Source: Bloomberg Law: Big Law Business
Sourcing and recruiting qualified, experienced mid-level associates has become difficult. Today, there are significantly fewer candidates than there had been previously, and law firms, as well as in-house legal teams, are feeling the pinch. There are multiple reasons why the ranks of mid-level associates have shrunk in numbers, many of which boil down to the market forces that were in play when they graduated from law school.
In December 2016, the National Association for Law Placement (NALP) published new data on the size of incoming first-year associate classes for law firms with 250+ lawyers from 1994 through 2015. Data show a sharp decline in the number of associates hired starting at the end of 2009 (-4%), reaching a trough in 2010 (-27%) and continuing through 2011 (-23%). Industry experts seem to agree that there are also many fewer experienced associates (not just first years) at big firms than there were prior to 2009. The NALP data confirms the overwhelming anecdotal evidence supporting a new reality of dramatically reduced first-year class sizes over the last eight years and a corresponding reduction in the number of true associates in the first- to eighth-year classes. So what are the reasons for this change and what are some of the implications?
Reasons for Fewer Associates
Demand for legal services plummeted during the recession that began in 2008. During that time, clients started to negotiate more for their money. Law firms adapted, but even as the economy recovered, clients became accustomed to a "new normal." Clients made a host of demands that challenged the way firms staffed, including refusing to pay for first- or second-year associates. Suddenly, firms were required to shoulder their own training costs, which resulted in fewer associate hires. As a result, much of the due diligence and discovery work that was previously handled by first and second year associates is now being handled by staff attorneys at much lower rates ($50/hour).
Furthermore, law firms began adjusting their process for hiring associates. Historically, firms staffed their first-year classes through their summer programs, which forced them to make offers more than a year and a half before start dates. Though their client demands were ever-changing, they were comfortable making those hiring decisions within a certain margin of error. However, since 2009, with increased client pressure to keep costs down, firms are less willing to err on the side of over-hiring.
What's more, with pressure to reduce costs and increase efficiencies in the recession and post-recession years, legal departments brought more work in-house, thereby reducing external legal spending dramatically. As a result, law firms were forced to think about the size of associate classes more strategically.
Implications of Smaller Associate Classes
The implications of law firms having markedly fewer associates are significant for in-house legal teams and law firms.
Major, Lindsey & Africa is now receiving more calls to find entry-level in-house lawyers – specifically "BigLaw" associates with 5-7 years' experience – who are looking to move to a law department. In the boom years between 2004 and early 2008, our in-house clients had no problem filling those positions. During that same period, NALP data reported that 80% of Big Law associates had left their firms by the end of their fifth year of practice, many of them moving in-house. With dramatically fewer associates at big firms, General Counsel are having a much harder time filling in-house positions.
In addition to the fact that there are fewer associates in the market, the associates that are practicing have proven to be harder to recruit. One reason is compensation. After salaries increased in the summer of 2016 and bonus payouts returned to pre-recession levels, the compensation discrepancy between in-house positions and law firm positions grew even more pronounced. With smaller classes, associates often feel they have a better chance of making partner or staying at their firms in a secure role because firms have more widely adopted of counsel or non-equity partner tracks to maintain valued, hardworking associates. As a result, associates are more reluctant to leave money on the table by moving in-house.
In addition, when associates decide to pursue an in-house role, they have the luxury of being more discerning than they used to be. Associates used to jump at the chance to be considered for an in-house role, but now they feel no pressure to pursue an opportunity unless the timing and the terms are attractive to them. Associates with clean resumes and strong transactional skill-sets understand their value in the marketplace. They have a fairly accurate sense that another in-house job will come along, so there is no perceived risk in letting one pass by. Having entered the workforce in the heart of the Great Recession, mid-level associates tend to be extremely risk averse. To many, a stable law firm platform where the structure and career trajectories are known are big tethers.
A secondary implication is that law departments will have to go through a more thorough vetting process of their applicants. Many 2009 and 2010 law school graduates were laid off from big firms or had offers revoked or deferred, and were forced to scramble to gain relevant legal employment. On resumes, this translates into a wide variety of jobs or a frequent number of moves during that timeframe. GCs now have to vet these candidates differently, and some have even started administering tests on drafting agreements.
Law Firm Considerations:
Firms had to adapt to a changing associate population as the balance of power shifted from them back to the candidate pool. Historically, firms in the AmLaw 200 have been selective recruiters, particularly when hiring laterally: Partners looked for associates that fit neatly into a box, earned top grades from respected law schools and practiced with the same prestigious AmLaw firm where they worked as a summer associate. Their ideal candidate had 3-5 years of experience focused on the same area of law since passing the bar exam, and had a good reason for looking to make a move from their current position. While associates like this do still exist, there are many fewer of them given the reduced rate at which they were hired in the wake of the recession.
Firms are increasingly finding themselves in the sales seat when recruiting mid-levels. They have been called upon to demonstrate why an associate should come to the firm, as opposed to a competitor, and what is in it for the lateral associate. For example, conversations now veer into a candidate's trajectory at the firm and potential exit opportunities should they not make partner. Firms have started to think about their associates as true assets that set them apart from their competitors – akin to the way they view their partner talent.
Accordingly, some partners have become more open-minded in competing for talent and are willing to consider associates that fall outside of their ideal profile. They may consider associates from lesser ranked firms or schools, or associates who have already made lateral moves, switched practice groups, or have a good reason for a gap on their resume. Some law firm groups have even hired associates who are in-house and looking to move back into private practice (a move that has become more common recently). Ultimately, firms are getting more creative in how they hire associates. They're also treating their existing associates better in order to retain them.
Long-term Implications for the Legal Profession
The dearth of good associate candidates today leads to many questions about the future of the legal profession. Will in-house legal departments continue to grow or have we achieved the proper balance of in-house vs. outside counsel? Will firms increase the size of summer and incoming first-year classes to grow more mid-level associates for the future? Where will future law firm partners come from and will it be statistically easier or harder to become an equity partner? Time will tell, but the future of the legal profession depends on maintaining a perpetual pipeline of talent.
* * * * *
This article originally appeared in Bloomberg Law, Big Law Business, March 21, 2017.
* * * * *
Michelle Fivel is a partner working both in the Los Angeles and New York offices of Major, Lindsey & Africa. Michelle has a successful 10-year track record of placing associates and partners in top-tier international, national, regional and boutique law firms as well as prominent corporations.
Robert Graff is a partner and recruiter in Major, Lindsey & Africa's In-House Practice Group, co-Managing Partner of the Atlanta office, and a member of the Energy Practice Group.