In the boardrooms of big law firms. To begin with we have a surplus of lawyers, at least lawyers who will work for nosebleed hourly rates.
Which is a lot of 'em.
Meanwhile, law schools keep disgorging new litigators like there was a need for them.
Over the past decade, the number of law-school students has also steadily increased, as universities have opened or expanded their schools. Law schools tend to be moneymakers: They're cheap to set up, and tuition runs high, even at poorly rated programs. Thus, universities have added them on with relish, and the list of approved law schools has increased 9 percent in the past decade, to 200. That means that the number of new lawyers minted every year has not stopped growing, either: Law schools awarded 44,004 degrees last year, up 13 percent in a decade.I've always thought most people were panicked by outlier cases into over-lawyering. (And for that matter, over-accountanting). But my risk threshold is mine, of course.
But the prospects for those legions of new lawyers have been grim, a fact hardly unbeknownst to them. As I reported this fall, in the past few years, young lawyers faced a glut of competition from other legal professionals; plummeting wages; a reduction in openings in and offers at big law firms; and cripplingly high student-loan debts. When the recession hit, thousands of young lawyers suddenly found themselves trying to work off six figures of debt in pay-per-hour assistant gigs. Granted, things are looking better. But the National Association of Legal-Career Professionals still cautions that "entry-level recruiting volumes have not returned to anything like the levels measured before the recession." [More]
But for whatever reason, the market isn't great for billing the big bucks. [Note the opening sentence below: Dept. of Duh!]
When not paid by the hour, lawyers’ approach to their work changes, said Carl A. Leonard, a former chairman of Morrison & Foerster who is now a senior consultant at Hildebrandt International, which advises professional services firms.I'm probably crossing the line into simple lawyer-bashing, but I have always found it hard to figure out what good most of their "work" really is. I think much of that value comes from our inability to judge risks anywhere close to objectively.
In one case, he said, Morrison & Foerster negotiated a fixed fee for defending a company in court, covering work up to the point of a motion for summary judgment.
On top of the fee, if the case settled for less than what the company feared having to pay if it lost in court, the law firm got a percentage of the amount saved. The arrangement made sense when the goal was to resolve the dispute quickly, Mr. Leonard said.
Lawyers on the case negotiated a settlement for much less than the client’s worst-case number, Mr. Leonard said. “The effective hourly rate was something like 150 percent of our hourly rates,” he added. “We made money, the client was happy.”
In litigation, firms that charge by the hour can suffer if they are too successful and end a lawsuit — and the stream of payments from continuing work — too quickly. One law firm that recently collapsed, Heller Ehrman, was hurt in part because a number of cases had settled.
That collapse highlights the risk to law firms experimenting with other payment arrangements: If lawyers set too low a price, they lose money. Many lawyers may not be good enough businessmen to pick the right price, said Mr. Krebs, of the Association of Corporate Counsel. [More]