Silver lining in clouds

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Recently a reporter interviewed me concerning the environment that new law school graduates will face. It was the closest I’ll come to giving a commencement address, and quite frankly I believe the near-term outlook is not bright.

There are major structural changes within the profession that the recession has intensified. As an entire generation of lawyers moves toward retirement age, the current crisis may make it financially impossible to do so — creating the potential for generational conflicts involving both older and younger lawyers within firms, and for big changes once the recession is past.

Karen Mathis, when chair of the American Bar Association several years ago, focused her leadership year on developing a new awareness for the legal profession regarding the implications of the aging population. She often emphasized that 400,000 lawyers will likely retire in the next 10 years. That’s equivalent to the entire current membership of the ABA. Until recently, the prospect of this massive demographic shift made partner succession seem to be the biggest challenge that law firms faced.

Today the demographic problem assumes a new dimension. The global financial crisis has created fear and confusion for countless lawyers who, like many others, suddenly have seen nest eggs shrink dramatically and fear they may outlive them if they don’t continue working. The only way many lawyers see that they will be able to retire is to significantly reduce their retirement dreams, expectations and standards of living that they anticipated just a few years ago.

With aging lawyers working longer, and firms continuing to hire (although at a greatly reduced rate) new, lower paid lawyers out of law schools in order to increase their leverage, something has to give. In many firms, there is a direct relationship between de-equitization and leverage: letting go of older partners who may have higher rates but bring in less business while hiring and using young associates as a cost-effective way to do billable work that boosts profitability, with the hope that some of them will become rainmakers.

For many associates, this leads to the “culling process.” They work for five, six or seven years; if they don’t make partner by then, they’re asked to leave to make way for the next group of law school graduates. The issue that firms seem to have with associates who “clog up the middle” is that, while these are good lawyers who produce good billables, they are not great rainmakers. And that same criticism often drives the de-equitization process.

For young lawyers themselves, firm hiring out of law schools has become “decremental” — an ongoing decrease rather than the previous incremental increases. Past recessions have often led to a rise in law school enrollment as people seek to enter the more “stable” legal profession, but because that image of stability has been shattered, and because law school is far more expensive than ever, the big surge in enrollments may not materialize. Likewise, the highly publicized troubles of large corporate firms make the prospect of having their own firm seem more attractive to many young lawyers.

Ultimately this trend may make the legal profession a truly entrepreneurial one — and that could be the silver lining in all these clouds.