The Firms

July 21, 2009 2:58 PM

Welcome to the Future: Morgan Lewis Signals Armageddon

Posted by Paul Lippe

There's no way to overstate the importance of last week's announcement by Morgan, Lewis & Bockius that the firm was canceling its summer associate program and on-campus interviewing (OCI) for the summer of 2010.

Morgan Lewis, along with perhaps Latham & Watkins, Orrick, Herrington & Sutcliffe, and a few others, is the prototype of the large, rapidly growing, global non-NYC based firm that has been a model for the last decade.

OCI is not just any activity for a big law firm. It is, in the language of modern business, the core process of a large law firm. The whole value proposition of a large law firm is built around the syllogism: "We hire the smartest people from the best schools. They work the hardest and do the best work. And we charge the most money." The whole profitability model has been built around charging for the time of young lawyers. If firms cease--or even suspend--this hiring process, it will have big implications for their identity.

In past legal recessions, firms did not want to be seen as cutting back on law school recruiting for fear of getting a black eye and then not being able to get the hiring flywheel spinning again. Morgan Lewis' willingness to take this hit now is an implicit admission that the road ahead will be long and full of change, and that just keeping a 'stiff upper lip' to protect the firm's reputation isn't a very smart play. Francis Milone, the head of Morgan Lewis, is well regarded as one of the top law firm honchos in the country. If he's going down this path, then many, many firms will follow. And as a result law schools, too, will be forced to change.

If we've learned anything from the financial crisis and Detroit's troubles, it is the urgent necessity to "mark to market," to correctly set prices based not on wishful thinking or yesterday's sense of entitlement but on reality. Every penny of law firm spending will get tested by the question "is this critical to adding value to clients--and therefore generating revenue and enhancing the firm's competitive position--over the next 18 months?" Unless the answer to that question is a resounding "yes," stop the activity you're engaged in, immediately.

Let me suggest several obvious places where law firms will start marking to market:

-Firms will turn to their publishers and technology vendors and say "hey, we're buying more or less the same stuff from both of you, and it's pretty darn similar.  So here's $500,000 for one of you (instead of $1.4 million for all of you), one of you guys can have it, and you have 15 minutes to decide if you want to be that guy." 

-Firms will turn to their landlords (unthinkable in the days when the landlord was often the bank and a key client) and say "we know our lease says $21 per square foot, but the current market rate for new rentals is $11 per square foot. Our competitors are at market and we have to be at market. And, by the way, we're cutting 100,000 square feet no matter what.

-Firms will turn to their own partners and say, "In 2003, we got a referral from the Really Great Offsites Law Firms Network, but we're still spending $75,000 a year to belong. While we realize you (and your spouse) enjoy the annual Zurich gabfest, we just can't continue the membership any more."

I kicked this column off last fall by referencing the wine movie Bottle Shock, set in California. I'll cite another such movie now, Sideways (I have nothing to say about Paul Giamatti's aversion to Merlot, I just like the title). From now until the end of 2010, we'll be in a Sideways economy: little growth as we work through the asset bubble deflation.

What does this mean for law firms? When this started, some folks (not me!) claimed that law was counter-cyclical. Others have been peddling "green shoots" fantasies. I think any serious person in this business now acknowledges that the recession will run through the end of next year and the only way to come out on top is to lead the organization through dramatic change.

If you didn't realize this before, Morgan Lewis just stamped it on your forehead.

Paul Lippe is the founder of Legal OnRamp. He can be reached at

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a syllogism is "a form of reasoning in which a conclusion is drawn from two given propositions, each of which shares a term with the conclusion, and shares a common term with each other, not present in the conclusion." (i.e., all men are mortal. bush is a man. therefore, bush is a mortal)

this, however, despite what the article says, is NOT a syllogism:

"We hire the smartest people from the best schools. They work the hardest and do the best work. And we charge the most money."

I hope MLB's decision not only has an impact on how law school's market, but how law school's teach.

If, instead of the rather useless and expensive third year, the law school's encouraged a strong apprentinceship type program (like programs in place post-law school in Canada and Europe) then students would be significantly more prepared for the practice.

It would be fantastic if the purpose of school was to prepare students for practice and not just to provide outlets for hundreds of professors to express their eclectic views on matters that, while harboring some importance, are so much less valuable to the average soon-to-be lawyer than a semester's worth of hands on training.

According to my copy of Wikipedia,

"A syllogism, or logical appeal, (Greek: συλλογισμός — "conclusion," "inference"), (usually the categorical syllogism) is a kind of logical argument in which one proposition (the conclusion) is inferred from two others (the premises) of a certain form.
In Aristotle's Prior Analytics, he defines syllogism as 'a discourse in which, certain things having been supposed, something different from the things' supposed results of necessity because these things are so.'"

So probably I should have constructed the proposition slightly differently (thanks Legal Writing 101), but I think it is a syllogism and the core argument stands -- law firms define the quality of the work in terms of the people doing it, rather than by some objective measure of quality. Accordingly, a law firm changing its recruiting process is quite fundamental -- more akin to an oil company that stops exploring for oil than to a grocery store that cuts back on meat to make room for more organic produce.

I definitely think it's the sign of a permanent downturn - they don't want to be obligated to make future hires, especially those that will be unable to begin for two years (from on campus recruiting to actual start date.)

This isn't really a syllogism, at least not a categorical one (as in the Bush example above)

It MAY, however, be gently reconstructed into a hypothetical syllogism. (If A, then B. If B, then C. Therefore, If A, then C).

As in: If we hire the best people from the best law schools, they will do the best work. If they do the best work, then we can charge the most money and buy yachts. Therefore, if we hire the best people from the best schools, then we can charge the most money and buy yachts.

I figure this is what you were going for.

Note that in either the hypothetical or categorical syllogism, the steps in the argument can be logically VALID but, in the absence of true premises, may not be SOUND. A syllogism that is both VALID and SOUND is COGENT.

Unlike the biglaw business model.

It's optimism to think the recession will end next year, I believe. Regardless, the top students at the top schools are just a tiny fraction of the 45,000 law school grads each year. They'll still do all right. The real impact will be felt on all the other grads.

There's long been a huge oversupply of law school grads, which is the dirty secret of the law schools. But now it will be secret no more, as fewer and fewer grads will be able to find ANY job in the Law, let alone a decent one. Just as there's been an implosion among New York banks, so there will be an implosion among law schools, at some point.

Apprenticeships are an illusion. Law school students wouldn't be able to do much of anything at most firms, because the law schools teach them so little of any value. Firms would rather trust paralegals, with good reason.

Instead of looking at top students at top schools, we should be looking at the vast majority of law students---and how ill-served they are by their law schools. If grads of any other professional school were as ill-educated as law students, there would be an uproar.

Atticus Falson
Author, Planet Law School

I think your analogy is weak. Wasn't mark to market accounting one of the AGGRAVATING factors of the financial collapse?

I admire Paul Lippe for leading with his "agent provocateur" face forward and raising the cutting edge issues that we, as lawyers, must deal with if we are to survive and thrive as a helping profession. It does not matter if his message is in the form of a syllogism, analogy or well-thought-out warning. The information is timely, interesting, and important.

While understanding that this type of column paints law firms with a broad brush, we also must recognize that this marketplace is huge and not everyone is in the same boat. Some firms are doing fine and do not have to make major adjustments. Others have just been shot in the head and could not recover (e.g., Thacher Proffitt) and others need to cut expenses everywhere possible to remain profitable in a world where new business will be priced lower than it has in the past. That is, a capital markets law firm (in fact, almost any law firm) just cannot command the same prices it did a year ago.

In economic terms this is a classic shift in demand to the left meaning that there is lower demand for legal services at all prices. Since supply has not changed, the point at which there is "equilibrium in the marketplace" (where the declining demand curve intersects with the increasing supply curve) will be at a lower price. It is our free markets at work.

I really could skip this "provocateur" label, just as I don't see the point of the ABA's otherwise cool new thing being labelled "Rebels". Anybody I ever talk to in law who is serious, and everybody outside law who is paying any attention, recognizes that the dominant model of the billable hour, associate leverage and credential-based quality assertion is shallow and not very defensible empirically, other than it exists and is understood. And NO ONE defends it, which is quite noteworthy, so it seems silly to apply a trivializing label to folks who postulate that there is a better way, based on experience in law and in other fields.

My first boss was Sen. Moynihan who wisely said "words matter." So let's use specific and fact-based language, not silly labels that are designed to shut down discussion and understanding, not further it.

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