THE SLG MODEL
Aligned Incentives | Economic Sensibility | Adaptive Approaches
ADDRESSING A BROKEN SYSTEM
The following is a brief overview of the the current state of the broken business model of large law firms, and reveals hidden nuances which explain our motivation to form a new service model the meets the reciprocal needs of the attorney-client relationship. SL Global Partners combines an entrepreneurial spirit and corporate mindset with sophisticated legal experience and acumen, offering the same quality and experience of a Mega Firm at a fraction of the cost.
A basic formula for corporate success is the ability to adapt to current market demands and deliver quality services that meet these demands with precision, as the market generally will not tolerate profit generation due to "over servicing" beyond what is required to satisfy a client's needs. The modern business model of large law firms is a rare exception to this rule because clients rely to a large degree on the firm's expertise and authority to determine the level of service required to achieve their intended goals or outcomes. Big firms therefore have the luxury of sacrificing efficiency for the sake of profit generation, creating the potential of a broken market system in which a firm's business incentives may conflict with the best interests of their clients. This issue only became more acute when the AMLaw Rankings emerged in 1985.
The litany of perverse incentives inherent in the current Big Firm business model have been well covered and discussed in academic journals and within the boardrooms of Fortune 500 corporate clients, but despite the noticeable conflicts that exist, the most sophisticated and successful corporations continue to rely almost exclusively on Big Firm brands to service their transactional and compliance needs, whether due to relationships, risk intolerance or just because it's "the way things have always been done." However, a slow shift is occurring within the entrenched tradition of "blank check" legal engagements, as CEOs and Corporate Directors are beginning to refuse terms that cross the line of economic sensibility and ethical service.
The Big Firm Model
The inherent flaw in Big Firm models originate from the combination of two main principals: billable hours (and their quota requirements) and leveraged hierarchy. Together they created an incentive structure for attorneys which not only conflict with their client's interests but also undermine the practice of law as a reliable provider of ethical service.
That transactions serve as "training ground" for junior associates might be in inevitable hazard in any profession involving sophisticated skill sets, however, the rates charged to clients for what amounts to practice runs of inexperienced practitioners cannot be justified on the basis of the firm's brand name reputation alone. Hours billed behind the curtain of a famous firms often serve as misleading metrics of the value clients receive. The original lock-step model created in the 1950's at Cravath, Swain and Moore created a leverage structure producing these inefficiencies, however, their model also held fast to a tradition of mentoring junior talent into home-grown expertise their clients would depend on in the future and was therefore tolerated as an investment in such client's future relationship with the firm.
Unfortunately, the profit metrics that AMLAW rankings use to determine quality and the movement towards hiring lateral partners in exchange for advancing home-grown talent is a misapplication of the original intent behind the lock-step model, eroding the benefit of a client's investment in the newly-minted lawyer training on their matters by producing a myopic, 'immediate gratification,' view at both the associate and partner level which prioritizes current earnings over the long-term vision of the original Cravath system that aimed to cultivate current human capital existing within the firm community.
In the current Big Firm Model, clients are billed for the time spent by junior associates receiving step-by-step guidance by senior attorneys, who typically end up rewriting the novice's work before it goes out. Depending on the section's work load, clients may find themselves spending hours dealing with junior associates directly, followed by frustrated calls to the senior Partner on the deal as issues arise which the associate cannot manage. In each case, the deal takes longer than it should and the billable hours will be higher, at rates reflecting less of the attorneys' expertise, and more of the client's share of built-in hidden expenses, such as the firm's overhead costs, its real estate, the artwork in the empty conference rooms and the firm's Annual Gala at the Kennedy Center.
'Cravath Pyramid System'
Traditional BigFirm Leverage and Hierarchy
The well-kept secret of Big Firm corporate law pertinent to prospective clients and law students alike is the unique costs associated with training and educating a corporate lawyer. In increasing numbers, however, clients are beginning to refuse to pay for work done by their highly paid for junior lawyers, and for good reason. Reasons which have nothing to do with the intelligence or aptitude of the junior corporate associate, but have everything to do with mismanagement of attorney talent and the inherent bent in modern legal education towards preparing students almost exclusively for careers in litigation.
Even the brightest and hardest working corporate associates cannot make up for the steep learning curve they face during their first few years on the job, yet the bottom-heavy profile of the Big Firm model means corporate sections train their associates "under fire" of times sensitive transactions, often with little guidance and ill-defined goals.
The natural question is how your Big Firm of choice achieves such high rankings and accolades in peer journals if such inefficiencies exist. That is an important question and the answer, which rang true in real life experience of our attorneys, is worthy of discussion and should be evaluated before engaging any firm. To learn more about the perverse incentives and unintended consequences of Big Law metrics deciding their rank, see our analysis in Behind the Rankings.
In addition, associates are typically encouraged to bill all their time, leaving the decision up to the partner to determine if the client is cost-sensitive enough to require writing off a portion of the junior associates time. How frequently this happens is unknown, however most junior attorneys are able to check their "realization reports", and most of our attorneys were surprised that over 95% of the billable time they recorded as junior associates at their Big Firms was "realized," meaning not only was it billed, it had been collected by the firm. This level of realization explains how firms pay such exorbitant salaries in the face of such inexperience and the most recent increase to $180,000 in major markets for first year associates may seem absurd enough, but that firms profit from training their associates by billing out their "work" in multiples of this salary is border-line unethical.
In the wake of the recent salary increases, Bank of America's global general counsel published a letter to its lawyers, stating "we are aware of no market-driven basis for such an increase and do not expect to bear the costs of the firms’ decisions." The letter challenged their law firm to "maintain a true partnership that meets their reciprocal needs—thoughtful, strategic, and cost-competitive representation at rates and alternative billing arrangements that are attractive to our counsel,” and closed by saying they would entrust their work to recipients of the letter based on their "legal expertise and entrepreneurial instinct."
We could not have said it better ourselves.
The SLG Difference
SL Global Partners was created on the premise that clients benefit more from a deep bench of experience with low overhead than by hiring a Big Firm. Our clients will never pay for training attorneys straight out of law school. Our founder has over 13 years of Big Firm experience and any attorney assigned to your matter will be experienced in your particular type of transaction or specific need. Rest assured, there will be no "first-timers" or even "third timers" handling your matter at SLG.
Our overhead costs are a tiny fraction of Big Firms due to our utilization of modern technology. In addition, we operate on the diamond method of "the new firm model" rather than the traditional "pyramid model," eliminating leverage and competition. Notably, our attorneys have no minimum billable hour requirements, which eliminates the perverse incentive pad hours to advance or achieve bonuses.
As a result, we can afford to keep our billing rates much lower than a Big Firm and at levels commensurate with the particular expertise of the attorney handling your matter. In short, clients can be confident that they are getting what they pay for: Big Firm sophistication and experience without the Big Firm price tag.
Like marathon runners, with years of dedication and hard work under our belts, we know what it takes to finish strong. We are competitive and always looking for ways to improve and gain an advantage for our clients in the most efficient way possible.
Historically, Big Firms have a reputation for having the finest lawyers money can buy. At the most senior levels, that is likely true, however, large firms must hire large numbers of fresh lawyers out of law school each year, relying only on the student's law school grades, school pedigree and a few summer associate assignments, metrics which do not necessarily translate to the finest practitioners. Some of the best lawyers we've worked with did not have academic pedigree, especially in corporate law where law school is less relevant (typically) to your capabilities on the job.
Without prior business experience or at least 2-3 years of practicing in a sophisticated corporate law firm section, the work product and value added of any new attorney will be minimal at best. SLG is intentional about keeping the firm lean, the resulting benefit being that we can be selective based on prior experience and proven results. We do not hire lawyers straight out of law school, but look for the traits we know work best serving corporate clients: innovation, the ability to thrive while working hard towards shared goals and a natural proclivity for "off-the-clock" learning.
We do realize that academic pedigree can mean a lot, but it is a less predictable proxy for success in corporate law. Our time at Big Firms revealed two basic a categories of elite law school graduates: (1) those that knew the right boxes to check, privileged to afford test prep classes or admitted based on legacy and (2) those with truly exceptional analytical abilities, who were intellectually curious, well-rounded and driven towards problem-solving. There is nothing inherently "wrong" with the first category, but we seek out the latter category above all else.
We like to say we are people first, thinkers second and lawyers third. We believe this order makes us better attorneys. We bring our humor and conversational ease along with us to work, while too many attorneys seem to check these traits at the door, if they posses them at all. We are multi-dimensional, people-focused, compassionate and down-to-earth. Some of us have been serious athletes and love to compete. We've learned from our failures equally, if not more, than from our successes. We have seen the world, are globally-minded and understand the nuances of negotiating within different cultures. All of these things translate to an adaptability to work well under pressure and the ability to think past problems towards workable solutions.
With the standardization of "market-based negotiations," many lawyers today cannot tolerate the slightest deviation from the firm's model documents, waste time conforming drafts that produces minimal benefit, while forgetting how to think. These hours billed to you are a waste of hours and resources. We look past the surface to what matters most, change only what is beneficial, take problems in stride and develop meaningful solutions efficiently.
Many attorneys have the tenancy to stop at "issue-spotting," get derailed by unexpected problems, expecting the client to have known better how to solve these issues on their own. We think this is an egregious, failing condition arising from the erosion of the profession as a "service industry." You hire us to add- value to your matter, not stress to your life, and that means solving problems creatively at times.
Upon engaging SLG, your problems become our problems. Whether a glitch or disaster, we will discuss it with you together with several workable solutions for you to consider. We are not fazed when problems arise, but expect them as part of our job, nor do we ever "compare" one client's sophistication or "know-how" to another. Instead, we meet you where you are and take you where you need to go, using a thoughtful approach tailored to your company's specific profile and goals.
Let Us Take You There.