Changes in Early Law Practice
posted by Deven Desai
As I have written elsewhere law schools may wish to open teaching law firms. Some recent changes may further support this possibility. Apparently some medium size forms are abandoning summer associate programs because “the difficulty of estimating its hiring needs two years in advance so [a firm] can extend some of those associates job offers is more trouble than the program is worth.” In addition, some large firms continue to expand outsourcing the simpler side of associate work such as “small commercial contracts that are too expensive to carry out in the U.K. or in-house” (if that is so in the U.K. the same is likely true or will be true in the U.S.). If the project succeeds, it “could be expanded to cover larger-scale work such as due diligence.” According to the article South Africa and India are the main countries where the work is taking place. Anglo-based legal systems and English fluency makes for a rather competitive market. Like outsourcing in technology, however, the simple hand off to a separate firm may not be the best move. Clifford Chance has an office in India which it manages directly and may expand. With global firms growing that model may dominate. Nonetheless, just as firms affiliate other firms on big cases, well-managed outsourcing offices (most likely run by U.S. trained attorneys for services to U.S. clients) would present an interesting and viable option for smaller firms that cannot afford to open their own offices.
So the added value from U.S.-based attorneys will be the ability to provide services that require local, personal service. That will mean embracing the early training that comes from work at places such as prosector and public defender offices so that one has the edge in at least litigation. As for corporate work, if anyone can offer the names of analogous positions, please share them as the usual contract and diligence work seems to be moving away.
Image: The Red Fort, Delhi by Alex Furr
Source: Wikicommons
August 18, 2008 at 12:50 pm
Posted in: Law Practice
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Responses (3)
A.J. Sutter - August 20, 2008 at 1:08 pm
I think it’s quite troubling that small commercial contracts are being outsourced. How are US associates supposed to learn how to help their clients in their everyday business? Small commercial contracts are far more numerous than lawsuits, M&A or IPOs (remember those?). What may seem like a simple agreement is not, if it’s the first time you’ve done it. Even supposedly simple things like non-disclosure agreements are much more subtle than most people realize.
The “analogous position” for transactional work is: junior associate at a law firm. Very few companies hire in-house lawyers right out of school, absent some personal connection. I recall interviewing lateral associate candidates in the mid-1990s at a multinational firm; when I asked how many small deals they’d done, say even a couple million bucks, several replied that their firms never took on deals worth less than $100 million. They were useless to help our clients. Nor would outsourcing have been a good solution in that case. Many clients, especially from non-”Anglo-Saxon” countries, like talking to the lawyer who’s doing the work.
Small contracts could be kept in the States if firms weren’t so greedy for fees, and charging high hourly rates for their most junior attorneys. A better solution is to charge less for the simple stuff, but at least let the firms’ associates learn about real transactional work. The outsourcing model may be good for profit-maximizing partners and some clients in the short-term. But it results in a kind of Taylorism for associates, and drastically limits their skills and development. Sooner or later, clients are going to suffer from the gaping holes in their expensive lawyers’ skill sets and general business understanding.
Deven - August 20, 2008 at 2:01 pm
A.J.
I kind of thought you might chime in. I agree that this one poses a major problem for transactional work training. I was fortunate in that my in-house stint allowed me to learn transaction fundamentals as part of the general work I did.
Maybe a firm could build a model where it specializes in the fundamentals. The costs of continual training might go against that model but if a smaller firm became a place that larger firms referred business, it may work. I know large litigation firms sometimes give business for small cases to smaller firms run by former associates.
Have you heard of such a thing in transactional work?
Of course my idea of a teaching law firm seems to fill this gap: offer good service for those who can pay but do not need the mega-firm service/cost. Still I wonder whether the current smaller firms have trouble getting the high volume work or whether they don’t want it from some sort of practical issue.
A.J. Sutter - August 21, 2008 at 7:04 am
There’s kind of a precedent for a specialist practice — but it didn’t work out. During the dot-com period, when firms in Silicon Valley were so busy they were turning business away, Orrick was less successful at attracting start-ups and VCs than many other firms its size. So it and Venture Law Group (a bunch of Wilson, Sonsini secessionists) announced an alliance. As I recall it, VLG would focus on financings, IPOs and M&A for venture companies, while Orrick would do some or all of the day-to-day work for VLG clients. As I recall the press release, Orrick seemed to be getting the “routine” or boring stuff. It wasn’t good for Orrick’s face, in that context; many of us at other firms were chuckling about it at the time. Nor was it good for VLG’s, since it made them look like they were too snooty to be dirtying their hands with their clients’ operational work.
Neither the relationship nor the division of labor proved to be stable. Orrick and VLG explored a merger a few years later, but didn’t consummate; VLG later merged with Heller, Ehrman; and a while after that a number of ex-VLG attorneys left the merged firm for Orrick. Quite understandably, Orrick wasn’t content to just do the “boring stuff.”
Referrals to small firms of course do occur, but usually, as you suggest, when there’s a pre-existing personal relationship between the big firm attorney and the small one. Same thing with some companies with big in-house groups, like Cisco, who outsource to solo contractors: it’s much easier to get that business if you were an alum of that law department or had some other prior relationship. (For many tech companies, this is probably more common for patent prosecution than for actual deals, BTW.) For referrals from big law firms, the small firm has to be pretty small, so that (i) the referring attorney feels comformatable the small firm isn’t going to try to steal the client, and (ii) the small firm isn’t tempted to kill the goose that lays the golden eggs. Still, don’t count on a steady flow of such work. If a client has a stream of those small deals and isn’t already a Cisco, it will eventually hire an in-house lawyer to handle them. I’ve had this kind of solo practice at a couple of points in my career; it’s pretty much impossible to have a steady revenue flow throughout the year. Drought/monsoon is more like it.
Since the flow of small deals from any one client will be quite intermittent, at least eventually, I do think that to make the small deal practice viable you’ll usually need access to a larger and more diversified pool of clients — i.e. a mid-size to big firm deal flow. Those firms should find a way to harness that business to the advantage of developing their younger attorneys’ skills.
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