Above image generated by using Dall-E artificial intelligence
Although vast amounts of students graduate each year from law schools and universities, the talent pool for top law firms remains limited. Most graduates have no interest in working in Big Law, and of those who do, a number does not meet the quality criteria.
As a rule of thumb less than 10% of all law graduates falls within the Big Law target group for recruitment. It seems that with Gen-Z this number is declining. This means that in most jurisdictions, there is more demand than there are talented graduates entering the market. Hence the ‘war for talent’. Law firms go through great lengths trying to identify top talent early on and spending substantial budgets (including offering salaries up to $190.000) luring them to their firm.
Look at the ‘Careers’ sections of the websites and one could be inclined to believe that joining a top-law firm equals working in paradise. There is just so much emphasis on individual career paths, mentoring, diversity, personal development and super interesting work, that it is easy to forget that in reality it is just hard work, like it was pointed out in a presentation that transpired from Paul Hastings:
It is hard work
Although the prevailing sentiment after publication of this slide was outrage and denial, I don’t see much wrong with it. Anyone pursuing a career at the top end of the legal market can only succeed by putting in a lot of effort. If you cannot stand the heat, get out of the kitchen.
Having said that, this does not mean unfair and unhealthy working conditions. In February 2021 trainees at Goldman Sachs humbly requested management to be allowed to work slightly less than the about 100 working hours a week against an average of 5 hours of
sleep:
Fortunately, working conditions in law firms are nowhere near those at Goldman Sachs. However increasingly young lawyers are quitting the industry because of Uncaring Leaders, Unsustainable Performance Expectations and Lack of Career Development (McKinsey: Great Attrition, Great Attraction survey 2021)
Generation Z
Young lawyers entering the legal profession today are mostly born after 1997, the year that marks the beginning of Generation-Z. The first started during the Pandemic when there was hardly anyone in the office and at the same time workload was very high.
Law firms, like other industries, seem to be confused and spooked by this new generation which is believed to have different priorities-in-life and no ‘old-school work ethos’. While it remains questionable if this is a fair characterization, many law firms struggle with how to ‘manage’ these young professionals. It is hard to count the huge number of reports, articles, conferences and workshops that have been devoted to Gen Z in the legal industry alone.
This can probably be traced back to the perceived gap in the mindset and values of the partners – Baby Boomers and Generation X – and those of the new recruits. The former claim they had to work hard for their achievements, the latter were allegedly born with a silver spoon in their mount.
Although this characterization is largely a caricature, Gen Z is different in at least one crucial aspect: young people resent being ‘just a cog in the billing machine’. For them the purpose of life is not helping the partners make millions. They are in it for themselves, not for the partners. Law firms are increasingly aware of this, hence the wordings on the career sections of their websites: “we value you as a person”, “we will invest in your personal growth and development”
Preferring Profit over People
During the Pandemic, profits soared across the legal industry. Demand was plentiful and costs were low. For most law firms 2020 and 2021 have been the best years on record. Last year, 2022, could not have been more different. The world entered in a global economic crisis. Inflation became high and money tight. At the same time costs substantially increased.
All this impacted partner profits and that is where problems arise. Unlike other entrepreneurs and businesses, partners in law firms have for decades only experienced a steady growth in profit. To the extent that even slowing growth would lead to ‘panic’. A decrease in profit, in the minds of many partners, would be totally unacceptable. Now this is the reality for the first time. Welcome to the world I’d say.
For a growing number of law firms, the prospect of slightly lower partner profits, compared to the year before - but still above 2019 - became unbearable. To ‘rescue’ the profits, law firms have started to layoff junior associates. The trend is to quietly make cuts through the review process. This year’s "aggressive" performance reviews* are resulting in an increasingly blurry line between layoffs and review-time cuts. On social media associates are buzzing with chatter about layoffs and cuts at many firms. No need explaining that for Gen Z social media carries more weight than law firms’ website ‘career’ pages.
The Profit is in the People
I have said it before and I will say it again: for a law firm people are the most important asset. The business of law is people’s business before anything else. No law firm can gain an advantage over the competition based on legal knowledge. It is the non-legal skills and attributes that make the difference. The law firm that is the best in attracting, retaining and developing talent is the one that is going to win.
The knee jerk reaction to cull talent to save the profit might turn out to be a costly mistake. These firms might save some pennies on the short term, but they will suffer reputational damage for the years to come. There is a ‘war for talent’ and Gen Z does not want to be just a cog in the partners’ money machine. There is no better way to highlight that is ultimately what they are as by firing them at the first signs of headwind. Layoffs are short sighted and selfish.
The same thing happened after the 2008 Banking Crisis and it became something those firms bitterly regretted. When the economy picked-up they found themselves understaffed and unable to attract new talent in a buoyant market. The difference is that at that time it were the Millennials, who tend to be more forgiving than Generation Z…
Invest in talent development
For commercial companies it is normal that revenue and profitability show variations over the years. Even Goldman Sachs has good years and bad years. Law firms partners must understand and accept that the legal industry cannot remain an exception and that sometimes a decline in profit is just a consequence of the economic reality.
Like other entrepreneurs and businesses, law firm partners are well advised to focus on cumulative profit over the years. In today’s economy it is probably smarter to invest in talent, even though it impacts this year’s profit. Those law firms that retain their talent and invest in developing legal and non-legal skills will be tomorrow’s winners. Taken over a number of years these firms will have a better average profitability.
TGO Consulting has developed a methodology that helps law firms with setting up a sustainable talent development program for all lawyers, juniors and partners alike.
*Note: Structural periodical performance reviews are essential and should be standard practice at any law firm. The purpose of such reviews is to provide the associates with open, honest and constructive feedback, aimed to learn and improve. Feedback should never come as a surprise or ‘out of the blue’. Associates should get sufficient time and coaching.