Sunday, March 7, 2010

2009/2010/2011 BigLaw Class Years: The Gilded Ones?

Look around your law school campus and you will see the carnage left behind by the financial crisis. Classes of 2009/2010/2011 are left jobless and debt ridden. Among the detritus scattered around campus, however, there are the lucky few who have successfully secured gainful employment at some of the nation’s premier firms. It is my belief that these “survivors” of sorts are poised to have the most market (and hence financial) leverage in the medium- and long-term. There are two phenomena that support my assertion: 1) the seemingly unmovable law firm profit model; and 2) demographic destiny.

First, to quote Mark Twain, the reports of the BigLaw model’s death are greatly exaggerated. While some firms have moved away from traditional lock-step compensation systems and have outsourced the more mundane portions of their work, the fundamental premise of their business depends on starting large classes of associates at the bottom of the pyramid and slowly winnowing them out either via voluntary or forced attrition before they reach the top layers. Many of the survivors of this process who end up at the top of this pyramid are compensated with a consecrated slice of the partnership pie. So how does this ancient and seemingly indestructible profit model help the lucky few who landed summer associate positions? Simple. Supply and demand.

These lucky few will ultimately succumb to the same pressures experienced by any other BigLaw class year. Some will leave for government, some for mid-size/small law, and some will just leave the law period. This inevitable thinning of the 2009/2010/2011 class years will create an abnormally small layer in the BigLaw pyramid relative to the size of the firms’ respective partnerships. Ultimately, when the economy turns around (yes, one day it will be better; even the Great Depression came to an end after all), BigLaw will have more work than mid-level associates to do it. The result of this excess work and limited supply of experienced attorneys means that there could very well be a financial war between firms for mid-level attorneys. BigLaw firms will be unable to fill these voids in their ranks with attorneys from small/mid-sized law firms and the government because they will simply not have the requisite experience to do the work.

Second, viewing the future with more of a long-term lens, old partners, particularly baby boomers, have to retire at some point. Whether by “age-out” clauses in partnership agreements or simply by partners deciding that they have hit the end of the line, there is a large generation of law firm partners who will be heading for greener pastures in the next decade or so. The generations immediately behind them, particularly Generation X and the Millennials, are quite a bit smaller than their baby boomer predecessors. Come time for partnership promotions, there might very well be a shortfall in available talent to take up the reins of the firm; particularly, a shortfall in talent around the time the 2009/2010/2011 classes are up for partner. Those who make through the eight to ten years of hoops stand (I think) a much improved chance for partner compared to their boomer and Generation X peers.

So what’s the conclusion? Those in the Classes of 2009/2010/2011 who are/were able to obtain a BigLaw position may have some serious market power behind them in the medium- and long-term. So long as these individuals can wade through the next two to three years of economic waters, they stand an excellent chance to develop a skill set that will be in high demand during the medium term (i.e., during their mid-level years) due to limited supply. Further, any members of these Classes who manage to survive eight to ten years in their firms also stand an excellent chance of making partner due to demographic pressures on the boomers.

Obviously this is all just speculation. Should the overall size of BigLaw shrink my predictions will not hold. However, given the ever increasing levels of regulation coming out of Washington, I believe that there may just be an enormous opportunity for these lucky few.

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