The Industrialization of the American Law Firm

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The Industrialization of the American Law Firm [by A. Harrison Barnes, Esq.] A lot has changed for attorneys in law firms over the last fifty years. Our recruiters say these changes, which mirror those of 19th century England’s Industrial Revolution in some ways, are going to continue.

In the early 1800s during the Industrial Revo-

twenty years, the interest of capital and ef-

laterals. In fact, firms looked at attorneys

lution in England, laws and customs which

ficiency have served bring profound changes

seeking to join their firm as untrustworthy

had been designed to protect workers were

to the profession, making the traditional law

and suspicious. While this particular at-

first ignored, and then abandoned. In 1808,

firm we once knew a faint memory. The most

torney subsequently set his own practice up

for example, a bill passed that decreased

significant event in American law firms over

and became incredibly successful, it does

the minimum wage and the Combination

the past thirty years has been the industrial-

demonstrate the importance that law firms

Acts outlawed trade unions. High food prices

ization of the law.

at the time attached to loyalty and the insular

and decreasing wages during this time also served to require more of each person’s

nature of their social structures.

A. The Pre-industrialized Law Firm B. The Industrialization of the American Law

wages and make life very difficult for workers.

The pre-industrialized law firm was an

Firm

insular and predictable social organism.

A group of skilled artisans in the textile

Traditionally, a young associate (1) entered a

There are roughly two periods that define the

industry who came to be called the “Lud-

law firm out of law school, (2) made partner

industrialization of the American law firm (1)

dites” became very discontented by these

after a set number of years and (3) remained

early industrialization which occurred be-

conditions, which were rapidly worsened by

with the law firm until retirement. It was

tween the 1950s and the early 1970s and (2)

the introduction of machines designed to

exceedingly rare that an attorney would ever

industrialization which has been occurring

replace them. With the advent of machines,

leave his law firm, just as it was rare that an

between the 1980s and the present.

employers could pay skilled textile workers

associate would not make partner at the law

like the Luddites even less. Faced with the

firm he joined.

1. Early industrialization of the American law firm

loss of work to the machines, the Luddites began rioting and breaking into factories and

Law firms were generally considered quite

destroying the machines. The government

insular places. Because leaving the law firm

Between the 1950s and the 1970s, law firms

eventually made the smashing of machines a

was quite rare, law firms were generally

had begun to realize the importance of orga-

crime punishable by death and the Luddites

quite protective of their own and carried a

nizing themselves to better serve large busi-

activity stopped and their organization fell

certain amount of suspicion for outsiders.

nesses. Throughout the 1950s and the post

apart.

Inside the law firm, individual differences

World War II boom, American business expe-

and factions between attorneys in the firm

rienced an unprecedented period of growth.

This article examines the industrialization

could certainly arise, but the concept of leav-

Law firms were eager to respond to this new

of the American law firm over roughly the

ing the group might be likened to leaving a

business and began growing to accommo-

course of the past thirty years. While indus-

close-knit tribe.

date these interests. Prior to the 1950s, it

trialization in the legal profession was over

was exceedingly rare for a law firm to have

150 years behind industrialization of trade

One of the better-known attorneys in the

more than 20 attorneys. As law firms grew to

jobs in England, this recent industrialization

United States left one of the top law firms in

accommodate major American corporations,

has the same lessons of industrialization in

the nation at the time in the early 1970s and

significant changes in the organization of

England nearly 200 years ago: the interests

moved to another city. Despite Ivy League

American law firms began to occur.

of capital and efficiency have the power

credentials and experience with one of the

to overwhelm organized groups and bring

top law firms in a major city, this individual

As law firms rapidly grew to accommodate

profound changes on a profession. In the

could not find a job. I am told it was because

American business, the partners inside

case of the American law firm over the past

at the time law firms simply did not hire

these firms began to realize that with such

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large classes of junior associates, it would

unlikely to make partner, the billable hour

has increased dramatically during this period

be in their best interests if not all of these

and the movement of lawyers from law firms

as well. It has also become much more dif-

associates made partner, as there would be

to corporations are the defining character-

ficult to become an equity partner. What once

greater profits for the partners at the top of

istics of the early industrialization period of

was an environment more or less of equals

the pyramid. In addition, it has been said that

American law.

has become increasingly stratified.

were becoming envious of the large salaries

2. Industrialization of the American Law

Corresponding with this change in the early

many executives were making and were look-

Firm

1980s was a movement towards stratifying

many partners inside law firms at the time

ing for means to increase their own incomes to that level.

the income of partners beyond that equity In the 1980’s law firms began hiring consult-

and income distinction even more through

ing firms who came in and started dividing

the use of new methods of measuring each

Cravath Swaine and Moore (“Cravath”) was

tiers of partners into income and equity

individual partner’s performance. This move-

the first law firm on record at the time to

partners. What had at one time been a very

ment has also rapidly increased in momen-

openly recruit associates at law schools with

insular profession, where groups of partners

tum. All sorts of compensation systems

a shared understanding that the associates

made decisions among themselves with-

began to be designed where the productivity

would likely never make partner. In order to

out outside guidance, changed. Business

of partners was measured by various sys-

get the best talent, Cravath in turned paid the

structures and forces were brought inside of

tems. Some of these systems relied on point

highest salaries at the time-so high that they

a profession that had historically been very

calculations whereby partners were awarded

initially were virtually incomparable to those

distrustful of outsiders.

points and a percentage of profits based on various contributions they made to the

being paid by other similar firms of the time.

Cravath also developed a system of send-

Under the equity and income partner model

firm. Some firms moved to systems which

ing the associates who did not make partner

introduced by consulting firms, certain

awarded partners simply based on how much

to work for its clients to thereby increase

partners receive a salary and other partners

business they brought into the firm and how

the work it was receiving. In some sense,

get voting rights in the firm and a percentage

much work they did. Before this time many

Cravath helped usher in the “in house attor-

of the firm’s profits. Prior to this time, most

law firms had simply followed “lock step”

ney” as we know it because most American

law firms had only equity partners. Under

compensation systems whereby a partner’s

corporations had almost all been dependent

the equity and income partner distinction,

income increased a fixed percentage amount

upon outside counsel.

in practice it is generally the partners who

of the firm’s overall profits as the partner

contribute the most to the firm’s bottom line

became more senior.

By the early 1970s, law firms were also

in terms of business origination and hours

rapidly moving toward a billable hour method

billed who become equity partners. Other

Throughout the 1980s and until the pres-

of charging their clients. Prior to the early

contributions to the firm such as the training

ent, the attorneys and partners inside law

1970s even, the majority of the attorneys in

of associates, community activities and more

firms have become increasingly mobile and

the United States at even the largest firms

become less emphasized under this model.

the loyalty on both sides has deteriorated

were not using the billable hour. I recall a

Partners therefore become more concerned

between employer and employee dramati-

story from an older attorney who stated that

with their individual financial contributions to

cally. Before the early 1980s, it was almost

he would grab a file, feel its weight by hold-

the firm and not other activities which might

unheard of for a partner to leave one large

ing the file in his hand and say something to

strengthen the group but do not have an im-

law firm to join another. It is likely not

the effect of “that looks like about $1,000.

mediate economic impact. Firms, of course,

coincidental that with the introduction of

Send them a bill for that.” Several studies

can decide to demote partners from equity to

new classes of partners and compensation

were done in the 1950s and 1960s that con-

non-equity status to increase the individual

systems, partners are more apt to leave for a

cluded that lawyers made more money when

profits of the partners who are generating

better compensation system or because they

they calculated their time on an hourly basis.

the most income.

feel they have been shorted by their law firm.

creasingly adopting the billable hour method

The change from one class of partners

Since the 1980s, law firms have also increas-

for their clients. Today, this is something that

to more than one class of partners has

ingly turned to outside vendors for support

is commonplace.

increased dramatically over the past twenty

with document management, paralegals,

five years at a rapidly increasing clip. Not

contract attorneys and more. In the past

surprisingly, the wages of equity partners

decade, the staffing functions inside law

Due to these studies, law firms began in-

The introduction of associates who were

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firms have even caught the interest of public

something that also would have been hard to

companies who, through “roll ups,” have

imagine not too long ago. During such merg-

consolidated many staffing and legal support

ers, it is now almost a given that the merger

The rise of these chat boards is significant.

companies working for law firms. This move-

occurs contingent upon the financially un-

Even the name of these chat boards, Greedy

ment also emphasizes the increasing influx

productive attorneys from each merging firm

Associates, demonstrates that the law had

of outside business interests into what was

leaving before the merger occurs. Combining

moved to something where individual money-

formerly a very insular environment.

for geographic expansion, practice area addi-

and not the practice of the profession of

tions and financial might, the loyalty between

law-became the primary motivating concern

Since the 1990s, a massive wave of law firm

individuals who are ostensibly partners all

of young attorneys. This, in fact, is how most

mergers has occurred and many large scale

but disappears in pursuit of the biggest and

people view the modern American business-

law firms have gone out of business, or dis-

more profitable business. These mergers are

man. Here, with the Greedy Associate boards,

solved. These events sound more like the

generally done for business purposes and the

I believe that the American law firm was

events of large corporations than law firms.

self-serving interests of the strongest part-

announcing to the world in no uncertain terms

One of the more notable events has been the

ners from a financial standpoint at both firms.

that it had become industrialized.

such as Finley Kumble in the 1980s. This

Practice groups frequently leave one firm

The chat boards also underscored that the

upstart law firm took the nation by storm with

for another in today’s industrialized law firm

law had become something where values

its business-like approach to the practice of

market. In Los Angeles, where I am based, I

such as loyalty were no longer emphasized

law in the 1970s and grew into a national pow-

routinely see announcements of five or more

and where individual associates were out for

erhouse by the 1980s. The law firm enticed

partners leaving one firm to join another every

their own self interests. Instead of a group of

big-name partners to join its ranks by using

week. Again, this sort of activity is something

fellow associates sitting in the same law firm

high salaries and inflated promises. Finley

that would have been hard to imagine not too

socializing, the “group” for the associates had

Kumble failed when it could not pay the enor-

long ago,

become an anonymous computer discussion

spread good and bad gossip about their firms.

spectacular failure of some large law firms

mous loans it had taken out to pay its partners

board of alienated attorneys on the Internet.

and high overhead. This sort of borrowing to

In the late 1990s and into 2000, Internet chat

The alienation of these attorneys is remi-

pay partners is the sort of thing that would

boards calling themselves things like “Greedy

niscent of arguments made in the industrial

have been unheard of in a law firm less than a

Associates” rose up (ironically, the largest

revolution about workers becoming alienated

decade before its demise.

one, www.infirmation.com, was bought and

as well.

is owned by Thompson Publishing, a publicly Attorneys at this law firm around the country

traded company that also owns WestGroup).

In early 2000, the law firm has started chang-

all arrived at work one day to find the doors

These associate chat boards grew to promi-

ing even more. We are currently witnessing

locked and a sign on the door stating the

nence during the late 1990s and early 2000 as

massive growth in the outsourcing of legal

firm was out of business. Finley Kumble was

associates started leaving law firm in droves

services to India, where fresh lawyers from

built on business practices and crashed on

to go in house at companies promising stock

top law schools educated in English common

business practices and risk models that have

options and potential riches.

law will work happily six days a week for $300 a month. While this trend is relatively recent,

traditionally characterized large businesses.

More recently, the crash of tech star Brobeck

The traffic of these chat boards peaked in

case law editors at West Publishing are now

Phleger & Harrison, one of San Francisco’s

2000 when law firms began raising salaries

in India, American law firms are now having

oldest and most venerable firms came when

in an attempt to curb mass defections to

patents written and researched in India, legal

the firm could not meet its loans. This sort

corporations. Associates on the chat boards

research is now being done in India by several

of instability-crushing outside debt loads, a

gossiped about the next big salary increase,

concerns and the businesses that are provid-

lack of conservatism with finances and other

what bonuses firms were paying and more.

ing these services are growing by leaps and

practices-is something that at one time could

Associates also began posting memos from

bounds.

not be imagined with law firms. Today it is

their law firms on the chat boards (such as

becoming increasing common.

the infamous Clifford Chance memorandum)

While this movement is certainly in its early

detailing information on firm working condi-

stages, it is gaining steam fast-very fast. Just

The increase in law firm mergers has ac-

tions, salaries and bonus structures. Associ-

as computer programming jobs have gone

celerated at a rapid clip since the 1990s. The

ates griped about their treatment by partners,

by the millions to India, China and other devel-

growth of law firms combining partnerships is

complained about compensation levels and

oping countries putting untold numbers of

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Americans out of work-so too will legal jobs.

now being controlled by Adam Smith’s “invisible hand”-- for better or worse. The law firm

In thinking about this issue, I cannot help but

environment has industrialized and become

be reminded of the attitude of computer pro-

a very tormented place, where loyalties have

grammers in the 1990s and until 2001. These

been eroded and financial contributions are

programmers were arrogant, would switch

paramount and where outsiders and busi-

between jobs at the drop of a pin, demanded

ness interests transformed the profession.

outrageous salaries and hourly rates and

The American law firm has become industri-

would only work on projects which interested

alized.

them and (if not) demanded stock options.

When I put out an ad for a computer programmer recently for BCG Attorney Search, I believe we received of 2,000 application in less than 48 hours. In fact, I received so many applications I had to call Monster and ask the ad be pulled because I could not operate my email effectively since applications were arriving so rapidly.

Similarly, the patent attorney is under assault from the developing world and I can envision a time in the near future when a slew of applications will come for those jobs too-in a lighter sense, this is already occurring. Three years ago, firms would kill for a patent attorney in the United States. Patent attorneys were sometimes receiving bonuses of $50,000 or more and were, in many cases, extremely arrogant about their prospects. So too it will be with other practice areas of the law-these areas of the law will be under assault as soon as lower cost service providers are identified.

B. Conclusions In book 4, chapter 2 of Adam Smith’s 1776 book, The Wealth of Nations, Smith argues that every individual in society employs their capital so that it promotes the greatest value.

In employing his own capital, an individual intends only his own security and gain. Adam Smith’s “invisible hand” theory states that by pursuing his own interest in the employment of capital, an individual frequently promotes the ends of society more effectively than he really intends to.

Today’s law firm environment is, in a sense,

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