Can Changing Big Law Recruiting, Hiring and Training Lead to Greater Retention?

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Can Changing Big Law Recruiting, Hiring and Training Lead to Greater Retention?

Big Law is under pressure. As the costs of recruiting, hiring, training and retaining new lawyers increase year after year, law firms are under increased pressure from clients to reduce costs. At the same time, margin compression is intensifying.

As an industry, we’re stuck between the proverbial rock and hard place; something has to give. Firms need to look with fresh eyes at how to manage the never-ending cycle of recruiting, hiring, training and retaining new lawyers while maintaining quality and per-partner profitability.

Whether we like it or not, disruption has come to the legal profession driven by technology and client expectations (i.e., more dynamic pricing models). The recruiting, staffing and training of young lawyers must evolve from the 19th-century apprenticeship model to one more in line with today’s reality and tomorrow’s expectations.

The economics of traditional approaches and processes aren’t working anymore. Here’s why:

Million-Dollar Lawyers

A large law firm spends approximately $1 million for every new lawyer it hires. This represents costs associated with salary, recruiting (including summer programs) and the training and professional development provided in the first two years of practice.

The average salary for lawyers in their first two to two and a half years is $200,000 plus performance-based bonuses. With overhead costs added in, the total annual loaded cost per new lawyer is around $400,000.

It takes approximately two and a half to three years for a firm to break even on that initial investment in a new attorney, but 30-50% of new lawyers leave after only two to two and a half years. In other words, about half of the million-dollar lawyers walk out the door to go work for some other firm or company, taking with them all the knowledge and experience they’ve gained, before the firms that gave them their first jobs even recoup their investment. Instead, firms find themselves needing to replace half of their first-year talent, incurring all the costs that go with that again, while also developing the next year’s talent pool.

For context, between the summer associate program, recruiting, salary, benefits and related overhead, the cost per lawyer over the course of the first two years of their career is $1 million. A firm that hires 100 lawyers per year makes a $100 million investment; by year 2.5, it is still trying to recoup its investment, but with 30-50% fewer lawyers.

It’s a mad cycle, and to continue as we have is an exercise in futility and inefficiency.

Then There Are Clients

Clients like the idea of being represented by a firm that is among the most prestigious and best at what it does.

Clients also are savvy; they know how the math works. They understand not every attorney on their team will be a partner or even a senior associate, and they accept that young, inexperienced, learning-on-the-job lawyers will be involved with their accounts. For the most part, they’re comfortable with that, as long as more seasoned lawyers are leading accounts and monitoring the quality of the young attorneys’ output.

However, clients do not want to pay hourly rates of $400-600+ for the work of lawyers who are, by and large, still being trained. In fact, in some cases reluctance has evolved into flat-out refusal.

Something Has to Give

How are we to resolve this apparent dilemma and best align all parties’ interests?

The real question is, how do we accomplish all of the following while maintaining—or better yet, improving—per-partner profitability?

  • Recruit talent
  • Develop new lawyers efficiently
  • Realize baseline return on investment in new lawyers
  • Retain talent
  • Build the firm for the future
  • Show clients we’re responsive and continue to enjoy their patronage

It’s clear that, to address the economic squeeze and continue meeting profit objectives, law firms need to either raise rates or reduce costs.

Increasing hourly rates is unattractive; clients are already unhappy about what they’re paying.

The alternative and typical response to earnings compression is to cut costs. That seems like a logical, and perhaps the only practical, solution.

But the wisdom of that depends on how firms go about it.

Usually Big Law firms do one or more of the following:

  • Cut recruitment programming budgets and reduce the number of new lawyers they recruit each year
  • Decrease the number of new lawyers they hire each year
  • Slash professional development, including performance coaching and mentoring opportunities

Unfortunately, it’s more likely that these approaches will exacerbate the problem rather than improve the situation, for a multitude of interrelated reasons.

For example, cutting recruiting budgets and recruiting fewer lawyers results in fewer hires. Fewer hires translates to more work for junior associates already at the firm, and could mean the same for senior associates and partners. That can lead to burnout and more attorneys with a range of experience levels leaving the firm, which in turn means the firm must recruit more lawyers.

Taking one or more of these cost-cutting actions could compromise quality, as well, which could cause clients to leave the firm. That, in turn, would lower per-partner profits, negatively impacting a firm’s reputation and ranking, which could result in fewer clients still.

Perhaps a firm decides to slash professional development, performance coaching and mentoring opportunities, instead. In that case, young lawyers feel like they’re not learning as much as they expected or as quickly compared to their counterparts at other firms. In that scenario, the percentage of new lawyers that leaves the firm increases from 30-50% to something much higher and, as a result, the firm must recruit even more lawyers.

Not only that, but meeting clients’ needs and expectations becomes more challenging, especially in the short term, and they begin to leave, too.

In either example, companies’ and organizations’ in-house legal departments have a shallower pool of candidates from which to hire.

Often these scenarios become vicious cycles.

An Innovative Staffing Solution

Rather than doing the same thing over and over again with the same results, firms can adopt a de-risking approach that not only reduces the costs of recruiting, hiring, training and retaining new lawyers up front, but also makes the entire process more efficient and allows firms to “try before they buy.”

It’s an innovative approach that incorporates alternative legal service providers into the firm-lawyer-client dynamic.

From a 50,000-foot level, here’s how it works:

A firm pays an alternative legal service provider, such as Legal Innovators, an upfront (and ongoing) fee that covers recruiting, hiring, training and ongoing professional development. The alternative provider identifies talent among recent and soon-to-be law school graduates and hires the individuals with the most potential. They become employees of the alternative provider but work within the firm, and under the firm’s supervision and control, as if they had been hired directly.

Over the course of the next two years, the new lawyers not only become familiar with the firm and its clients, but also benefit from professional development and performance coaching provided by the alternative provider. They feel valued thanks to the development opportunities, and that they are advancing toward their professional goals.

The results are lawyers who are more likely to want to stay with the firm.

Meanwhile, firm leaders get a great look at the new lawyers and can assess their capabilities, potential and cultural fit. As the two-year point approaches, the firm and new lawyer each have an excellent sense of the pros and cons of the other, and each party can decide if they want to continue the relationship.

Given the substantial positives this de-risking system delivers for all parties, we believe it is the future of recruiting, hiring, training and retaining junior legal talent.

Big Law

First and foremost, law firms are able to address the economic squeeze without sacrificing profitability; the returns are exponential rather than linear.

The risk inherent in recruiting and hiring is minimized because the costs of new lawyers’ first two years are reduced immediately and significantly. Since firms do not have to cut development programs, job satisfaction improves, as well, so new lawyers stay longer, and overall retention rates go up.

Firms also are better able to diversify the backgrounds of their associates pools.

In addition, department heads feel supported because their teams can continue to do the best work possible; they can develop their team members properly and worry less about their P&L statements.

Overall, firms get better ROI on new lawyer recruitment, hiring and training; save significantly on those processes on an ongoing basis; maintain or even improve per-partner profitability; and, as a result, maintain or improve their standings in best-firm rankings.

Clients

The primary benefit to clients is straightforward: since firms can reduce the hourly rates they charge for junior associates, clients do not have to pay as much for the same quality and level of representation.

Beyond that, though, the new system fosters greater trust between clients and their firms. Rather than seeing their law firms as service providers, clients begin to view them as business partners who are responsive to their needs. The enhanced trust strengthens relationships, which, in turn, extends engagements.

Recent Law School Graduates

We haven’t mentioned recent law school graduates much so far, but they stand to benefit significantly, as well. A holistic evaluation includes a proprietary algorithm based upon data science, psychology, a full three years’ worth of grades and a writing sample, all at a reduced cost.

First, new lawyers are placed with top-tier firms that might not have hired them otherwise. Since law firms don’t have to bill their time as they would for a more expensive lawyer who came in through the summer program, there’s less pressure for the new lawyers to meet the expectations of high hourly rates.

Ultimately, junior associates become more valuable more quickly, and develop a stronger foundation for long-term relationships with their employers and clients.

In-House Legal Departments

Lawyers who stay longer eventually become senior associates and partners, which is exactly the caliber of attorneys that companies and organizations recruit.

The in-house legal teams are better able to make their dollars go further because they’re being charged less for attorneys at the beginning of their careers and can, instead, devote their resources to senior associates and partners who are often driving their strategic directions.

Time for a New Course

Big Law is standing at a fork in the road.

One direction will put big firms back on the recruit-hire-train-lose-repeat track, complete with all the common potholes and speed bumps mentioned earlier. The other path is entirely new, innovative and more efficient. It leads to the place firms want to go, but with much less wear and tear on attorneys, human resources departments and clients, not to mention profit potential.

Now is the ideal time for decision-makers—CEOs, CFOs, partners, legal talent professionals—to think about and pursue innovative ways to engage in lawyer recruiting, hiring, training and retention.

Change is difficult and it takes time. But in this case, it is necessary and clearly preferable to the ongoing pain and exorbitant costs of handling these processes in the same way we always have.

Bryan Parker is CEO of Legal Innovators, an end-to-end, technology-enabled, talent-management provider to law firms and corporate legal departments. The organization works with several Am Law 200 law firms and the legal departments of various Fortune 500 companies. Damien Atkins is Chief Legal Officer at Aura and previous general counsel at The Hershey Co.

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