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Client resentment for ‘training’ junior lawyers is misplaced
Posted 4/07/2007 by Alex Novarese
A familiar refrain that emerges when quizzing clients regarding the fees charged by large City firms is resentment that they are being asked to foot the bill for ‘training’ junior lawyers. The logic of this assertion, which emerged again during Legal Week’s The Verdict poll on fees, is that most lawyers, especially at larger firms, are of little practical use to the client until they reach three-years’ PQE.
But even leaving aside the issue that it is not the juniors’ fault if their employers have them mired in photocopying for the early years, such gripes seem misplaced.
Consider some basic calculations. A large London firm will have between 700 and 1,000 fee earners in the City, excluding partners and paralegals. A firm of that size would be likely to have upwards of 200 equity partners operating out of the Square Mile. Factor in this year’s assistant salary rises and a City practice of the order described above has raised its labour costs for London assistants by between £5m and £10m annually, excluding variable costs like bonuses.
A considerable burden for clients to bear, certainly. But, by the same yardstick, the increase in costs is dwarfed by the current rises in equity drawings at firms, many of which are operating 40%-plus profit margins. Judging by the general trend of this year’s financial results, a top-tier firm of the size described above will have increased its ‘labour’ costs for partners by something in the region of £20m to £40m - just in London, just this year.
Obviously, since we are discussing equity drawings, these are technically not 'costs'. But in the real world, if law firms manage and structure themselves to achieve six-figure annual increases in average equity partner earnings, as far as the client is concerned, they are a cost that they will, to a considerable extent, have to bear.
Such are the realities of law firm economics and, personally, judged by the slightly surreal yardstick of City advisers, I’d say deal lawyers still look OK value. Not everyone will agree but whatever conclusion you draw it certainly puts into perspective gripes over costs of inexperienced juniors. Clients should also bear in mind that training is a cost their advisers have to incur if they want them to still be at the top of their game a few years down the line.
There is a legitimate debate to be had over fees and the appropriate remuneration for advisers but there’s not much point taking it out on the juniors when the highest ‘operating costs’ of law firms are their shareholders’ expectations.
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Comments
There is clearly a trend (more evident in some practice areas) towards sending more quality work to regional firms which in the past, were reserved exclusively for the City. Shipping litigation is one such example. An article in The Lawyer Online recently declared shipping to be a dead-end practice area. Yet, here in "the regions", we consider this area to be flourishing and possessing potential.
Skill sets are individual in nature. Just because one has moved away from the City does not mean that that partner's skill set somehow decreases. The main challenge for a regional firm is how that skill is delivered to the client - the quality and speed of service must not suffer as a result of the move away from the City. In that respect, the vast improvement in communications technology, especially the Internet, has assisted tremendously. Most shipping litigation clients do not really care whether their lawyers are sitting in Ipswich or in London.
Another challenge is, dare I say it, size. Not necessary the behemoths of the magic circle boys or even the mid-tier City firms. Nevertheless, a certain "critical mass" is necessary to pool the resources required for all the efficient support services that need to be found in a modern solicitor's practice.
The main attraction of the regional firm is that, provided the above quality and efficient delivery of service can match that of the City, we are able to do so at a more cost-effective price. Not necessarily cheap but certainly more value for money. It is therefore a "win-win" situation for the client as well as the lawyer. The client pays a lower price for the same service that he finds in the City (if not better in some cases - for example, the common complaint that it can be very impersonal in the City whereas, you tend to get more personal attention from regional firms). The lawyer gets to earn a comfortable living (because the overheads are lower in the regions) without the mad rush pressure to achieve high billing and chargeable targets common in most City firms.
Shipping litigation has admittedly been under enormous pressure this past decade in terms of rates. It does not compare to what a City corporate or commercial litigator earns. Nevertheless, managed properly, it is still a fairly decent earner. A move to the regions is in my view, an ideal solution for both client and lawyer.
Nicholas Woo
Birketts LLP
Ipswich
Posted by Nicholas Woo | 5/07/2007