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Bench & Bar of Minnesota is the official publication of the Minnesota State Bar Association.

BigLaw: The World of the Megafirm

0516-Big-LawWhen my father joined St. Paul’s venerable Oppenheimer firm in 1937, it was already a “big” firm of seven lawyers. Like many others, he practiced his whole career at the same firm. When I came out of law school in 1968, Oppenheimer was one of the large firms in the Twin Cities, and has been one of the state’s 10 largest firms since then. Suddenly, in December 2015, Oppenheimer’s 80-odd lawyers were swallowed whole by Fox Rothschild, a Philadelphia firm that will now consist of over 700 lawyers in more than 20 branch offices, one of which will now be in Minneapolis. Oppenheimer is simply gone.

In 1988 Chicago’s Baker & McKenzie became the first law firm in the world with over 1,000 lawyers. Today the “thousand lawyer” club has grown to at least 25 firms in the U.S. alone. In January 2015, a law firm known as Dentons (originally created in 2010 when Chicago’s Sonnenschein Nath & Rosenthal merged with a British firm) announced a merger with a huge Chinese firm, creating a single firm consisting of more than 6,500 lawyers in 120 offices in more than 50 countries. Dentons went on to absorb six more firms on four continents in 2015 and currently employs over 7,200 lawyers, with near-term plans to increase to 10,000 lawyers in 200 offices worldwide. A few months ago I had never heard of Dentons, but it’s obviously time for all of us to learn the name.

Love it or hate it, BigLaw—a phenomenon and a descriptor of recent origin—is here to stay, and may be just getting started. Though the numbers involved (both firm size and revenues) are jaw-dropping, the lawyers in this category appear to constitute only about 10 percent of all practicing U.S. lawyers. Rarefied atmosphere, to be sure, but this is a phenomenon that bears close examination, as it is redefining the manner in which law will be practiced at the highest levels for years to come. It may also come to redefine the legal profession itself as megafirms internationalize and come to encompass entities including both lawyers and non-lawyers—what U.S. lawyers call “multidisciplinary practice.”

While the word “BigLaw” can be traced back to a 1997 book,1 it did not really gain currency until the middle of the next decade, at which time it came to be bandied around on blogs by law students and large firm associates. An imaginative definition appeared on the website Urban Dictionary in 2005: “A collection of huge law firms in major cities (particularly NYC) where thousands of Ivy Leaguers and honor students make six-figure
salaries straight out of law school. They usually quit after a couple of years of virtual slavery, but if they stay in the game, they end up running the country.”2

Big Law in Minnesota

In everyday usage, the term describes a select segment of the firms employing the largest number of lawyers—usually the top 50, top 100, or top 250; informally, the term is often used to describe firms of 100 or more lawyers. Three Minnesota-based law firms can be found in the top 100 U.S. firms (by number of US-based attorneys) as reported by Law 360 in March 2016.3 They are Faegre Baker Daniels (47th at 710 lawyers), Dorsey & Whitney (88th with 512), and Stinson Leonard Street (okay, actually 101st with 455).

These firms can, by any standard, identify themselves as BigLaw. If the definition is expanded to include the largest 250, the Minnesota contingent expands to include Fredrickson & Byron (165th with 273); Robins Kaplan (197th with 213); Gray Plant (223rd with 182); and Lindquist & Vennum (239th with 167). If all firms of 100 or more lawyers are included, Minnesota firms Briggs & Morgan, Robins Kaplan, and Winthrop & Weinstine join the BigLaw club.

While to most of us, the practice of law in Minnesota neither looks nor feels much like we are a BigLaw state, the fact is that the 10 firms mentioned above—all in Minneapolis—currently employ a total of 1,651 Minnesota lawyers, or almost 7 percent of the state’s lawyers.4

But while seven Minnesota Top 250 firms might seem impressive relative to neighboring states and the upper Midwest generally, Minnesota’s BigLaw entries are dwarfed by BigLaw heavy hitters when all lawyers internationally are counted. This list (not updated to 2016 as this is submitted) is topped by Dentons, mentioned earlier, followed by Baker & McKenzie (4,245 lawyers worldwide), DLA Piper (3,702 lawyers in all offices), and Norton Rose Fulbright (3,461). At least 25 U.S. firms now exceed 1,000 worldwide lawyers, with many more planning to join the 1,000+ club soon. Thirteen of these firms (of which Dentons is not one) employed over 1,000 U.S. lawyers as of March 2016. Cleveland’s Jones Day is currently the largest firm in the nation in U.S. lawyer headcount at 1,684 U.S. lawyers.5

The increasing pace of law firm mergers and acquisitions is likely to continue; since 2007, there have been between 50 and 100 such mergers per year, many of them resulting in large firms getting much larger. But merger-mania is not limited to BigLaw; a review of 2015’s 87 law firm mergers reveals that only one-third involved acquisition of a firm of more than 10 lawyers.6 As of the end of April 2016, 15 more acquisitions of firms of 10 or more have taken effect, four of which involved the continuing growth of Dentons.7

Of all the occupational golden ages to come and go in the twentieth century—for doctors, journalists, ad-men, autoworkers—none lasted longer, felt cushier, and was all in all more golden than the reign of the law partner.

There was the generous salary, the esteem of one’s neighbors, work that was more intellectual than purely commercial. Since clients of white-shoe firms typically knocked on their doors and stayed put for decades—one lawyer told me his ex-firm had a committee to decide which clients to accept—the partner rarely had to hustle for business. He could focus his energy on the legal pursuits that excited his analytical mind.

Above all, there was stability. The firms practiced a benevolent paternalism. They paid for partners to join lunch and dinner clubs and loaned them money to buy houses. When a lawyer had a drinking problem, the firm sent him off for treatment at its own expense. Layoffs were unheard of.…

“Stable” is not the way anyone would describe a legal career today. In the past decade, 12 major firms with more than 1,000 partners between them have collapsed entirely. The surviving lawyers live in fear of suffering a similar fate, driving them to ever-more humiliating lengths to edge out rivals for business. “They were cold-calling,” says the lawyer whose firm once turned down no-name clients. And the competition isn’t just external. Partners routinely make pitches behind the backs of colleagues with ties to a client. They hoard work for themselves even when it requires the expertise of a fellow partner. They seize credit for business that younger colleagues bring in.

– “The Last Days of Big Law,” Noam Scheiber, The New Republic 7/21/13

Explosive Revenue Growth

So how big is BigLaw in the United States? If we use 100 lawyers as the smallest qualifying size, there are 385 firms at or above that threshold.8 Putting the entire list into a spreadsheet yields a total of 134,851 lawyers at these firms. Using the ABA’s 2015 total lawyer count of 1.3 million, these numbers suggest that BigLaw makes up about 10 percent of U.S. lawyers. (If you use the Bureau of Labor Statistics number for total employed lawyers, around 778,000, the share in BigLaw is around 17 percent.)

Let’s not forget, though, that the term BigLaw suggests far more than just the number of bodies involved in this burgeoning endeavor. Unsurprisingly, “BigMoney” is also involved. According to an in-depth 2013 article in Bloomberg Business, the 50 top-grossing U.S. law firms in 1985 had total revenues of $3.4 billion.9 Had that figure increased at the rate of inflation, it would have grown to $7.1 billion in 2011. Instead, total Top-50-firm revenue had exploded to $48.4 billion by 2011. And of course that was five years ago.

Accordingly, it should come as no surprise that annual revenue at several BigLaw firms is now measured in the billions of dollars. According to research in The American Lawyer (AmLaw), more than 25 firms broke the billion-dollar mark in revenue in 2015.10 Topping the list (not for the first time) was Latham & Watkins of Los Angeles, with total revenues of more than $2.65 billion in 2015. That works out to a respectable $1.217 million in revenue per lawyer (a popular yardstick for measuring BigLaw success) for each of Latham’s 2,177 lawyers. But Latham’s 2015 revenue per lawyer figure looks a little anemic next to the $3.185 million per lawyer realized in 2015 by Wachtel Lipton (a 20 percent increase over 2014’s figure), which in turn translates to $6.6 million in revenue per Wachtel partner, also a 20 percent increase over last year. Other top legal revenue generators for the year included Baker & McKenzie ($2.43 billion), and Kirkland & Ellis ($2.3 billion), both of Chicago, and Skadden Arps of New York ($2.4 billion). BigLaw changed forever in 1985, when AmLaw began to publish detailed law firm financials. These annual publications introduced transparency to a body of previously private information. It is because of these statistics that we know that in 1984, equity partners at top BigLaw firms took home $289,000 in average profits ($630,000 adjusted to 2015 dollars); today, partners at the top 100 firms average more than $1.5 million per year.11

Life in Big Law

Despite the big money, life in BigLaw is not necessarily to be envied by anyone other than its own full partners. Associates, almost all of whom arrive from the same group of top law schools, begin their careers with a fairly healthy salary—largely unchanged over the last decade—of $130,000 – $160,000 per year, with the number of first-year associates receiving the highest amount declining in recent years.12 They work staggering hours and their attrition rate is notoriously high; simply search the phrase “are lawyers happy?” and you’ll find site after site in which BigLaw associates bemoan the disappearance of life as they once knew it while they toil nights and weekends in hopes of being one of the few who will make partner after eight years or more of mind-numbing drudgery.

The Atlantic Monthly took stock of this state of affairs in a 2014 article entitled “The Only Job With an Industry Devoted to Helping People Quit.”13 As that title suggests, making it in BigLaw isn’t what it used to be. “Partnership” in BigLaw is now generally a two-tiered status. Becoming a partner in many BigLaw firms now often means stepping up to non-equity partnership status—a category of recent origin that identifies partners who share in committee responsibilities and enjoy higher salaries and bonuses than associates, but who very explicitly do not share in firm profits. In some firms, this intermediate status is coupled with an “up or out” deadline. As a result, equity partners constitute a steadily shrinking segment of BigLaw: The percentage of BigLaw lawyers who enjoy equity partnership in these firms has diminished from 36 percent in 1985 to less than 22 percent today. Non-equity partners now constitute over 40 percent of all partners in the largest firms.14 And the majority of BigLaw associates never reach either tier of partnership.

Like every other segment of the profession, BigLaw has struggled with diversity, with predictable results. The number of female BigLaw equity partners has hovered around 15 percent for the last 20 years; this ceiling is particularly troubling in view of the fact that at least 40 percent of enrolled law students since 1985 have been women. Predictably, female equity partners on average earn only 80 percent of what their male peers earn as of 2015.15 

Just as predictably, lawyers of color fare much more poorly than women in BigLaw; only 8 percent of BigLaw equity partners were lawyers of color in 2015.16 And as a recent ABA Journal article17 confirmed, circumstances are grimmer still for attorneys who are both women and minorities.

Despite the huge revenues, average BigLaw hourly billing rates really are under pressure for the reasons described earlier in “Getting Paid: Is Time Running Out on the Hourly Rate?” and—with some significant exceptions—still fall in the same general range of rates that were in effect more than a decade ago. Average billing rates by partners at the three largest Twin Cities BigLaw firms in early 2015 ranged from $435 to $520 per hour, with the most expensive partner at one of these firms billing $600 per hour. The average hourly rate for associates at those same firms ranged from $260 to $365 per hour. To be sure, four New York megafirms report average partner hourly rates above $1,000 per hour, but average rates drop sharply as one moves down the list of the largest firms.18 Given the vast increase in revenues at the biggest firms, it is easy to conclude that both associates and partners are billing more hours than they used to.

Stated hourly rates cannot be taken completely at face value. Consulting firm and pulse-taker Altman Weil’s 2015 Law Firms in Transition survey established that the median discount from stated hourly rates is between 21 and 30 percent for “Little BigLaw” firms, increasing to 31 to 40 percent in firms of 250 lawyers or more. Over 90 percent of large firm managers believe that increasing price competition is a permanent trend.19 As well, the largest firms (500+) report that they earn 15 percent or more of their income from pricing other than billed hours.20 Most BigLaw firms (94.4 percent) agreed that price competition is a permanent trend going forward and that more non-hourly billing is also a permanent trend (81.3 percent).21 

Big Law’s Future

An unusual phenomenon uniquely associated with BigLaw is the small but steady stream of massive BigLaw failures that have occurred over the past decade.22 These failures occur on average about once a year, but have swallowed such high-profile behemoths as Dewey & LeBoeuf, Howrey, and Coudert Brothers, along with Gonzalez Saggio & Harlan of Milwaukee, the nation’s largest minority-owned firm, which closed its doors this past winter. In some cases law firm failures have even led to criminal charges against a handful of firm managers, though no one seems to have gone to jail—yet.

Despite the rich rewards that BigLaw can and does generate, Altman Weil counterintuitively reports that a majority of the top firms report that they have too many lawyers. Some 74 percent of the managing partners of firms of 250 or more lawyers agreed that overcapacity and idleness were hurting profits.23 This is the same survey that suggested BigLaw is concerned that corporate in-house lawyers are in fact taking business from them—or trying to.

By now it is obvious that BigLaw is not a uniquely American phenomenon. Wikipedia’s list of the 14 largest law firms by revenue as of January 2016 includes seven headquartered either in London or in both the U.S. and London. Dentons is no longer included in lists like the AmLaw 100 because a (large) majority of its lawyers are not U.S. lawyers. But internationalization marches on. Dorsey & Whitney now has offices in Canada, the United Kingdom and China. Faegre Baker Daniels is in China and the U.K.; Fredrickson & Byron offers services in Mexico and China.

So when we talk about “the legal profession” in the age of BigLaw, we are no longer talking only about the practice of law in the United States. And with that understanding, it becomes evident that we are also talking about different forms, levels and quality of legal education, different ethical standards, different systems of oversight, different terminology for similar concepts, and different financial restrictions on law firms.

At the end of the ‘90s, several states, including Minnesota, explored the uncharted prospects of multidisciplinary practice (MDP)—blended partnerships in which lawyers and non-lawyers could share in profits. In 2000 an MSBA task force presented the Minnesota Supreme Court with a proposed change in the professional responsibility rules that would have permitted non-lawyers, in limited circumstances, to hold ownership and/or other financial interests in law firms. As it happened, two major international business scandals (Enron and Arthur Andersen) put a lid on MDP’s prospects; the Minnesota Supreme Court firmly declined the opportunity to amend the rules. MDP, in fact, was not approved in a single state where it was proposed. The profession was clearly not ready to go there.

It doesn’t take a fearless prognosticator to predict that the question of MDPs will soon be revisited. In England, where it is fully permitted, even traditional business organizations like British Telecom have entered the legal market with specialized services targeted at particular practice niches. Ernst & Young, the accounting leviathan, already employs over 1,000 lawyers in 29 countries outside the U.S. through its legal arm, EY Law, and it has announced plans to triple that headcount by 2020.24 U.S. BigLaw will soon clamor for the ability to play by the same rules that govern its foreign partners and competitors.

In the meantime, the exact legal arrangements between U.S. megafirms and their foreign partners are not public information. At least some of the major legal conglomerates appear to be structured as Swiss “vereins,” an entity concept I had never encountered until I started exploring BigLaw. Vereins allow separate profit pools and their related tax, accounting, and partner compensation systems to remain separate while allowing strategy, branding, information technology and other core functions to be shared between the constituent partnerships.25 For the moment, it is probably safe to assume that U.S. branches of the international giants remain financially segregated from their foreign counterparts. In any event, not all BigLaw international giants are tightly integrated from a management standpoint; some vereins are reported to have minimal horizontal integration, operating more as mutual referral sources.

From the vantage point of my own comfortable experience (circa 1979-2014) in a small Minneapolis firm, the emerging BigLaw universe seems more than a little supernatural. Though I have paid a lot of attention to the profession over the years, most of what I have written here about BigLaw is news to me, and I suspect to many of you. Both the risks and the rewards seem incredibly high, and the multinational aspect of BigLaw is hard for most lawyers in traditional practices even to imagine. I don’t think it’s a stretch to suggest that the current vogue for mammoth international firms, when coupled with slowing growth in advanced economies, stronger cost pushback by corporate clients, and unpredictable factors that may accompany rapid decisions to “internationalize,” might—in the foreseeable future—lead to a difficult period of “BustLaw,” a term to which I hereby lay premature claim.

Obviously, it behooves all of us to pay attention to BigLaw. For better or worse, this very visible segment of the profession is being reshaped and rapidly internationalized with little if any input from the organized bar and remarkably little attention from the press. The pace of change and the staggering economics of BigLaw will have an impact of unknown proportions on the vast majority of lawyers who continue to practice law more or less as we learned it in law school, and we ignore these dramatic developments at our collective peril.

 

NEXT – Real Law: How the Rest of Us Practice

 


ABOUT THE AUTHOR

Wood R. Foster, Jr. practiced law in Minneapolis from 1968 through 2013, most of it as a litigator with the firm now known as Siegel Brill. He served as HCBA president in 1992-1993 and as MSBA president in 1999-2000. He conceived and edited “For the Record: 150 Years of Law and Lawyers in Minnesota,” which was distributed to all lawyers and libraries in Minnesota in 1999. Wood served as a member of the Lawyers Professional Responsibility Board for eight years beginning in 2001. He was a founder, 1993 president and 30-year board member of the Advocates for Human Rights. As a retiree, he works one day each week with the “St. Paul Regulars,” a Habitat for Humanity crew.  


Notes

1 Michael H. Trotter, Profit and the Practice of Law: What’s Happened to the Legal Profession (Athens, GA: University of Georgia Press, 1997).

2 The Urban Dictionary http://www.urbandictionary.com/define.php?term=biglaw&defid=1426137 

3 “Law360 Reveals 400 Largest US Firms,” Law 360, 3/24/2016 http://www.law360.com/articles/772291/law360-reveals-400-largest-us-firms 

4 “The One Hundred Largest Law Firms in Minnesota,” Law Moose 03/2016 http://lawmoose.com/index.cfm?Action=Connections.ShowLargestOneHundredMNLawFirms&CKS=MNLaw 

5 Domestic counts as of March 2016 are from Law 360 at http://www.law360.com/articles/631981/law360-reveals-400-largest-us-firms; this site lists Dentons as having 648 U.S. attorneys. International counts (as of early 2015) are from Internet Legal Research Group, https://www.ilrg.com/nlj250 

6 Altman Weil Mergerline, http://www.altmanweil.com/index.cfm/fa/m.home/bl/1/dtYear/2016/altman-weil-merger-line-for-2016.cfm

7 Id.

8 Supra note 5.

9 “Howrey’s Bankruptcy and Big Law Firms’ Small Future,” Paul M. Barrett, Bloomberg Business 5/2/2013 http://www.bloomberg.com/bw/articles/2013-05-02/howreys-bankruptcy-and-big-law-firms-small-future, citing Atlanta lawyer/author Michael Trotter, author of the 2012 book Declining Prospects: How Extraordinary Competition and Compensation Are Changing America’s Major Law Firms

10 “The 2016 AmLaw 100: Trouble Ahead?” David Lat, Above the Law 4/26/16 http://abovethelaw.com/2016/04/the-2016-am-law-100-trouble-ahead/?rf=1 

11 “A New Way to Size Up Profits,” Chris Johnson, The American Lawyer 5/2015.

12 “Burdened With Debt, Law School Graduates Struggle in Job Market,” Elizabeth Olson, New York Times 4/27/15 www.nytimes.com/2015/04/27/business/dealbook/burdened-with-debt-law-school-graduates-struggle-in-job-market.html 

13 “The Only Job With an Industry Devoted to Helping People Quit,” Leigh McMullan Abramson, The Atlantic 7/29/14 http://www.theatlantic.com/business/archive/2014/07/the-only-job-with-an-industry-devoted-to-helping-people-quit/375199/ 

14 Supra note 11.

15 “Women Battle Law Firm Bias,” Kate McGinnis, Ms. JD blog, 1/10/2012, http://ms-jd.org/blog/article/women-battle-law-firm-bias ; and Jasmine Narang, “What Does the Future Look Like for Women in BigLaw?” Ms. JD blog, 11/30/2015, http://ms-jd.org/blog/article/what-does-the-future-look-like-for-women-in-big-law1 

16 Id.

17 “Minority women are disappearing from BigLaw—and here’s why,” Liane Jackson, ABA Journal, 03/2016 http://www.abajournal.com/magazine/article/minority_women_are_disappearing_from_biglaw_and_heres_why 

18 National Law Journal Billing Survey as of December 15, 2015, www.nationallawjournal.com 

19 Altman-Weil, Law Firms in Transition 2015, p. 89 http://www.altmanweil.com/dir_docs/resource/1c789ef2-5cff-463a-863a-2248d23882a7_document.pdf 

20 Id. p. 95.

21 Id. p.101.

22 An interesting and detailed description of a large firm failure can be found at note 9, supra.

23 Supra note 19, pp. i-iii.

24 2015 Report on the State of the Legal Market, Georgetown Law Center/Thomson Reuters Peer Monitor http://www.law.georgetown.edu/academics/centers-institutes/legal-profession/upload/FINAL-Report-1-7-15.pdf 

25 “Swiss verein,” Wikipedia https://en.wiki;edia.org/wiki/Swiss_Verein

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