Big law’s future has become big news. On September 25, The New York Times published a special section that included several articles on large firms. Two of them were particularly interesting.
“Culture Keeps Firms Together in Trying Times” discussed the handful of large firms that have shunned the widespread eat-what-you-kill approach to partner compensation. The article focused on three firms, Cravath, Swaine & Moore; Debevoise & Plimpton; and Cleary Gottlieb Steen & Hamilton, all of which have retained lock-step compensation systems. For any class of associates, those who survive to partner continue advancing together throughout their careers.
“The only way a partner does better is if the firm does better,” Debevoise presiding partner Michael W. Blair told the Times by way of describing the behavior that follows such structural incentives.
Lock-step programs stand in sharp contrast to what goes on at most other big firms, which follow the approach to compensation that Dewey & LeBoeuf management called the “barbell” system: Lots of service partners on one side of the barbell balance out a handful of star partners on the other side. Then-Dewey partner Jeffrey Kessler rationalized the yawning equity partner compensation gaps this approach creates this way in an earlier Times article: “The value for the stars has gone up, while the value of service partners has gone down.”
Not Worth It
The Times quoted Cleary managing partner Mark Leddy’s answer to the Kesslers of the world: “People who want to be a star and make $10 million a year don’t fit in here. Breaking the lock-step system for them would be an unacceptable cost to our culture.”
Why does culture matter? There are many answers, but Major, Lindsey & Africa’s recent compensation survey may have identified an important one: almost 80 percent of partners in lock-step compensation systems are satisfied or very satisfied with their work. A closer look at the MLA survey reveals that the combined group of satisfied and very satisfied partners is about the same for lock-step as for non-lock-step firms. But the lock-step firms have a big advantage in the very satisfied group55 percent compared to only 26 percent for non-lock-step firms.
Satisfied Versus Very Satisfied
That leads to the second interesting article in the Times special section: James B. Stewart’s take on Cravath, where he was an associate in the 1970s. In “A Law Firm Where Money Seemed Secondary,” Stewart noted that all attorneys in his firm were intelligent, well-credentialed, and hard-working, but those advancing to partner had something else in common: They loved their work. It gave them a huge competitive advantage over those who didn’t. Returning to the MLA survey, I think Stewart may have captured a significant difference between the lawyers who are very satisfied and those who are merely satisfied: Attitudes about work affect performance.
Stewart also noted that of the 20 or so associates hired by Cravath each year, one or two might eventually be chosen to become a partner. He concluded that in the decades since he left, Cravath doesn’t seem to have changed much. He’s right.
But the rest of the large law firm segment of the profession has. In fact, many have modeled themselves after the Cravath attrition-and-leverage model, but have added an unfortunate twist away from lock-step compensation: Partners eat what they kill, so every year’s compensation review is a new exercise in self-justification. That incentive structure produces a much different culture; most of it is ugly and little of it enhances a firm’s long-run stability.
About the Associates
Before getting too misty-eyed over life at Cravath, it’s worth pausing on one more data point. In The American Lawyer‘s most recent Midlevel Associates Survey, Cravath placed 119 out of 129 firmsdown from 111 in 2011. The firm has been dropping steadily on the list since 2010, when it placed 84th out of 137. (Both Cleary Gottlieb and Debevoise fared much better.) Cravath also placed last among 111 firms in this year’s Summer Associates Survey.
A closer analysis suggests that Cravath associates do, indeed, enjoy their work. Unfortunately, they don’t seem to enjoy it enough to offset the things that place the firm near the bottom of the midlevel survey.
Cravath scored above the all-firm averages in work-related subcategories, including quality of work assigned, opportunities to work with partners, and level of responsibility. But it received low marks in other subcategories, including likelihood of staying two years, morale, communication about partnership prospects, and family-friendliness. Lock-step partner compensation isn’t a panacea, but imagine how much worse a place like Cravath would be without it.
Following the Money
Perhaps the most telling comment about the interaction between compensation and firm culture comes from former Dewey & LeBoeuf partner Ralph Ferrara, who spent 23 years at lock-step Debevoise before making what he described to the Times as “an imprudent decision” to leave: “In my heart, I never left Debevoise; it’s a place that I still love to this day.”
If the judge in the Dewey bankruptcy case approves the proposed former partner settlement plan presently before him, Ferrara will pay almost $3.4 million to help fund repayments to the firm’s creditors. Nevertheless, given the amounts he reportedly made at Dewey, his move in 2005 was probably advantageous financially. I wonder if the additional money was worth it to himand how his heirs will spend it.
Steven J. Harper is an adjunct professor at Northwestern University and author. He recently retired as a partner at Kirkland & Ellis, after 30 years in private practice. His blog about the legal profession, The Belly of the Beast, can be found at http://thebellyofthebeast.wordpress.com/. A version of the column above was first published on The Belly of the Beast.
