Saturday, February 24, 2007

Lawyers and Clients

I have just written two new papers. The first on the tripartite relationship between bankers, lawyers and clients, which attempts to re-analyse how we should understand lawyer-client relationships. The second paper, with a partner from Olswangs, looks at how lawyers, specifically real estate finance lawyers, structure transactions. The argument is that structure, more than anything else, determines the outcome of the deal. Both papers can be downloaded from my website at

Academics struggle with the lawyer-client relationship. What is it like? What goes on? Is it merely an asymmetric power relationship? Probably similar questions to those about doctor-patient relationships.

Most studies involve lawyers and individual clients, in areas like divorce, crime, or welfare. There aren't too many on business relationships. The reason is not too difficult to discern: business lawyers and business clients are very conscious of of privacy and privilege and the consequences of breaching them.

I am one of the few that has studied these relationships. My original training as a lawyer then as an ethnographer enabled me to spend time sitting in meetings listening to discussions and hearing lawyers talk on speakerphones to their clients. My PhD in sociology was a study of a large law firm in Chicago and the way lawyers and clients interrelated. I tried to comprehend what lawyers and clients were doing by describing it as managing uncertainty, since what happens between them is quite contingent and always open to repeated interpretation.

There is one crucial feature of studies of lawyer-client relationships, which is that they assume the relationship is essentially a dyadic one--a two-party relationship without involvement from others. In modern day business relationships this is clearly unrealistic. There are far too many parties involved in deals for relationships to be characterized as simply two-way. They are now multi-polar and multivalent.

How does this work? Take a client who wants to borrow a large amount of money from a bank to finance a purchase of, say, a company. Although the primary relationship is between lawyer and client, there will also be in all probability a longstanding relationship between the lawyer and bank (or banker). And even though all parties are repeat players, the relationship between the banker and the lawyer will be stronger and more committed than that between the lawyer and the client. Banks provide a steady stream of work and therefore income. Moreover, the barriers to entry to this kind of work are high which reinforces these work patterns. I'm not saying there's anything wrong with this; I'm trying to capture what actually happens. For me it necessary that everyone understands what is happening. These are facts of commercial life.

Jonathan Knee in his great book An Accidental Investment Banker reinforces this point when he describes the sale of West Publishing to Thomson by Goldman Sachs, his bank. Although he's working for the seller, he's already started thinking about what services he can offer the buyer. The conflict of interest emerges in the transaction.

However, this is not primarily about conflicts of interest though they are important; it is about understanding the relationship of professionals to clients and how these relationships can be managed effectively. We need more studies of this.

Wednesday, February 07, 2007

Promotion to Partnership Tournament

Bill Henderson has a telling post on the longitudinal changes in the promotion to partnership tournament in law firms at the Empirical Legal Studies Blog. It seems this year's big rise in associate salaries disguises a drop in the rate at which partners are being made and a decrease in the numbers of equity partners within firms. The partnership prize is becoming increasingly remote for today's lawyers starting out in practice in the US.

Some law firms think they can remedy this situation. I think, in the immortal words of Darryl Kerrigan in the best legal film ever, The Castle, "They're dreaming!" Allen & Overy, for example, reported churn or attrition rates of 26% last year among its associates. That's a lot of wasted expertise. To counter this A&O has now appointed an associate to its management team. It will show, apparently, that associates are important, even loved. A&O has also devised a range of senior associate positions and more to entice associates to stay. The idea is to get associates to stay, not to promote them to partner. Lawyers are clever people; do we honestly expect them to be taken in by these ruses? I imagine not.

A recent survey by YouGov for The Lawyer showed that only 37% of associates in the large law firms (ie. with a turnover of more than £250m) expect to make partner. What drives their ambition? More money. But their greatest fear in making partner? Insecurity and risk management. It's tough being an associate.

So, how can we summarize these indices of change? The tournament model almost belongs to another era. The changes Bill Henderson is analyzing are also occurring in the UK.
  • One, associates don't even consider becoming partners or an ever-diminishing number do. This may be because they see it as too remote or because frankly it isn't worth the battle. Partners like associates are essentially fungible unless you possess some key rainmaking skills.
  • Two, there are plenty of alternative careers for lawyers now, which no longer carry the stigma of failure. Banking is increasingly attractive, either as inhouse counsel or as a banker. Consider Harvey Miller's move from Weil Gotshal to Greenhill. Annual attrition rates are now approaching 30% for associates. It's probably too late for law firms to do anything to counter the trend. I don't think Allen & Overy's associate on the management board will suffice, nor will all the other arrangements that firms are thinking about.
  • Finally, when the Clementi changes go through in the Legal Services Bill and law firms start to be owned by external investors, eg, Goldman Sachs, KKR, Blackstone, etc, partnership will die a lingering death as they chase the IPOs and become directors and employees.


Friday, February 02, 2007

Lows and Highs

After practising the turns down the gentle slope, bending the outside leg, I was feeling that skiing wasn't so difficult after all. When Phil and I came down and did two turns together in perfect harmony I knew we'd cracked it. No longer a wimp, merely a fool.

Dave's lesson was short and we three retired to have our coffee and then a trip to the spa! Skiing was fun.

Day two Mandy appeared. She too was from Yorkshire. I suppose being closer to the Arctic Circle predisposes them to cold-weather sports unlike we southerners. She checked out our turns and suggested we could move to another slope. This entailed being dragged along a rope lift, which made my shoulders hurt--delicate petal. And there was one kid who managed to fall half way up each time he got on this lift and there would always be a pile up as we crashed headlong into him. I came to hate this kid and looked for precipices that I could nudge him over, but no luck there.

Nevertheless when we arrived at this new slope, we were appalled. Not only three times as long as the first, but it was steep! It was suicidal. And it had a "button lift", which involved perching one's bum delicately on a button and gliding up and on reaching the top one threw away the button and swept down to the start of the hill. Mandy assured us the slope was a mixture of nursery and "green". Yeah, which rhymes with mean.

Mandy stood us at the top of the great slope and suggested we stick our arms out like wings and as we turned we would lean down and touch our boot leaning away from the hill. She demonstrated and it looked ridiculously simple. Gliding so gracefully, Mandy's arms twirled in the sunlight as she turned and turned. "Your turn, " she commanded. Our little crocodile with its arms extended began to twist down the hill. It felt elegant. What it looked like, I'd rather not say.

The key to this turning business which we hadn't got yet was to make sure that on each turn one skied across the hill from side to side. This doesn't allow for the notorious impatience of the tyro who instead of going from side to side develops a variant that speeds up the process, unintentionally. We were executing our turns halfway across the hill then pointing our skis down which meant instead of moving horizontally we were moving diagonally down the hill. After a few turns speed naturally increases as one is going down rather than across. Great, you may say, speed is thrilling. Yes, I would reply, but being killed ain't.

It takes about three minutes by my reckoning to realise that one is out of control and that those elegant airplane turns--remember the arms sticking out--are transforming into a runaway sluice down the hill. There are fundamentally two choices although choice is overstating the point. One can either go helter-skelter down the hill screaming, as one of my friends did, "Get out of the ***** way!" Which has a certain bravado about it. Or one can rely on the trusty faithful and fall over, so I did.

On one of these exercises, and were on this hill for two days, my turning capabilities deserted me completely. I just couldn't turn and right in front of me was Mandy. She was convinced I was going to turn, as I had been earlier. She bravely took the brunt of me and softened my landing.

On day three Mandy thought it was time for us to migrate to another hill. "A little more difficult," but well within our capabilities. It had another button lift. We were now old hands with button lifts until I fell off. It went in one direction while I chose to go another. I don't know who was the more contrary, probably the lift.

Standing at the top of the new hill, we pondered on the meaning and value of life. Negligible on both counts it seemed. Although the new hill was narrower and shorter than our last, it was steep! Mandy was quite poetic about it, "It's got elements of blue in it." Elements of blue...reminded me of a little book, "On Being Blue: A Philosophical Enquiry" by William H Gass. I commend this one as it is about all aspects of blue: feeling blue, blue grass, blue movies, blue stockings and more. It's an unusual book, even weird at times that takes you in many directions.

Blue slopes are one such direction and they do have an unusual feature--they are awfully steep. We three, Eleni, Phil and I, pondered the meaning of life as it flashed past our eyes while we gazed wistfully down this slope with its elements of blue. Mandy wanted us to use our ski poles like gear levers in a car. As we pushed one forward, our knee would bend and we would lean the right way. Theoretically that was.

Pushing and bending we honed our 45 degree descents until Phil was once again racing down the hill shouting, "Get out of the ***** way!" I suppose his language was blue too. Eleni managed to cross her skis over Mandy's and brought both down. I kept pushing my gear levers.

I was also developing a curious relationship with our button lift. About a third of the way up its ascent, it would falter, hiccup, and continue. Act cool and one could ride over it. Be absent minded and it would throw one off. Not one, but me. What I liked the button lift for was at the end of the ride, one threw away the button to the side and skied off. On one ascent, just as I was about to throw my button away I saw a figure crumpled on the snow. Quickly I threw my button, smartly I skied out of the figure's way to avoid colliding. Theoretically that was. As I hurled the button, the figure's head popped up just in time to meet the button on its return journey. The sound of head meeting button was indubitably loud. The head returned to its prone position. I shouted, "Stay there; there are more buttons coming!" Of course there were, they were in a continuous chain. The figure crawled away from the relentless buttons. "Are you all right?" "Oh yes," she answered, "It sounds much worse than it feels." And so she skied away.

I would see her from time to time and she would regale me with tales of knocks, broken bones and so forth on her previous skiing ventures. Rather than feeling sorry for injuring her, I felt as though I had made a positive contribution to her wellbeing. Another story, another crack in the wall. I crack, therefore I am. (Yet more....and I find that Elvis is alive and skiing in Andorra.)