 | Tracking Key Shifts in the Legal Ecosystem |
|
|
|
Each week, the Law.com Barometer newsletter, powered by the ALM Global Newsroom and Legalweek brings you the trends, disruptions, and shifts our reporters and editors are tracking through coverage spanning every beat and region across the ALM Global Newsroom. The micro-topic coverage will not only help you navigate the changing legal landscape but also prepare you to discuss these shifts with thousands of legal leaders at Legalweek 2024, taking place from January 29 to February 1, 2024, in New York City. Learn more and register today: |
|
|
The Shift: Four Days In Office Reflects Big Law’s New Management Attitude The march by big law firms to mandate more time in the office isn’t only a logistical issue about where lawyers are working and billing hours. It’s a sign of a much larger shift in the legal industry, amid lowered law firm demand and some continued alarms of a potential recession. Gone are the days when law firms are throwing around six-figure retention or signing bonuses to talented associates. With some pointing to the end of the talent war, leverage has swung back to law firm management, which can make demands without fear of serious consequences from the associate ranks. After all, associate turnover is down. Amid lower transactional work, fewer associates are making lateral moves, and law firms can make more mandates without fear of losing too many talented lawyers. Right now, that’s the sentiment that has likely contributed to three top New York firms—Skadden, Arps, Slate, Meagher & Flom; Davis Polk & Wardwell; Weil, Gotshal & Manges—mandating their lawyers work four days in the office this fall. Meanwhile, other law firms are watching and evaluating their options. As Law.com reported last week, other law firms are expected to join them this year. It’s just a matter of time, as one law firm leader privately said, before the sentiment spreads across other elite law firms. |
|
|
The Conversation These three law firms insisting on four days in the office are among the New York elite, and they pay their associates the highest scale in the market. Many other Am Law 50 law firms also pay the top scale in the industry, starting at $215,00 for junior associates and reaching $415,000 for the most senior associates, not including year-end bonuses. If these three New York law firms don’t see talent pushback and large turnover rates, then other Am Law 50 law firms are likely to join them. The industry, for better or worse, often follows New York firms. In particular, the law firms that have the highest compensation scale and rely the most on their associate programs to find upcoming talent and fuel growth will likely be next in moving to four days. Investing millions into their associate programs each year, elite law firms are eager to train young lawyers closely, and those pushing to head back to the office frequently cite professional development, mentoring and training as key factors. “I believe these opportunities derive, in the first instance, from our collective presence in the office and, for our firm, simply cannot be cultivated as effectively in a remote environment,” said David Polk managing partner Neil Barr in a memo about the move to four days. Overall, it’s clear the trend for the entire industry is moving to more time in the office, whether it’s three, four or five days. Savills’ Law Firm Return-to-Office Survey, with about 70 firms participating in the survey conducted in mid-May, found that 90% of firms surveyed implemented a policy regarding in-office attendance, with 50% recommending a level of attendance and 34% mandating it. The majority of firms recommend or mandate attendance three days a week. In comparison, in a return-to-office survey Savills conducted in early January, 34% of firms mandated attendance firmwide for three days a week but a lower percentage of 33% encouraged it, for a total of 67%. |
|
|
The Significance The New York law firms moving to four days and any others that join them are operating from a much different position than the past two years, in that management at such firms have more leverage to make such demands. Their reputation undoubtedly helps support their hard-line stance. And if an associate backs out because of the policy, the firm may not need to quickly replace him or her. Big law firms can afford to see some lawyers leave, especially when many firm have overcapacity this year and some have had multiple rounds of performance review cuts within one year. Associate lateral moves dropped by two-thirds in 2023’s first quarter compared to the same time last year—1,551 versus 4,547, data gathered by Decipher Investigative Intelligence shows. While partner moves have also trended downward from last year by 15%, the first quarter of this year was still the second busiest first-quarter for partner moves from 2017 to 2023—suggesting a hiring strategy focused on rainmaking partners at a time of financial constraint, industry analysts have said. Indeed, corporate work and large M&A deals—some of the largest drivers to Big Law profits— continue to be depressed. Global M&A hit a three-year low in the first half of 2023, with $1.3 trillion in deals announced in the first six months of the year, a 37% decline year-over-year, according to data from Refinitiv. The number of deals done, roughly 27,300 in total, saw a 9% decline year-over-year. The Information Want to know more? Here's what we've discovered in the ALM Global Newsroom: The Forecast There are big exceptions to office mandates in the industry. While Wall Street firms are preparing to mandate four days in the office this fall, a handful of large West Coast firms aren’t following suit. And beyond some in the Am Law 50, it’s very likely the whole Am Law 200 will not make the shift. Some firms in other tiers may even take advantage of the differences to recruit and retain talent they otherwise could not attract. Those firms that rely more on laterals for growth instead of the associate ranks, have lower pay scales or recruit talent based on office flexibility will likely keep their hybrid models. Yes, some lawyers will leave those law firms that are increasingly mandating more time in the office. But as long as demand remains depressed, especially in transactional work and big deals, there’s less work to go around and the “war for bodies” is over, other elite firms will have leverage to make office attendance mandates. Whether management will keep this leverage will depend on forces in the broader economy. Will deal work rise again close to 2021 levels? Will business leaders feel less concern over interest rates or inflation and feel more confidence to make deals? Or is the level of demand—and management leverage—now the new normal? |
|
|
|
