Practice Management

New York Times suggests top law firms seem absolutely irrational

Here’s the actual quote: 

Lawyers are smart, but this herd mentality seems absolutely irrational, economically speaking — and not because the compensation is too high. The top law firms have been stuck in copycat mode for years. As soon as one of them raises salaries for associates, the others fall in line almost immediately.

Later in the article NYT asks: 

But think about this for a moment: Is there any other business in which every competitor matches salaries and bonuses almost identically?

In response to:

Evan R. Chesler, Cravath’s presiding partner, told The New York Times last month that the firm had originally wanted to “thank our lawyers for the hard work this year and the good year we’ve had.”

NYT offered:

It’s a nice thought but somewhat specious. Partners at law firms are a notoriously greedy bunch — that’s why they accept so few new partners — making it hard to believe that they are willing to part with their money so easily. I suggest there is something else at play: Law firms match bonuses to secure bragging rights.

My View:  Given the economic challenges the legal profession is about to face I believe large salary increases and bonuses are risky…  a handful of firms can play the game because they have spectacular revenues to encroach upon but if the main stream gets caught in this game we are going to see casualties.  Over my many years of working with law firms globally there is a season you want to avoid like the plague – that’s “shrinking pie” season (when the cycle leaves less for partners to share).  Everything becomes more painful – rewarding stars means starving others and laying partners off (or de-equitizing) requires more courage because the world is a lot tougher for those who are being disenfranchised.  Somehow when the pie shrinks, a very negative game of dominos ensues.  Huge associate salaries and bonuses accelerate the shrinking of the partner pie which I argue has its perils.

Read the entire article: Lawyers Compete, Except in Bonuses

Full post as published by Amazing Firms, Amazing Practices on December 01, 2007 (boomark / email).