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Firms gravitating to corporate model: study

By: Bill Myers

September 15, 2003, Chicago Daily Law Bulletin

Shifts in the practice of law are putting pressure on law firms to abandon the traditional partnership model and move to "corporate" styles of management, according to two Northwestern University academics.

Brian Uzzi, an associate professor at the Kellogg School of Management, and Ryon Lancaster, a doctoral candidate at Northwestern, have co-authored and are preparing for publication two related studies, both of which argue that the legal profession's partnership model is losing ground to formal, corporate models.

Traditionally, law firms have relied on the partnership model, where young attorneys work long hours hoping to gain equity in the firm. Under the partnership model, if attorneys do not make partner, they leave the firm.

In their studies, Uzzi and Lancaster say that firms are restructuring their offices to look like businesses, where employees work a certain amount of hours for a certain amount of pay.

" It works just like a corporation: You come in and you have something to do and you get it done by the end of day. If the corporation loses work, those people get shed. There's no implicit agreement that the staff has any equity in the company," Uzzi said in a phone interview.

While the partnership model is more collegial and informal, the corporate model is formal and efficient, which helps law firms manage huge staffs, Uzzi and Lancaster wrote.

" The problem is that, with a law firm, when you want to promote a whole bunch of people to partner, you have to have hire a whole bunch of associates who will work for that partner," Uzzi said.

" That means that for a law firm to be competitive now, it's got to have scale -- it's got to be big. And once you get big, you have huge organizational problems just like in corporations," he said.

This shift can be seen, Uzzi and Lancaster wrote, in the rising number of lawyers who work as salaried employees at law firms -- not as colleagues en route to partnership.

According to the studies, in 1968, the largest law firm in the U.S. employed 169 lawyers. By 1999, the largest U.S. firm, Baker & McKenzie, employed 2,343 lawyers. Baker & McKenzie was an early pioneer in the use of the corporate model, Uzzi and Lancaster wrote.

These changes are occurring, Uzzi and Lancaster said, due to a convergence of several trends, including:

- Expectations of young attorneys that their employers give them a better work-life balance.

- The rise in the number of women and minority attorneys, many of whom fear entrenched "old boy networks" in the partnership model. This pressure is compounded by clients' demands that firms reflect more diversity in the lawyers on staff.

- Mergers in the business world, which has drained the client pool in two ways: First, by reducing the overall number of available clients, and then reducing it even more as corporations build their own legal departments.

This last factor is crucial, Uzzi said. Citibank, for instance, has a legal department that is larger even than Baker & McKenzie.

Some attorneys agreed with these findings, but said they were not certain that the change was for the best.

" I'm not sure what the answer is, because law is still a profession and it has to be different from corporations. But I do think something has to change," said Gail H. Morse, a partner at Jenner & Block and a board member of the Women's Bar Association of Illinois.

Daniel A. Cotter is counsel to Unitrin Inc. and chairman of The Chicago Bar Association's Young Lawyers Section. He said that while the number of young attorneys who look to corporate-style jobs is increasing, they are still a minority.

" I get the sense that most young attorneys want to make partner, want to be a leader in their firm," Cotter said.

Dixie Lee Peterson, a former chair of the American Bar Association's Section on Law Practice Management, thinks that the trend toward nonpartner-track positions -- which she refers to as "permanent associates" -- may actually lock women and minorities out of upper management as entrenched partners lock themselves into management of the corporate-style firm.

Peterson said, "The cost may be that we will see fewer women in ownership positions in this trend, because they will not be accommodated in the ownership structure."

Peterson is also a member of the Women's Bar Association of Illinois and is deputy general counsel of the Illinois Department of Children and Family Services.

Amy M. Gardner, a first-year associate at Skadden, Arps, Slate, Meagher & Flom (Illinois), said she was not sure that young young attorneys expect their employers to give them a better work-life balance as Uzzi and Lancaster suggested.

" With the economy the way that it is, it's a little harder for younger attorneys to be anything other than grateful that they have a good job at a good firm," she said.

Alan J. Schumacher, a shareholder at Pretzel & Stouffer, said if your practicing law based on the model used by a law firm, "you're not going to be happy anyway."

Pretzel & Stouffer has long used a more corporate style of organization, Schumacher said.

Morse said the partnership model -- when applied fairly -- is the only one that allows lawyers to enjoy the rewards of their hard work. Corporate models only create divisiveness in firms, Morse said.

" It just sort of stigmatizes those who just want to be 'employees' versus those who are more entrepreneurial. It creates a class system," she said.

Uzzi acknowledged the point, saying that the changing trends in law firms is causing a clash of cultures.

" There's also a huge difference in that lawyers have always felt that once you passed the bar, you're as good as anybody else practicing law. Now, you're dividing people into hierarchies and that's creating conflict. There are some real counter-pressures that make this pretty interesting," he said.

Philip J. Shuey, a solo practitioner based in the suburbs of Denver and another former chair of the ABA's Law Practice Management Section, said the changes Uzzi and Lancaster describe are all but inevitable, and lawyers have to be prepared to deal with them.

" The realities of the business world are intruding into the profession and there's not a thing that the profession can do that's going to stop that train. The reality is that the forces that are driving that kind of model are bigger than the legal profession," Shuey said.

The studies are "From Colleague to Employee: Determinants of Changing Career Governance Structures in Elite U.S. Law Firms" and "Changes in the Social Organization of Large Law Firms and Their Financial Prosperity."

2001 Kellogg School of Management, Northwestern University