Was BigLaw a Bubble?

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Obviously, there's been a lot of talk lately about how 160k was over-inflated, and that recruiting hundreds of associates from lower-ranked schools was never sustainable, but was BigLaw a bubble?  I mean, why wouldn't it go back to its previous bubble-like form when the economy improves?  Bubbles are natural, but unsustainable, markers of rapid and sporadic economic growth.

["That One"]

Is biglaw a bubble? no  Was 160k over-inflated? YES.  The problem is that Biglaw's method of compensation is flawed.  Biglaw isn't a bubble of its own, it rides other bubbles.

[Resident CLS Troll]

Biglaw isn't a bubble of its own, it rides other bubbles.

Parts of it do.  Parts of it don't.

[CTL]

Biglaw has been around as long or longer than many of the companies who went down.  I don't think it is fair to say that it is critically attached to any particular bubble, just like it isn't attached to any particular industry.  Many firms are hit hard; many are hit less hard.   

[Matthies]

It will go back again, but I think this recession has proven that the Cravath model just won’t work anymore (I posted an article about how biglaw salaries are going down to 144k for many of this year’s associate class a few weeks ago).

Clients are going to get used to paying lower fees but expecting the same service. It will be hard to, in the future, say you should pay us more now that the economy is better for the name brand talent you paid less for when the economy was bad.

 It was never a sustainable system, its was too top heavy, it was eventually going to collapse in on its self you can’t continually increase starting salary when your revenue stream is drying up, and you will likely face a backlash if you try to go backwards in the “new economy” after things get better. The system worked before because each year brought in more income than the last riding the boom salaries could go up every year, that’s not longer the case, the market is constricting not expanding.

 Its all “value added services” now, not bill higher because we have X number of Yale grades working on your case. For a long time clients have been demanding more work be done by cheaper paralegal staff anyway, that’s not going to change once we go back to boom. They are not going to want to pay associate fees for work that can be done cheaper by staff, nor are they going to want to pay a premium for work done by a lawyer from one school over one from another. That model (and I think for at least some services, the billable hour) are gone.

[Resident CLS Troll]

It will go back again, but I think this recession has proven that the Cravath model just won’t work anymore (I posted an article about how biglaw salaries are going down to 144k for many of this year’s associate class a few weeks ago).

It won't work for most firms, but it might continue to work for Cravath and a handful of others.

[Jake_MONDATTA]

Absolutely it was a bubble inflated by financial services... especially in NYC.

Think about which law firms are hardest hit - those that were heavy into banking practices.  Look at the layoff numbers for firms like White and Case and compare it to firms at the top of other practices (e.g., Finnegan Henderson or Covington Burling).  

At the end of the day, stare Biglaw economics in the face and ask yourself if it makes sense.  First year and second year associates have great educations but have little real-world experience.  They do not make a great deal of money for firms and they certainly, on average, do not draw in business.  Does it make sense to pay these people $160k?  But it's not just the junior associates in Biglaw who were overpaid.  Legal secretaries for Biglaw firms in NYC make six figures.  HR people make six figures.  

Compare these numbers to their counterparts at brick and mortar businesses and you see how overvalued people in legal services have been.  A senior engineer at IBM is doing well if he's above $80k.  Managers of departments make around what second or third year associates have been pulling in.  Secretaries at Intel make less than $50k.  The head of the NIH makes around as much as the average Skadden associate, as does the chair of a department at MIT.  

[CTL]

Yea, I think biglaw economics make sense.  You're probably paying those people about the same as the senior engineer, if you compare hours.

[Matthies]

It will go back again, but I think this recession has proven that the Cravath model just won’t work anymore (I posted an article about how biglaw salaries are going down to 144k for many of this year’s associate class a few weeks ago).

It won't work for most firms, but it might continue to work for Cravath and a handful of others.

I don’t think the model will support a big firm any longer though, I could see a boutique of really smart top grads being able to justify the higher fees, but not a 500 person firm doing the same thing in the new economy, the demand, I think just won’t be there except in small numbers thus supporting smaller Crvath model elite firms with far fewer lawyers. 

[Resident CLS Troll]

It will go back again, but I think this recession has proven that the Cravath model just won’t work anymore (I posted an article about how biglaw salaries are going down to 144k for many of this year’s associate class a few weeks ago).

It won't work for most firms, but it might continue to work for Cravath and a handful of others.

I don’t think the model will support a big firm any longer though, I could see a boutique of really smart top grads being able to justify the higher fees, but not a 500 person firm doing the same thing in the new economy, the demand, I think just won’t be there except in small numbers thus supporting smaller Crvath model elite firms with far fewer lawyers. 

We just have different estimates on the amount of dropoff there will be in terms of demand.

Right now, we have a situation where corporations are trying to cut costs, so GC's are price conscious.  If we return to a healthy economy, GC's will become less price conscious and more risk averse in terms of covering themselves, which will lead to some movement back to the brand name law firms.

The scale of the movements, of course, can't be known in advance.