Kellie Schmitt
The Recorder
November 2, 2007
With soaring associate salaries, rising litigation costs and general counsel's resistance to it all, something has to give.
While some firms quietly turn to contract attorneys or even ship grunt work overseas, McDermott, Will & Emery plans to create a new tier of attorneys -- think of them as permanent contract associates -- to handle lower-end tasks at lower billing rates.
"In a market where high compensation for lateral partners, lateral associates and associates are creating pressures, we're trying to bring the best quality service at the lowest price to our clients," said Robert Mallory, a partner in the L.A. trial group. "We live in a very competitive world."
First-year associates at big firms now earn $160,000. Meanwhile, electronic discovery has dramatically increased the amount of basic work that usually goes to those high-priced associates.
"This is a topic of great importance, since the cost of document review has become intolerable for everyone," said David Balabanian, the head of Bingham McCutchen's litigation group.
While hiring contract attorneys is nothing new, creating a second class of full-timers is.
It's probably a smart move, said Susan Hackett, the general counsel of the Association of Corporate Counsel. General counsel already fed up with high legal costs have been known to hire contract attorneys themselves or force firms to hire the cheaper outside help.
"Firms may be starting to think, 'Hey, we might as well meet the demand instead of being corralled into working with people we don't know and whom we don't make a profit from,'" Hackett said. "I think McDermott is on a good mission: 'Let us find a way to make the cost more reasonable so you'll continue to hire us.'"
At a firm retreat in October, the 1,000-lawyer firm decided to create a cadre of staff lawyers outside the partnership track who will be paid less, work less and charge less per hour. Having a flexible separate staff to move from big litigation to big litigation could help McDermott make the best use of its high-priced associates.
The idea is that the new hires -- the firm is looking into starting with a pilot group of 15 -- will be lawyers "with good pedigrees" who have practiced for a few years but don't want to deal with big-firm hours, Mallory said. Instead, they'll put in more like 30 to 40 hours and be paid something like 25 percent less, though an exact pay range hasn't been decided.
"They'll have a status within our structure that's brand-new," Mallory said. "I don't know what we'd call them -- this is a new animal."
These attorneys will probably be housed in a similar fashion to accounting firms, rotating desks with no home base.
The new class of attorneys will probably take some of the more mundane tasks like document review off the plates of more expensive associates on the partnership track.
"The idea isn't that this will be a training ground," he said. "This isn't a path into the firm."
REACTION AND IMPLICATIONS
Hackett predicted that McDermott's plan could have broad-reaching effects, both positive and negative for associates.
It could free associates to work on more interesting matters, but it may also threaten their salary leverage -- and their jobs.
"Unless new work is generated for associates in the regular tier, it could make them nervous: 'I might be extinct in this firm,'" she said.
Mallory said he doesn't think associates will feel threatened by the new group.
"I believe it will be embraced because it will take some of the more routine work they'd be doing off the table," he said.
Hackett said the McDermott program could create more options in big law firms, where young attorneys could decide whether to gun for partnership or take a more lifestyle-oriented approach to big law.
One consultant noted that while contract attorneys are nothing new, McDermott's plan to openly use lower-paid attorneys who aren't on the partnership track makes an interesting statement.
"I think firms worry about whether it will affect the perception of their high-quality brand and what it takes to be a lawyer at their firms," said consultant Peter Zeughauser. "They've obviously gotten over it, because they do it, but they aren't ready yet to tell the world."
COST CONSCIOUSNESS
McDermott isn't the only firm scrambling to bring down legal bills without cutting profits.
"If litigation becomes uneconomic," said Bingham's Balabanian, "everyone's going to suffer, so it's a shared challenge."
New York-based SQ Global Solutions offers to ease litigation burdens by sending low-end legal work -- such as document review -- to lawyers in India. Alan Gershowitz, the former Skadden attorney who runs the company, said law firms often turn to SQ Global on big-volume cases. It's like using contract attorneys, only cheaper: Indian attorneys bill at $25 to $35 an hour, a dramatic savings that outside firms may -- or may not -- pass to clients.
But William Urquhart, a partner with Quinn Emanuel Urquhart Oliver & Hedges, questioned how much law firms could or would utilize that approach.
"In high-stakes litigation, it would be giving up too much control," Urquhart said. "A document that might seem harmless might be the key to victory, and we'd be really fearful that sort of thing would be missed."
Reed Smith's Janet Kwuon, a partner and director of complex litigation e-discovery, agreed. "There is this pressure to keep cost down, but at the same time, if you don't do it right, there's a huge sanctions risk."
Balabanian added that missing something could create enormous problems, though he predicted the practice could catch on.
"In time, vendors could establish themselves and their track records, and it could be just like using a reporting service," he said.
Hackett said clients will continue to put pressure on law firms to find solutions, whether it's contract attorneys, outsourcing or a plan like McDermott's.
"The cost of litigation is a great concern as associates become more and more expensive," she said.
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