To Survive, Firms Will Have to Get Serious About Costs, Get Off the Lockstep Treadmill

by Valorem Law Group LLC

The recent reports from Citi and Wells Fargo indicating that law firms are fighting a losing battle in the expense-versus-revenue war can hardly be surprising. The economy continues to sputter, clients look to reduce their own expenses (which means less revenue for law firms), and law firms already have cut to the bone in recent years in efforts to reduce expenses. Citi’s Dan DiPietro noted that “expenses still continued to grow at a faster pace than revenue” in the most recent quarter. There just is no more room to cut expenses. Or is there?

In a recent post on his Law Firm CFO blog, Mike Marget identified eight ways many law firms could reduce expenses. The eight suggestions are good ones, but the problem is that they do not attack the core of the expense problem. There is an old saying that when there is an 800-pound gorilla in the room, be sure to introduce him. It is only a fool who ignores the obvious, yet that is precisely what most law firms are doing.

The 800-pound gorilla that firms refuse to address in the cost conundrum is their personnel model: The two biggest expenses for law firms are personnel and real estate. While the economic slowdown has reduced the amount of turnover a bit, firms nevertheless continue to hire associates and promote them year over year or force them out of the firm. Consider that the legal industrial complex—a Marget phrase that I just love—has continued to add head count while demand declines. Billable hours, the silly metric most law firms use to judge productivity, is “well below historical levels for all segments [partners, associates, nonequity lawyers]”, according to DiPietro, and firms are feeling increasing pressure to discount their fees. Yet firms continue to send partners to law schools and bring in a supply of new lawyers, pushing the previous year’s new entrants up a year in seniority (along with everyone else), while the unfortunate are shown the door.

No business leader thinking for the long-term would design a business this way. A leader would find absurd the practice of routinely pushing experienced personnel who have proven themselves capable of performing a set of tasks up to perform a new set of tasks that others already are capably performing. The annual turnover of personnel at so many levels would be an anathema. In the firm designed by a true leader, the firm would define the work to be performed and segment it. The firm would hire cheap labor to do the menial work and pay more talented people more to fill the middle-management positions and reserve higher pay for higher performers. They would never pay someone more simply because they have survived a year and new class of entrants is coming in behind them.

The corollary to this issue is associate compensation. Associates are not paid for their actual value, they are paid for potential. But in the business world, few people are paid for potential, but instead are paid for the value of their category of job. The market values certain jobs less than others. The work that new associates do always needs to be done: law firms simply give this work to new entrants every year. But the work that is actually being done is the same, and could be done by any number of lawyers. Because there are more job-seekers for such positions than there are positions, the wage for such work should be lower than it is. But firms hire graduates they believe are overqualified for such entry-level work because they believe such lawyers will become better senior lawyers and eventually partners. At least that is the theory behind the compensation decisions for young lawyers. But as with nonlegal businesses, people will move in response to opportunities, an outcome most firms have experienced by either gaining or losing associates, or both. In other words, the premise for the need to compensate recent graduates at high levels is suspect.

If firms restructured by employing different approaches to personnel, they could dramatically alter their cost structures. You’ll know firms have decided to get serious about reducing costs when they dramatically alter their personnel structure. Until then, they will continue to run slower on a treadmill that is picking up speed and incline.

Patrick Lamb is a founding member of Valorem Law Group, a litigation firm representing business interests. Valorem helps clients solve their business disputes and coping with pressures to reduce legal spend using nontraditional approaches, including use of nonhourly fee structures, coordination with LPOs or contract lawyers, joint-venturing with other firms and implementation of project management tools to handle lawsuits or portfolios of litigation.

Pat is the author of the the book Alternative Fee Arrangements: Value Fees and the Changing Legal Market. He also blogs at In Search Of Perfect Client Service.

This article [material] is reprinted with the permission of


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Valorem Law Group LLC | Attorney Advertising

Written by:

Valorem Law Group LLC

Valorem Law Group LLC on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.