Supply, Demand, and the Changing Economics of Large Law Firms

Article excerpt

     A. The Transformation: The Tournament Intensifies
     B. The Effects of the Transformation
        1. Billable hour escalation
        2. A lack of racial and gender diversity
        3. High associate attrition rates
     A. What Reforms Do Clients Want?
     B. Will Clients Push Firms to Reform?
     C. Will Firms Comply with Client Demands?
     A. What Reforms Do Students Want?
     B. Will Students Push Firms to Reform?
     C. Will Firms Comply with Student Demands?


In 1991, Marc Galanter and Thomas Palay declared a "crisis" in the legal world. (1) Their landmark book, Tournament of Lawyers, described how structural changes within the profession forced America's largest law firms to abandon professional norms in pursuit of ever growing profits. (2) Galanter and Palay's arguments confirmed fears that the legal "golden age" of the 1960s had given way to a model based on unchecked competition and growth. (3)

In spite of these developments, and partly because of them, the legal profession also faces an exciting new opportunity. (4) The shift towards commercialism has introduced external market forces to an industry long insulated from them. (5) If mobilized properly, the consumers of corporate legal services can use their new market power to address some of the most critical problems facing the elite firms, especially the lack of diversity within firm leadership, rising associate attrition rates, and an over-reliance on the billable hour. (6)

The "professionalism" that dominated elite firms in the middle of the twentieth century undoubtedly encouraged civility and trust between lawyers. But it also operated as a mechanism for shielding the narrow financial interests of big-firm partners and for marginalizing lawyers based on religion, race, and gender. Until recently, these norms were so deeply entrenched in large firms that outsiders could not seriously challenge the inequities and inefficiencies of the existing system. In today's market-driven model, however, two groups have developed the leverage necessary to push for change: general counsels of large corporations, who purchase the labor of large law firms, and elite law students, who supply this labor. They can squeeze firms simultaneously from the supplyside and the demand-side to correct some of the excesses and shortcomings of the current economic model.

On one side, corporate decisions about hiring outside counsel determine the demand for legal services. (7) The rapid expansion of elite firms over the past three decades has created intense competition for premium legal work. Corporate legal departments can now choose between a wide array of elite firms, which provides general counsels with substantial leverage to negotiate retainer agreements. These in-house lawyers seek to hire firms that are productive, efficient, and diverse, partly because they believe these traits are good for business, and partly because they worry that law firms lag so far behind the rest of the business world on such metrics.

On the other side, the rapid increase in firm size has made law firms increasingly dependent on hiring an escalating number of new elite (8) law student recruits. Most prestigious law schools have not increased their enrollment to meet the rising demand, (9) which has created scarcity in the labor market for new elite law graduates. One well documented effect of this scarcity has been spiraling entry-level salaries, although this is not the only consequence of the tightening market. Increasingly, new elite law graduates are seeking more than well paying jobs; they want positions at companies that maintain a diverse workforce and that respect the balance between work and family.

A unique set of economic conditions has created a buyer's market for in-house counsel and a seller's market for elite students. …