Clients Don't Care About Lockstep

by lawshucks on December 19, 2009

Earlier this week, Holland & Knight became the most-recent firm to break out of lockstep.

We’re mystified by the hoopla.

Clients aren’t complaining about lockstep. They’re complaining about value; they’re complaining about the exorbitant rates being charged for work that is either of little marginal utility or is simply too expensive relative to the skillset required to perform it.

After the jump, we use H&K as an example of why ending lockstep doesn’t solve firms’ fundamental problems.




Before this trend gets too far along, we’d like to understand what exactly these firms are thinking.  So far, the list of firms that  have gotten off lockstep in one form or another includes Seyfarth Shaw, WilmerHale, DLA Piper, Orrick, Baker Botts, Bingham McCutchen, and Squire Sanders, among others.

We found one comment, which hits on a theme that runs through most of the announcements, particularly telling:

But [H&K partner Adolfo Jimenez] explained that the firm had to move away from a strict lockstep system because clients demanded it. Clients were concerned about the high cost of associate time — and partner time — and looking for discounts.

To be fair, that’s Elie Mystal’s summary of a conversation with Jimenez, the partner in charge of associate development. Clients aren’t demanding a move away from lockstep, and that comment shows the communication breakdown.

Clients care about the chasm between the headline numbers (first-year salaries) and the value those lawyers deliver. Put another way, clients don’t care if first years are all making $160,000 or $125,000 or they’re scattered in between; they care about being billed $450+ per hour for work that simply isn’t worth that much.

The answer to clients’ demand is in aligning the cost of the service performed with the value delivered, but that goes unmentioned. Are we to assume that associate salaries are being reduced to reflect lower billing rates? Because that would be the only explanation that addresses the stated problem. There is simply no correlation between abandoning lockstep and lowering the rates charged to clients. In fact, there’s no correlation between abandoning lockstep and lowering the salaries paid to associates.

So why have none of the announcements come out and connected the dots to what really matters?

This whole trend of abandoning lockstep fails to address explicitly that rates and aggregate associate compensation must be reduced.

It’s nice that, presumably, a litigation associate doing document production will get billed at $340, and maybe the real-estate associate summarizing leases will go for $325, and the corporate associate doing due diligence will go for $350. But we’ll bet 99 out of 100 GCs would rather see every single one of them at $200 or less (and we’re not even going to touch on the outsourcing alternative right now). How does breaking lockstep fix that?

Yes, there’s some slight annoyance inhouse with the perception of junior lawyers’ inflated base salaries, but that’s not a lockstep issue, either. It’s a shortcut to the comparison between the value an experienced inhouse lawyer (who often started in private practice) provides compared to a novice firm associate, despite the two being paid almost the same base amount. Breaking lockstep doesn’t fix that either.

Furthermore, the complaint about value rapidly diminishes as lawyers increase in seniority. Again, the complaints aren’t that the 5th-year environmental associate shepherding a cleanup through all the regulatory agencies is overpriced. The vast majority of the complaints coming from inhouse counsel are directed at the most-junior lawyers. It’s the classic problem of deciding who should pay to train them (because the law schools obviously haven’t). It’s not a problem that’s related to lockstep either.

So while we appreciate the candor and transparency (and would like to see the base salaries mentioned in the memo), there are some pretty big pieces missing in this puzzle. But at least H&K is doing the hard work of determining compensation based on each individual’s contribution.

Which is something their clients have been doing for years.

  • Realist

    TERRIFIC article. It’s what a lot of people have been saying for a long time now. Nice to see someone lay it out in an article. Lockstep has been abandoned by certain firms to line partners pockets. It may benefit clients or may not. It only does if correspomdimg billing rates are reduced.

  • Realist

    TERRIFIC article. It’s what a lot of people have been saying for a long time now. Nice to see someone lay it out in an article. Lockstep has been abandoned by certain firms to line partners pockets. It may benefit clients or may not. It only does if correspomdimg billing rates are reduced.

  • Tonto

    amazing hardcore reference!

  • Tonto

    amazing hardcore reference!

  • Jeff

    If clients are paying $450/hr. for associates' time, they must believe it is worth $450/hr. If they didn't, they would take their business elsewhere. Bitching and moaning while forking over cash is not all that convincing a protest.

    • http://intensedebate.com/people/lawshucks lawshucks

      No, clients believe (to oversimplify) that a blended rate of $1,350 for a $900/hr partner and a $450/hr associate is a reasonable value. But they're getting squeezed to cut costs, so they have to dig down deeper on what they're being charged for. That's leading to clients increasingly demanding a la carte services as much as possible and insisting that junior associates not be staffed on matters or that particular tasks be either outsourced by the firm or that the firm deal with the client's own LPO provider.

      If you think they're just bitching and moaning, you're mistaken. Those cost-cutting measures and others are definitely on the upswing. Clients are definitely taking work elsewhere – both "elsewhere" by going to smaller firms (witness the exodus to boutiques recently) for as many discrete matters as possible, and "elsewhere" by either sourcing things themselves, telling firms to source, or bringing work inhouse.

      We'll be writing about this more pretty soon. Thanks for the comments

  • Jeff

    If clients are paying $450/hr. for associates' time, they must believe it is worth $450/hr. If they didn't, they would take their business elsewhere. Bitching and moaning while forking over cash is not all that convincing a protest.

    • http://intensedebate.com/people/lawshucks lawshucks

      No, clients believe (to oversimplify) that a blended rate of $1,350 for a $900/hr partner and a $450/hr associate is a reasonable value. But they're getting squeezed to cut costs, so they have to dig down deeper on what they're being charged for. That's leading to clients increasingly demanding a la carte services as much as possible and insisting that junior associates not be staffed on matters or that particular tasks be either outsourced by the firm or that the firm deal with the client's own LPO provider.

      If you think they're just bitching and moaning, you're mistaken. Those cost-cutting measures and others are definitely on the upswing. Clients are definitely taking work elsewhere – both "elsewhere" by going to smaller firms (witness the exodus to boutiques recently) for as many discrete matters as possible, and "elsewhere" by either sourcing things themselves, telling firms to source, or bringing work inhouse.

      We'll be writing about this more pretty soon. Thanks for the comments

  • Realist

    Jeff, clients are taking their business elsewhere. Those are the firms that are having the hardest time weathering the reception. Clients perceive some firms as providing reasonable value for the money and others not. The latter are responding to decreases in business by greater amounts of layoffs and cost-cutting measures. Good for short-term PPP. But not so good for the clients and arguably not so good for longterm success. This is hitting firms that had no business charging those rates in the first place and only were success because there was so much legal business in boomtimes that they still got their piece of the pie.

  • Realist

    Jeff, clients are taking their business elsewhere. Those are the firms that are having the hardest time weathering the reception. Clients perceive some firms as providing reasonable value for the money and others not. The latter are responding to decreases in business by greater amounts of layoffs and cost-cutting measures. Good for short-term PPP. But not so good for the clients and arguably not so good for longterm success. This is hitting firms that had no business charging those rates in the first place and only were success because there was so much legal business in boomtimes that they still got their piece of the pie.

  • Realist

    The 'recession,' I mean.

  • Realist

    The 'recession,' I mean.

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