Millennials were already skeptical of the law firm model. Then the pandemic hit, reinforcing the legal profession’s worst tendencies. A walk through the data.
Law firm leaders generally underestimated the magnitude, duration, and impact of the COVID-19 pandemic. Like other experienced but untrained decision-makers, many law firm leaders were excessively optimistic about their firm’s prospects and conceptually limited in defining their firm’s risks.
Even the law firms that met or exceeded their financial aspirations now face a force stronger and more threatening to their business model than COVID-19: disaffected, disenchanted, and disappointed Millennial attorneys constituting nearly one-half of all attorneys in the 400 largest law firms. Thus, lawyers are very much a part of an upheaval in the nation’s workforce that Gallup calls the “The Great Discontent” and “The Great Resignation.”
Law firm leaders and executives surveyed in May 2020 expected the economy and the workforce to “return to full operations” within 4.1 months. In September, four months later, the total number of COVID-19 deaths in the United States had reached 206,882, only one-third of the total COVID-19 deaths reported by August 2021. See University of Washington Institute for Health Metrics and Evaluation for data.
The surveyed law firm leaders expected their own firms to “return to full operations in a range of 5- to 8-months with the average landing at 6.7.” Not a single surveyed leader anticipated a return to normal operations “more than 10 months out.” If those law firm leaders had been reliable forecasters, the COVID-19 pandemic would have been a minor blip on the chart of law firm operations and performance, and you probably would not be reading this post.
To gain a better understanding of the long-term effects of the COVID-19 pandemic and the disaffection of Millennial attorneys, this post addresses three questions:
- What do Millennial generation attorneys think about the recent compensation increases and the current leadership in law firms?
- Do law firms and other organizations become more innovative in crises like the COVID-19 pandemic?
- How will the COVID-19 pandemic affect the quality of decision-making by law firm leaders and attorneys?
Each of these important questions is answered with the best available empirical and social science evidence. Indeed, this post is a walk through the data. But before addressing these questions, I’ll place them in perspective by describing the pandemic’s financial impact on law firms.
COVID-19 and law firm financial performance in 2020
In 2020, revenue in AmLaw 100 firms increased by 6.6 percent over 2019 revenue, and revenue in AmLaw 101-200 firms increased by 1.1 percent. See Dan Packel, Dan, “Faced With a Fractured Economy, the AmLaw 200 Not Only Survived – They Grew,” The American Lawyer, May 18, 2021. Demand for their legal services, however, declined by 2.9 percent, as measured by billable hours. 2021 Report on the State of the Legal Market, Georgetown Law Center on Ethics and the Legal Profession & Thomson Reuters Institute, 2021). This decline in demand follows 12 years of declining or flat demand growth.
The profitability of U.S. law firms in 2020 was largely dependent on pedestrian measures displayed earlier in the Great Recession. Faced with declining demand and productivity, law firms turned to the usual suspects to goose profitability: expenses, employees, and rates. Expenses were cut by 7% during the first nine months of 2020, attorney headcount growth decreased by 2%, and rates increased by 5%. See Dan Packel, “Most Big Firms Are Increasing Revenue, But Performance Gap Steadily Grows,” The American Lawyer, Dec 2, 2020. Joe Blackwood, “Rise in Worked Rates in 2020 Fueled by Proportional Shifts,” Thomson Reuters Legal Marketplace, Feb 8, 2021. “Ultimately, the lion’s share of firms’ revenue increases,” states American Lawyer journalist Dan Packel, “stemmed from rate increases.” 73% of law firm leaders intended to impose another round of rate increases in 2021, and by Q2 2021 rates had increased on average by 3.4%. See 2020 Law Firm Business Leaders Report (Thomson Reuters, 2020) at 12, Figure 8.
Apart from rate increases, the efforts to increase profits per equity partner are attributable to simple changes in operations. “Firms across the industry have told us that they now require their lawyers to enter time on a daily basis,” states Gretta Rusanow, the Managing Director of Citi Private Bank’s Advisory Services Law Firm Group. “Recorded time is subsequently reviewed on a weekly basis.” Citi Private Bank and Hildebrandt Consulting LLC, 2021 Client Advisory. Law firm partners also increased their scrutiny of client payments and decreased their tolerance of delinquent accounts. “Indeed, the focus on billing and collections has probably been the most common trend we have seen across the industry,” states Rusanow.
Law firms’ financial performance in 2020 has been hailed as “a tribute to the innovation and resiliency of law firms and their leaders.” 2021 Report on the State of the Legal Market, supra at 2. This is peculiar because, outside of the legal services industry, price increases, expense reductions, layoffs, and timely billing and collection practices generally are not considered to be innovations or signs of resilience. Although law firms point to the “seamless” transition to remote work as an innovation, this, too, is neither a substantive change nor an innovation. Most professionals in other domains worked remotely for at least half of every week before the COVID-19 pandemic, indicating that innovations acclaimed in law firms are sometimes commonplace in other professions. See, e.g., Danielle Braff, “Thanks to the COVID-19 Pandemic, Law Firms Are Starting to Embrace Virtual Offices – But Will It Last?,” ABA Journal, Feb 1, 2021.
The shift to remote working complements many attorneys’ personalities. Attorneys tend to prize autonomy and their personality profiles, in general, are more consistent with individual contributors than group collaborators and leaders. See Randall Kiser, Soft Skills for the Effective Lawyer (2017) at 62-67. Many attorneys have been working remotely at their law firms’ offices for years, and the shift to their homes is more corporeal than psychological. If attorney personalities were incompatible with remote work, the abrupt transition from the law firm office to the home office would not have been as seamless as law firms report.
Q1 on Millennial attorneys’ perceptions
Some law firms are beginning to experience net associate attorney attrition, and this incipient trend is likely to strengthen. “The best firms to work for have seen a 19% increase in the number of associates who’ve left this year compared to the previous four years’ average,” states Bloomberg Law’s Roy Strom. “The prestige firms have seen a 20% increase.” Strom, “Prestige Still Beats ‘Quality of Life’ in Big Law Talent War,” Bloomberg Law, July 29, 2021.
The increasingly frenetic dance between employee attrition rates and compensation increases is a national phenomenon and includes other highly compensated and chronically overworked professionals like analysts and investment bankers. The rising attrition rates among law firms suggest that the AmLaw 100 ritual of raising associate attorney compensation whenever a single firm raises compensation—a lemming-like response often mistaken for a talent development strategy—is not working.
Millennial generation attorneys are aware that their workloads increased after the compensation increases, and only 19% of them believe that “increased associate workloads are justified by the recent salary (and special bonus) increases.” See Major, Lindsey & Africa and Above the Law, Making Their Mark: How Millennial Lawyers Could Reshape the Industry (June 2021) [hereafter 2021 Millenial Report]. Although law firms “are throwing money at associates in the hopes it eases the pain and makes them happy,” only 17%of associates rank compensation as the most important factor. See Michael B. Rynowecer, “Only 17% of Associates Love New Salaries – Others Not So Much,” The Mad Clientist, June 30, 2021.
Dissatisfaction with workloads and compensation increases reflects larger problems. Most Millennial lawyers believe that “the law firm business model is fundamentally broken.” See Michelle Fivel & Ru Bhatt, 2019 Millennial Attorney Survey: New Expectations, Evolving Beliefs and Shifting Career Goals (2019). They have lost confidence in the law firm business model as well as law firm leadership and practices, according to the 2021 Millenial Report:
- 55% agree that “the current generation of law firm leadership has outstayed their effectiveness.”
- 76% believe that “law firm partnership is much less desirable than it was a generation ago.”
- 64% concur that “law firm culture is inherently biased against women.” (80% of female attorneys believe this bias exists.)
- 52% believe that “there is a persistent gender pay gap at law firms.” (71% of female attorneys believe this gender pay gap exists.)
- 62% report that “law firm culture is inherently biased against racially diverse lawyers.”
Their overall assessment of the pandemic, expressed by two-thirds of survey respondents, is that it “has revealed how law firm leverage models favor partners at the expense of associates.” To the extent law firms have promoted a “we’re all in this together” mentality, that effort seems to have been lost on a very large segment of their attorneys.
If law firm leaders were advising their own clients about the acquisition of a company with this level of employee distrust, skepticism, and dissatisfaction, they would be cautionary if not incredulous.
Q2 on innovation in crises
The early stages of crises provoke optimistic predictions of imminent change and innovation. These predictions stem from the conviction that “necessity is the mother of invention and driving change is much easier in times of adversity than times of plenty,” as expressed by Bill Mooz, a Legal Evolution contributor and Senior Fellow at the Silicon Flatirons research center. See Post 148. “Logic dictates,” asserts Mooz, “that the even greater adversity of the coronavirus calamity will produce an even greater wave of change”).
Although logic dictates that innovation should expand in crises, people are not logical, and innovation does not reliably emerge from crises. The acute needs and sense of urgency evident in crises do not result in a commensurate level of innovation. More often, crises simply generate anxiety, reduce creativity, and reinforce old, maladaptive behavior patterns. Necessity, in theory, is the mother of invention, but the perception of necessity, in reality, scares people and stifles innovation.
In June 2020, McKinsey & Company surveyed executives in 200 organizations ranging from financial services companies to industrial manufacturers. See Jordan Bar Am, Felicitas Jorge, Laura Furstenthal, & Erik Roth, “Innovation in a crisis: Why it is more critical than ever,” McKinsey, June 17, 2020. McKinsey found that the COVID-19 crisis had stalled and sometimes terminated innovation efforts:
Executives must weigh cutting costs, driving productivity, and implementing safety measures against supporting innovation-led growth. Unsurprisingly, investments in innovation are suffering. The executives in our survey strongly believe that they will return to innovation-related initiatives once the world has stabilized, the core business is secure, and the path forward is clearer. However, only a quarter reported that capturing new growth was a top priority (first- or second-order) today, compared to roughly 60 percent before the crisis hit. [exhibit]. This decline in focus on innovation is evident across every industry we surveyed; the sole exception is pharmaceuticals and medical products, where we see an almost 30-percent increase in the immediate focus on innovation.
“Innovation in a Crisis,” supra.
Making seemingly short-sighted decisions, the surveyed executives reported that they are “deprioritizing innovation to concentrate on four things: shoring up their core business, pursuing known opportunity spaces, conserving cash and minimizing risk, and waiting until ‘there is more clarity.’”
Many law firm leaders, like the executives that McKinsey surveyed, placed innovation on hold while they focused initially on financial survival and then, as the financial strains eased for some firms, shifted their attention to increasing profits-per-partner. Altman Weil’s 2020 Chief Legal Officer Survey asked Chief Legal Officers “what actions their outside law firms had offered proactively to assist law department during the COVID-19 crisis.” Altman Weil, 2020 Chief Legal Officer Survey. The survey responses display a stunning lack of responsiveness and innovation: “Only 12% of firms offered to collaborate on new alternative fees, 10% proactively offered additional discounts, and 7% suggested new process efficiencies to reduce costs.”
After studying the responses, Altman Weil concluded, “there were opportunities available to build loyalty and cement client relationships that were left on the table in 2020.” For many law firms, the COVID-19 crisis evidently functioned more as a distraction and diversion from innovation, not as an impetus and inducement for innovation.
The Altman Weil survey results are consistent with Thompson Hine’s surveys of in-house counsel and other senior business executives. Those surveys assess “the gap between what law firms say they are trying to do and what buyers experience.” Thompson Hine, The Innovation Gap Persists (Dec 2020). Comparing the results of its 2017 survey with the 2020 survey, Thompson Hine “found that 72% of respondents believed their law firms had not done anything to alleviate the pressures faced by in-house legal departments in that three-year span.”
Focusing specifically on progress within the one-year period that included the COVID-19 crisis, Thompson Hine reports: “more than two-thirds of our survey respondents said their primary outside firms had made no progress in innovation.” The overall survey results are epitomized by a General Counsel’s remark: “While the firms we use are trying to appear to be moving toward more technology-based services, in reality, not much has really changed.”
The McKinsey, Altman Weil, and Thompson Hine data indicate that, despite our intuitions and aspirations, innovation does not increase during crises. This data is consistent with earlier research showing that “the opportunities for reform in the wake of crisis are smaller than often thought. The prime reason is that the requisites of crisis leadership are at odds with the requirements of effective reform.” Arjen Boin & Paul Hart, “Public Leadership in Times of Crisis: Mission Impossible?” 63 Public Admin Rev 544 (Sept/Oct 2003). The “crisis dividend” presumed to include rapid and substantive innovation turns out to be more conceptual than real.
Q3 on decision-making quality
The quality of decision-making by law firm leaders and attorneys likely deteriorated during the pandemic. This deterioration, if it occurred, would have resulted, in part, from two factors correlated with poor quality decision making: a lack of rich cues normally obtained through in-person interactions and decreased creative thinking.
a) Lack of rich cues
An antecedent to catastrophic decision-making is the lack of rich cues in communication. When decision scientists examine events like the Challenger and Columbia space shuttle disasters, they detect a paucity of in-person communications and an abundance of email, telephone, and written communication. The nuances that distinguish in-person communication—facial tension, fake smiles, nervous hand gestures, momentary eyebrow raising, voice irregularities, and muted affect—are absent or at least not detected in the electronic communications that characterize remote working. This leads to ultra-hazardous decision-making because humans are notoriously inaccurate in understanding another person’s feelings, beliefs, and intentions in direct, personal interactions, and they descend to an even lower level of empathic accuracy in their electronic communications.
The tone-deaf nature of electronic communications is exacerbated by the fact that people are not aware of their impaired effectiveness in understanding and relating to other people electronically. As psychology professor Vanessa Bohns notes, people “are largely oblivious” to the fact that their impact on other people varies with the means of communication – in person or by email, for example. Based on her studies of 14,000 people, Bohns reports that they are more likely to comply with requests made personally and less likely to comply with requests made by email. V.K. Bohns, “(Mis)Understanding Our Influence Over Others: A Review of the Underestimation-of-Compliance Effect,” 25 Current Directions in Psych Sci, 119 (2016); M.M. Roghanizad & V.K. Bohns, “Ask in Person: You’re Less Persuasive Than You Think Over Email.” 69 J of Experimental Soc Psych 223 (2017).
The people making the requests, however, are oblivious to the medium and inaccurately predict compliance rates for both in-person and email requests. They underestimate the number of people who will comply with their in-person requests and over-estimate the number of people who comply with their email requests. Stated differently, “Those in the face-to-face condition underestimated their persuasive powers while those in the email condition overestimated their success rate.” News, “You’re Less Persuasive Than You Think Over Email,” Association for Psychological Science, Dec 7, 2016 (summarizing and discussing recent research by Bohm and Roghanizad).
For lawyers, Bohns’ research suggests that perceptions of colleagues’ cooperation and collaboration on critical client assignments or law firm management responsibilities, derived from email and other electronic communications, may turn out to be distressingly inaccurate. We are not as persuasive in electronic communications as we think we are, and our colleagues are not as malleable and compliant as we perceive them to be.
The superiority of face-to-face conversations over electronic communications is reiterated in studies conducted at Beijing Normal University’s Cognitive Neuroscience and Learning Laboratory. Using an optical topography system to measure neural synchronization in the left inferior frontal cortex, the researchers found that face-to-face communication “involves more continuous turn-taking behavior between partners.” Jing Jiang, et al., “Neural Synchronization During Face-To-Face Communication.” 32 J of Neuroscience 16064 (Nov 7, 2012). They confirm our intuition that “the human brain is evolutionarily adapted to face-to-face communication,” and neural synchronization and turn-taking are enhanced by face-to-face communication.
Other studies have demonstrated that non-verbal behavior in face-to-face interactions is so rich that we can predict human behavior simply by measuring the frequency and duration of face-to-face interactions, total conversation time, the physical distance between conversing partners, and body motions. Massachusetts Institute of Technology professor Alex Pentland and his colleagues discovered that “unspoken social signals— who’s talking, how much, in what tone, interrupting or not, facing toward whom and away from whom, gesturing how—told them all they needed to know about the performance of a group.” Geoff Colvin Humans Are Underrated (2015) at130 (quoting Pentland). Face-to-face interactions contain so many non-verbal signals, Pentland reports, “that usually we can completely ignore the content of discussions and use only the visible social signals to predict the outcome of a negotiation or a sales pitch, the quality of group decision making, and the roles people assume within the group.”
The non-verbal signals that Pentland finds to be highly predictive are largely missing from electronic communications. This could be particularly problematic for lawyers who were inattentive or insensitive to these types of signals in face-to-face interactions before the COVID-19 pandemic and are likely to overlook them entirely in relatively flat electronic interactions.
Lawyers’ tendency to be unaware of subtle signals and cues is shown in one study of 1,800 lawyers in four law firms. See Jeff Foster, Larry Richard, Larry, Lisa Rohrer & Mark Sirkin, “Understanding Lawyers: The Personality Traits of Successful Practitioners,” Hildebrandt Baker Robbins (2010). The lawyers’ lowest average score was on “Interpersonal Sensitivity,” defined as “the degree to which a person is socially sensitive, tactful, and perceptive.” The lawyers also scored below a comparison sample of high-level managers and professionals in “Sociability” (“the degree to which a person needs and/or enjoys social interactions”). In an earlier study, the lawyers “had an average Sociability score of only 12.8%, compared to an average of 50% for the general public.” Larry Richard, “Herding Cats: The Lawyer Personality Revealed,” Report to Legal Management. Altman Weil (2012).
b) Reduced Creativity
Another casualty of the COVID-19 pandemic is creativity. Although creativity is a critical element of effective decision-making, it tends to decline under two circumstances evident in this pandemic: uncertainty and lack of personal interactions among colleagues.
Jennifer Mueller, a management professor and author of Creative Change, has conducted extensive research to determine why “organizations, scientific institutions, and decision-makers routinely reject creative ideas even when espousing creativity as an important goal.” Jennifer Mueller, et al., “The Bias Against Creativity,” 23 Psych Sci 23 (2017). She finds that, although people express positive views of creativity, they actually harbor deep biases against creativity when they have strong feelings of uncertainty. In high uncertainty conditions, study participants taking an implicit association test relate creativity with words like “vomit,” “hell,” “agony,” and “poison.”
A sense of uncertainty not only provokes a negative reaction to creativity but also interferes with our ability to identify and accurately evaluate creative ideas. As Mueller explains, uncertainty “makes us less able to recognize creativity, perhaps when we need it most.”
Creativity also declines as interactive, in-person communication declines. Spontaneous interactions at offices are a major source of creativity, as Walter Isaacson explains in his biography of Apple co-founder Steve Jobs:
There’s a temptation in our networked age to think that ideas can be developed by e-mail and iChat. That’s crazy. Creativity comes from spontaneous meetings, from random discussions. You run into someone, you ask what they’re doing, you say ‘Wow,’ and soon you’re cooking up all sorts of ideas.
Walter Isaacson, Steve Jobs: The Exclusive Biography (2011) at 430.
Although people who work remotely often report high levels of productivity, research indicates that, in the absence of “serendipitous interactions” at the office, they are less creative. See, e.g., Colvin at 168. “The ability to walk into somebody’s office, meet someone in the hallway or in the elevator or at the coffee machine are all catalysts for creative collaboration,” states Jay Neveloff, the chair of Kramer Levin’s real estate practice. “Working from home limits that interaction.” Mary Ellen Egan, “Leading Questions: Kramer Levin Real Estate Chair Jay Neveloff,” Bloomberg Law, Jan 8, 2021.
Attorneys working remotely are particularly prone to declines in creativity because they may not have been very creative before the pandemic. See Post 205 (discussing my prior research on this topic). In one study, law firm attorneys scored relatively low on inquisitiveness and imagination; in another study, in-house lawyers also scored low on “idea orientation,” measuring their “preference for thinking creatively and generating new ways to solve problems.” Markus Hartmann, et al. “The Perfect Legal Personality,” ACC Docket (July/Aug 2011).
The risks to creative thinking, after the pandemic dissipates, are extremely high because many lawyers express a preference for remote working and intend to continue near-exclusive remote working if permitted by their law firms. Remote working could decrease creativity in a profession that already demonstrates a preference for precedence over originality, for reasoning by analogy instead of reasoning from first principles.
Outlook and direction
Law firms may have won the battle for short-term profitability as they start to lose the war for innovation, creativity, culture, and talent development, engagement, and retention.
This scenario is typical in crises. Humans have spent about 95% of their entire existence in times of hardship and scarcity, and the pattern is consistent: “societies become more culturally conservative and the frequency of innovation falls; individuals also perform worse in tests on logical and creative thinking, and favour emotional, rather than rational, decision making.” Gaia Vince, Transcendence (2019) at 233.
The COVID-19 pandemic has inflicted severe stress on lawyers and law firms. This type of stress—chronic, erratic, and frightening—induces a longing for a return to “the way things used to be” and invokes unrealistically fond recollections of previous structures, systems, and relationships. The post-crisis “new normal” then becomes functionally similar to the old normal with mild changes in form and nomenclature. That new normal is unlikely to stem the deep disaffection of Millennial attorneys or alter their belief that law firm leaders have “overstayed their effectiveness.”
Before returning to previous practices that satisfy lawyers’ need for security, affluence, and routines while minimizing their need for personal significance, development, and flexibility, law firm leaders could pause and thoughtfully consider these ten questions:
- Will the firm’s practices and leadership increase lawyers’ level of engagement and commitment every year?
- Are the firm’s goals set primarily to achieve a competitive economic advantage or to effectuate the firm’s distinct concept of professionalism?
- Is the business model of raising rates despite flat or declining demand sustainable for the current generation of associate attorneys and nascent firm leaders?
- Is it ethical to raise rates during a pandemic that has killed, directly or indirectly, nearly one of every 300 U.S. residents, especially when the legal work is necessitated, in part, by the pandemic itself? (For excess all-cause mortality during the pandemic see Maria Polyakova, et al., “Initial Economic Damage From the COVID-19 Pandemic in the United States Is More Widespread Across Ages and Geographies Than Initial Mortality Impacts.” 117 Proceedings of the Nat’l Academy of Sci, 27934 (2020).
- Are current practices consistent with lawyers’ duties to perform pro bono services and improve the nation’s legal systems?
- Are the higher levels of anxiety, depression, and alcohol consumption reported by attorneys during the pandemic adversely affecting the problem-solving and decision-making skills required to fulfill their fiduciary duties to clients?
- How will continued expense reductions, especially in professional development budgets, affect long-term attorney performance and inculcation and adoption of the firm’s culture?
- How will the firm’s business practices, social responsibility policies, and compensation systems mitigate lawyers’ outsize contributions to income inequality?
- Will gender, ethnic, and racial disparities in attorney income and equity partner selection be eliminated within three years or less?
- Are the firm’s criteria for selecting, developing, evaluating, retaining, and promoting attorneys based on empirical evidence demonstrating a robust correlation between the criteria and actual client service and satisfaction?
If the COVID-19 pandemic yields any positive results other than the income derived from law firms’ surprisingly strong financial results in 2020, it will be firms’ candid and socially responsible answers to questions like these.