Wednesday, January 23, 2002

Working 7/24, that's no way to make a living: The brutal bottom line in a law firm is that income is based entirely on the number of billable hours its lawyers generate, so partners have a real incentive to weed out low-billing associates

Financial Post

George is a dream associate. He has handled difficult cases, often with good results, volunteers for extra work and can regularly be found at the office nights and weekends. What's more, he has a bright, engaging style and is well liked by other lawyers.

So, in 1993, when researchers approached partners at two major law firms in the United States and asked them to evaluate George's partnership potential, about 86% of them said they would provide at least "moderate" support for the fictitious associate's promotion.

Anyone who has worked in a law firm might guess how much support George's application got when partners were told in a follow-up survey that he had taken a month of leave after the birth of his son and, upon returning to work, there was a marked reduction in his billable hours

The proportion willing to offer George "heavy" or "very heavy" partnership support dropped by nearly one-half, to 18%. About 26% of partners said they would provide Daddy George "little" or "very little" partnership support -- versus 14% in the case of Workaholic George. These numbers explain, in a nutshell, why so many law-firm lawyers live stressed, unhappy lives. A firm's income is based entirely on the number of billable hours its lawyers generate, so partners have an incentive to weed out low-billing associates.

"I bill about 2,400 hours per year, which translates to more than 3,000 hours of actually being in the office," a lawyer at a large Toronto-based firm said on condition of anonymity.

"Technically, the firm tells me I only have to bill 2,000, but that guideline is usually disregarded. In deciding whether to spend the marginal hour at home with the children or in the office, most associates will choose the office. You're scared one less hour will hurt your career."

Even associates who have no desire to make partner feel pressured to work long hours.

"It turns out to be a collective choice problem," says Robert Gordon, a law professor at Yale Law School who specializes in the history of the legal profession. "The high-earning people who like to work hard resist [a shift to fewer hours].

For these people, both at the partner and associate level, the firm is their life. These are the compulsive workaholics. They threaten to exit and go elsewhere if [the workload expectation] is reduced. So the entire organization ends up being driven by priorities that most of its members don't share."

For much of the non-workaholic silent majority, the result is a high burnout rate and low job satisfaction. Based on a study of 121 lawyers, Jean Wallace, a professor of Sociology at the University of Calgary, concluded in 1999 that Calgary's law firm associates work an average of 61 hours per week. Only 17% of the surveyed lawyers reported they worked as hard as they did by choice. More than 80% pointed to external pressures imposed by partners and clients.

Donna, a corporate lawyer who recently left a Montreal law firm for a less demanding job as general counsel at a private company, said she made her decision after observing the ravages law-firm life imposed on her boss, an eight-year corporate associate who was then billing as many as 300 hours per month.

"This guy completely lost perspective," she said. "Some seed was planted in his mind that ruining his life was what he had to do to become partner. His wife suffered. His kids suffered. His health suffered. He gained a lot of weight. The guy never does any exercise. He says he has no time.

"He made partner after I left," she added. "So I phoned him to congratulate him. I asked, 'Does this mean you're going to stop working so hard?' And he said, 'Just the opposite. I've got to prove I deserved it.' "

Adrian Hill, executive director of the Canadian Bar Association's Legal Profession Assistance Conference, is concerned about lawyers' work levels.

"When I was articling at a large national firm 30 years ago, the expectation was that a lawyer would produce between 1,200 and 1,500 hours per year of billable time," said Mr. Hill. "These days, that same firm would expect between 1,600 and 2,600 hours."

You have a similar situation for small-firm practitioners," he adds. Real estate, uncontested divorce, small claims work, criminal work, collections and even wills and estates all bring in such low prices that there is [barely any] profit margin. That means a lawyer who is trying to pay his overhead and support his family has to do a very large volume of work to break even.

According to Ron Daniels, dean of the University of Toronto law school, the problem stems from the simple fact that a lawyer's productivity is measured according to the time he spends on a problem, not his ingenuity.

"In almost every other industry, it would be considered perverse if you billed a customer for a good or service on the basis of the amount of time that went into that good or service rather than the value [to the customer]," said Mr. Daniels.

Heavy workloads have taken their toll on lawyers' quality of life. According to data compiled by Mr. Hill, lawyers are three times more likely to become alcoholics than members of the general population, and six times more likely to commit suicide. Women often find the law firm grind especially unpleasant. Female lawyers typically work just as hard as their male counterparts, but are generally more alienated by the competitive ethic that keeps associates on the treadmill.

In Prof. Wallace's study, 69% of male lawyers said they would continue practicing law if they won the lottery. For female lawyers, the figure was 50%.

"In the law today, people are typically given only two options: Perform as that ideal worker who works 24/7 or wipe out professionally," says Joan Williams, a professor of law and director of the program on gender, work & family at the American University, Washington College of Law in Washington. "It's the imagery of the go-getter. It's very masculine, and has to do with how much hair you have on your chest. If you're a real man -- that's measured in the number of hours you work."

"It's a macho thing to stay late," Donna told me. "It's a macho thing to complain about working hard. That's one of the reasons I quit. I am so not into that."

To Prof. Williams and other experts who have studied the legal profession, the dissatisfaction many lawyers feel illustrates a seeming failure in the labour market: Many lawyers would gladly take lower salaries in exchange for a smaller workload, but they are often unable to do so without making painful sacrifices, such as moving to a less prestigious firm or taking on less interesting cases.

The idea of market failure, and Prof. Gordon's identification of a "collective action problem," is borne out by the aforementioned 1993 survey with case study. In one question, associates were asked to pick among three hypothetical options: (a) a 5% decrease in hours at their existing salary; (b) a 5% increase in salary while maintaining their existing workload; or (c) a 5% increase in workload and a 10% increase in salary. Just over 65% of respondents picked the 5% workload reduction under option (a). Yet when the associates who picked option (a) were subsequently informed (falsely) that a majority of their co-associates had opted to increase their hours, about half the option (a) group switched their vote to (b) or (c). The switch meant that the overall proportion of associates who opted for a reduction in hours fell from roughly two-thirds to roughly one-third. Thus does the competitive dynamic undermine the true majority will.

But partners at large firms identify another reason for heavy workloads: greed. Among associates, earnings expectations have skyrocketed in recent years.

In Toronto, Canada's most expensive legal market, for instance, first-year lawyers at the leading firms now earn more than $90,000 annually. The only way law firms can pay such high salaries and simultaneously maintain partner profits is to extract high revenue from each warm body.

For large law firms, the traditional back-of-the-envelope business plan has revenue being divvied up between overhead, associates' salaries and partner profits in roughly equal measure. But in the late 1990s, associates began to demand -- and started to get -- a larger chunk.

"Silicon valley was attracting a lot of lawyers, primarily from Los Angeles, New York and San Francisco law firms," says a partner and a member of the associate compensation committee for a large Canadian law firm. "As a result, there was a shortage of lawyers in both California and New York. So firms [in both states] hiked their salaries to stem the exodus. The New York firms also became aggressive in trying to recruit Canadians. The market was so hot, they were getting lawyers wherever they could. [To compete] the large Toronto firms had to radically increase their first-year salaries.

"In terms of [the ratio of firm income] to associate salaries, the target has historically been 3:1," he adds. "But it's now more like 2.6 or 2.7. The goal is to get it back to three."

Of course, getting "back to three" will likely mean, among other things, longer hours for high-earning associates.

"I talk to a lot of people straight out of law school," says Jessica Abrahams, a partner at Powell Goldsetin in Washington, who spent part of New Year's Eve at the office. "It always makes me laugh when they say, 'Oh, you know, I'm going to such and such a firm because they're going to pay me an extra $10,000.' I say to them, 'You'll get the high salary. But be careful what you wish for. One way or another, they're going to make you earn that money.' "