that if they’ve stuck around for five years without having been shown the door, their chances for medium-term advancement are pretty good. “Advancement” here means either non-equity and then equity partnership for a modest number (Weil, a firm of over 1,000 lawyers, made 10 partners last year), or counsel positions characterized by plenty of challenging work and substantial remuneration that last “indefinitely”—which probably means as long as the firm finds them useful and profitable, anywhere from a few years to an entire career. This gives associates a sense of whether there is a place for them at this firm with a roughly three-year moving time horizon, and it gives Weil a lot of flexibility to staff for its clients’ foreseeable needs without worrying about artificial constraints on tenure.
So when Barry Wolf tells his firm and the world at large that this is not an “up or out” policy “designed to weed people out,” there is good reason to believe that he is being completely honest and sincere. To begin with, “up or out” promotion in the traditional BigLaw sense is virtually extinct already. A survey of BigLaw managing partners in 2013 revealed that 92% of the responding firms no longer followed the Cravath System. The reason is simple and altogether practical: In the current environment, Weil and firms like it don’t need a policy to “weed people out.” Because of the change in the nature and extent of demand for BigLaw services in recent years, firms larger than 100 lawyers are already hiring over 20% fewer new law graduates than they did ten years ago (no, I don’t have Weil’s numbers in particular, but the point is that Weil has a lot in common with a lot of other large and very large firms). And Weil and the many firms like it already have all the tools they need to maintain the quality and utility of their workforces through ordinary performance and partner reviews; what they need is a way to encourage talented and hardworking younger lawyers to stick around longer (the opposite of “weeding people out”) because their services are both needed and valuable, and because high levels of attrition and lateral associate hiring to fill the gaps it creates are painfully expensive deadweight losses.
The view from 30,000 feet is pretty clear: Weil Gotshal has officially adopted policies giving itself room to retain a broader range of developing lawyers for a longer time and reward them according to their usefulness and profitability without constraints from an artificial partnership “track.” It has done so by imposing a formal structure designed to support that approach to retention and promotion by offering lawyers they consider worth keeping general assurances that, at least for the next few years, they are likely to be retained so long as they continue to work hard and improve, and their services are needed. In reality, this is not a change to the firm’s “partnership track” at all; it’s simply a formal confirmation that what used to be a “partnership track” disappears into the underbrush at a point you can see from the starting line, rather than inevitably ending at a fixed point in plain view as it once did.
Okay, so is this good for young lawyers who choose to enter BigLaw? As I said at the top, yes and no.
The “no” is adequately articulated by Vivia Chen, who argues that “[w]hile Wolf might sincerely believe that ‘substantially all’ seven-and-a-half year associates at the firm will be promoted, you have to wonder what happens if the economy goes south or the firm just decides it is no longer smitten with the crop. My bet is that the firm will cut a lot of them loose or make them income partners in perpetuity.”
With all respect to Ms. Chen, who is an avid and often acute observer of the profession, this is true but beside the point. Of course associates will suffer if the economy tanks or their performance deteriorates. So will counsel and partners. But that would be true whether or not Weil (or any other firm) adopted the change in policy we’re discussing. If the Great Recession taught a single lesson, it’s that in bad times all bets are off. You could argue that institutional law firms like Weil ought to use their incredible resources (Weil had $1.4 billion in revenues last year, with $3.6 million in profits per equity partner) to offer some kind of security guarantee to associates, partners, and everybody in between in return for their undeniable hard work and devotion to the cause. But the simple fact is that none of them does, and everybody with an ounce of sense knows that.
So yeah, life in BigLaw is still demanding and uncertain. For everyone involved. Everyone is still in thrall to market demand, toiling through the busy times and sweating through the lulls. Just as many partners as ever are still lousy bosses and worse managers, the hours are still brutally long and unpredictable, and the stress is still constant and often intense. Some of this is avoidable (though many firms do a poor job of avoiding avoidable pain), and some of it is an unavoidable function of the nature of the work. But all of it has been there for decades. The money that firms like Weil are paying associates today—often between $200,000 and $400,000 per year (including bonus, plus generous benefits)—suggests the market has built in some compensation for burdens and risks like these. But paid for or not, most of BigLaw's drawbacks are the same as they've been for a long time.
Okay, then what’s good about it? What’s different and interesting about Weil’s policy change—though it is by no means unique and I’m quite sure it won’t be isolated—is its formalization of a balance between discretion in retention for the firm and some degree of assurance and encouragement for associates and counsel to stay on, reduce attrition, develop expertise, and quite possibly make a career or a substantial portion of one in BigLaw without necessarily having to clear the increasingly elevated bar for partnership. Many firms have been striking that balance more quietly, informally and ad hoc as the need for it has become apparent over the last 20 years.
So the critical point here, the one that young lawyers and those who educate them ought to be genuinely happy about, is that official policies like this one explicitly recognize that an increasingly important part of a 21st-Century BigLaw workforce is a corps of skilled and experienced lawyers who are neither associates nor partners, but who nevertheless handle complex and challenging work, receive very generous compensation for doing so, are not expected to generate substantial amounts of business for the firm, and have a degree of job security that, as a practical matter, is not all that much less than a partner’s (understanding that partners’ job security is itself regrettably precarious and subject to the shifting winds of circumstance, and is virtually certain to remain so). For those who are willing and able to handle the work and the tradeoffs involved, that's a good job with decent longer-term prospects. And Weil Gotshal--and lots of other firms like it--are recognizing that they need to make more of them.
Given the rough and shrinking job market new law graduates have confronted over the last ten years, I’d say that’s not bad.
--Bernie
There are a few other factors that you don't discuss.
One was the desire of large law firms (for a period) to periodically expand specialty practices such as intellectual property, bankruptcy, litigation (a lot of big-law partners had little actual trial experience), trade, etc., ERISA, antitrust. Because they did/do not have time to develop these practices organically, and lacked/lack the senior lawyers with the relevant skills, the BigLaw are/were forced to hire from outside their partnership tracks - either from boutiques, or from government (e.g., the USDOJ's antitrust division.) The interesting thing is that BigLaw goes through periods of cutting back on various specialties - e.g., in a strong economy they cut back on bankruptcy and trade (dumping and CVD) practices, some have stepped in and then out of serious IP practice, etc. which then leads to a need to rapidly rebuild those practices at a later date.
Another factor was the rise of what a partner I had described as micro-competence when we interviewed a 10th year Skadden cast-off a couple of decades ago. Despite sterling law school credentials, his problem was that he'd spent the last 8 years doing only responses to Hart-Scott-Rodino second requests. At that time, there were probably only two firms in the world that did HSR second requests frequently enough to be able to have a mid-level associate dedicated to the role (Skaddne being one.) We would not have been able to use him since he was, for most practical purposes a first year associate in terms of experience looking for a senior associate pay check (unless we had a HSR 2nd Request, which for us was once in years - and that was opposing the merger.) To put it in simple terms (and I was a GC) the only way that BigLaw could sell their associates hourly rates in the 90s and 00s was to make at least some of those associates extremely specialised - not simply antitrust, or even mergers, but HSR 2nd requests. This presents three sets of problems: (a) they end up lacking the general skills that one seeks in a partner/advisor; and (b) when they look for roles post-big law they have a troubling lack of the sort of general experience that other legal employers look for; and (c) when the specialised practices the mid level and senior associates are trained for slow, the axe tends to fall, on the associates, revenue partners and even equity partners, because it is cheaper than retraining them.
To all of this was added the changing relationship between clients and law firms/lawyers, in that clients ceased to be "firm clients" and more clients of a particular lawyer - or rainmaker. Wise rainmakers became extraordinarily jealous of their client relationships, because that was their pay check and their job security - and were very hesitant to allow more junior lawyers or other partners any contact with the client that they do not mediate in some way.
I don't see these factors changing in the medium term.
Posted by: [M][a][c][K] | June 07, 2018 at 11:13 AM