Why Are Your Law Firm Fees So High?
You, dear Reader, asked us to dig a bit more into our recent blog post, “Why Big Law will continue to get bigger.” You wanted to know why, and how this will affect your bottom line.
Big Law is certainly changing. Once known for its power suits, legal pads, and insane office hours, it is now known for sweatpants, OneDrive™…and insane office hours. Firms experienced dramatic increases in revenue, and associates witnessed exceptional pay increases. These changes are material…but is that good for you?
The answer is a lawyer’s favorite response: “It depends.”
• If you are a starting associate in one of the world’s top 100 global firms, it is fantastic. Starting salaries increased over 11%, and, in 2022, 1st years can expect to receive up to $215,000/year.
• If you are a partner in one of the world’s top 100 global firms, it is fantastic. In 2021, the world’s biggest global firms were on track to surpass their combined revenues of $128 BILLION from 2020. (For context, this is approximately 50% of Norway’s entire gross domestic product in 2020.) Big Law partners are now taking home multiple millions of dollars a year.
• If you are a consumer of legal services, this is not great news. Big law is becoming larger and more concentrated, with three of the biggest earners in 2020 accounting for nearly 10% of the gross billings at the top 100 global law firms. As with any “oligopoly,” prices become high and standardized. (Read on for some ideas of how to manage outside counsel spend.)
From initial research, this gargantuan uptick in revenue is driven by at least three major factors: an increase demand for legal services, the Swiss verein structure, and the global adoption of the “eat what you kill,” performance-based compensation model.
First, the need for good lawyering has never been more important. Across the globe, companies are witnessing an increase in government regulation, M&A deals, private equity deals, and stock market listings (including via complex special-purpose acquisition companies, or SPACs. (“What in Sam Hill are SPACs,” you say. Please check our “spac-tacular” blog post here.)
Second, almost all big firms have transitioned to a performance-based approach to partner compensation. Prior to the adoption of this performance-based approach, some large firms compensated based on seniority. Now, partners are paid based on perceived revenue (i.e., the money you pay them.)
Third, law firms now favor a corporate structure known as a Swiss verein (voluntary society). Through this structure, law firms create branches in different countries that operate under a common name but enjoy substantial autonomy in how they run. This allows firms to become more global, which is appealing to clients, but also maintain the “eat what you kill” model, which appeals to its most profitable partners.
Global firms need offices in London and Dubai. They also need to handsomely compensate their rainmakers. But you DON’T need to pay those premium rates to get expert advice.
Our firm model is based on practical, cost-effective legal and compliance advice that won’t break the bank. We are of course open to alternative fee arrangements; we even wrote a popular blog about fixed fee retainers. We are a multi-ethnic, multilingual firm with global experience, and we would love to help. Let’s talk! Contact the Wallenstein Law Group today!
