Orrick wants more contract attorneys, BigLaw dances “the de-leverage”, and “virtual” law firms blossom

Orrick: “more contract attorneys!!”

As we reported over the weekend, the big news at the Hildebrandt Institute’s 14th Annual “Law Firm Leaders Forum” this week was Orrick’s announcement of it’s new “talent model” which includes a three-stage partner track for associates and an increased presence of contract attorneys.

Chairman and Chief Executive Officer Ralph Baxter said “Orrick hasn’t had a lot of contract lawyers in the past — and that is going to change”.   For full article click here.

It is expected that Orrick will follow the Covington, Crowell, Paul Hastings and other BigLaw models and use contract attorneys for substantive work as well as document review.

The great de-leveraging

 As we have reported in previous stories and as widely discussed in the legal media and legal blogs, there has been much chatter about the de-leveraging of BigLaw,  alternative billing,  and the leveraging technology and changing the way firms do business.

The great de-leveraging” (seemingly the phrase-of-day these last few weeks in the legal blogs) is about … well, leverage.  The concept is the same as that in the financial markets.  Leverage was the word heard frequently during the current financial crisis.  It means borrowing heavily to maximize investment returns. The problem is that leverage was used to invest in mortgages that went bad. The new buzzword in the financial world is de-leverage.

For law firms it’s about the associate-to-partner ratio, although there’s more than one way to calculate it.  Old Wall Street partnerships did not destroy the world with excessive leverage.  But in the pre-credit-boom era, no one else was incurring much leverage either. 

As Bruce MacEwen pointed in an early posting on his blog Adam Smith, Esq. as law firms began to lay-off/fire their spawn:

Common sense would tell you that in a labor-intensive service industry, where revenue is driven primarily by sheer tonnage of hours worked, the higher the ratio of associates (and non-equity partners) to (full equity) partners, the higher the revenues and thus the profits per partner. Right? It turns out this is one of those cases where it’s not as simple as it seems … there’s the evil twin of high leverage: Low utilization. It doesn’t help that your leverage ratio is through the roof if nobody’s busy; indeed, welcome to the worst of both worlds.

Why does leverage matter for contract attorneys?   As Bruce MacEwen points out in his current post:

While we’ve heard the drumbeat of client complaints about paying for useless junior associates for years, this is suddenly the kind of environment where it will grow sharp teeth and bite hard. Either: (a) massive litigations will not be pursued because they’re too complicated, uncertain, protracted, and expensive; and/or (b) if they must be pursued, contract attorneys, staff attorneys, and outsourcers will provide the human throw-weight needed for massive document review; and/or (c) corporations will simply insist that document review be completed for flat fees of $X/unit [$1.00/page? $0.50/page?]. In any event, no one I talk to–absolutely no one–believes that the litigation “factory” model with one partner overseeing half a dozen or more associates who are billing ’til the cows come home will be a predominant source of revenue going forward.

That last point, (c), about flat fees has had the most affect on the contract attorney market because it’s not just the hourly rate that has come down of late.  The flat fee model has been developed and well-executed by the e-discovery vendors and it’s those vendors that have seized much of the work from the traditional staffing agencies by contracting with the corporate client and not the law firm.  And it’s these same vendors that have been so successful in securing a higher percentage of Federal government work.

Virtual law firms

And out of all this comes the burgeoning phenomenon of the development of the “virtual” law firm — the “Wal-Mart effect” of discounting which has been playing out across the country and was the Page 1 feature in today’s business section of the Washington Post.

The article profiles Geoff Willard, a Northern Virginia lawyer, and his “virtual” law firm titled … well, Virtual Law Partners.  Geoff works out of his office — adjacent to his kitchen and family room. 

Last year we profiled Axiom, a D.C.based virtual law firm with a similar business model.

These law firms are formed under varying business structures and generally offer (a) lower fees for corporate clients and (b) flexible schedules for attorneys.  The attorneys perform more substantive tasks than traditional document review contract attorneys. 

For a great review of these law firms … their business model, structure and contact information … we direct you to Amanda Ellis’ article “A New Brand of Law Firms” which you can access by clicking here.  Amanda’s website can be found here.