Has the “Great Resignation” hit the legal profession?
Law Firm turnover is up by over 32% for the running twelve months ending October vs ending March 2021. It is up over 22% over a typical year according to statistics compiled by The Advocates.
Articles about the “Great Resignation” under way abound as people coming out of the pandemic choose different lifestyles and relationships to work, or different professions altogether. Yet, within the Legal Profession, the bulk of articles seem to be about how busy law firms are – and that is true. Law firms are busy – they have tons of work and are aggressively hiring associates. We read and hear about it daily and certainly our firms, The Advocates Corporation and TLSS Ltd., have never been busier. This is one of the hottest markets for RE, PE/M&A lawyers we have seen – maybe ever.
But it’s not just hiring that has hit a high as law firm turnover is at one of the highest rates we have ever tracked. It’s a vicious cycle of firms not being able to take full advantage of market conditions pushing client demand, while having a lack of talent to fill the need and paying more than ever before to attract that talent. It’s not just demand that is causing that problem – it is higher than ever law firm turnover.
The Advocates tracks turnover in various ways among law firms annually and it paints an interesting picture: Data taken from Leopard List with some internal work and sources shows average attorney turnover in a typical year for the AMLAW 200 is between 13.5%-14%. This roughly tracks various NALP and Thompson Reuters Surveys. Checking the 12 months ending in October, it was 16.7% (up 22% over average), after being down earlier this year due to the pandemic, to about 12.6% for the twelve months ending in Q1. Our interviews with law firm lateral attorneys show associate satisfaction is at a low ebb causing more turnover within the profession and more people to leave it. We believe turnover could still get worse.
It is not just about pay:
The entire industry is aware of the incredible numbers and signing bonuses paid by the top AMLAW firms to attract lateral corporate associates. But as an industry are we excessively focused on pay? An analysis in The American Lawyer Magazine entitled “Separation Between Big Law Elites and the Rest is Intensifying” published last week, attempts to show the correlation between profitability and the ability to attract lateral talent and how that is concentrated in the AMLAW top 50 and really in the top 10-20 AMLAW firms (in terms of size and profitability) leaving other firms behind. It’s true that profitability has risen quicker at those firms than the rest of the AMLAW 200 since 2010. That improved profitability allows these firms to pay whatever is needed, raising base pay (earlier this year), guaranteeing year-end bonuses for laterals and even adding significant signing bonuses.
However, attracting laterals is one thing – keeping them is another. The same data from above that showed 16.7% average AMLAW 200 turnover in the past twelve months showed that actually, the top firms are faring worse as a group. Attorney turnover at the top 15 firms (in PPEP) is on average 39% higher than in the AMLAW 200 average. In fact, only three of the top 15 firms (firms that have $4m or above in PPEP) had turnover rates at or below the AMLAW 200 average of 16.7%. And that turnover is expensive. I read a study years ago (by I believe Mercer) that showed that for every 1% a services firm can reduce turnover, there is a resulting boost in operating income of 5%. For perspective, for every full point a law firm can reduce their turnover (from 16.7% – 15.7% for example) would net a 5% improvement in PPEP which for the top 15 firms would translate to improvements of $200,000 - $350,000.
So, what if much of the hiring today is largely to replace the lawyers leaving? Especially the associates on whose work much of the profits depend. A recent American lawyer Article, entitled: “As the Talent War Stokes Paranoia About Exits, Law Firms Employ Risky Retention Strategies” shows that law firms are aware of this problem. But the strategies employed are largely financial and include counter offers (at an all-time high), retention bonuses and even paying associates to stay off LinkedIn and discouraging networking. But those last two could be counterproductive since you also want to have associates learn how to market your and their services. Clearly there is more to building a firm than re-recruiting people you are losing through more money and keeping them hidden from competitors. Other factors matter as much or more.
How much less would you have to recruit to keep clients happy? How much lower your stress and how much higher your productivity and profits if you were able to lower your turnover rate?
I will discuss 4 effective strategies firms of all sizes can implement to better understand what drives their attorney’s satisfaction and how to keep their best performers in my next blog titled “4 Steps to Improve Attorney Retention (and Your Firm’s Profits).”
Any Feedback? Questions? We can help. Feel free to contact me at
Mollig@targetedlegal.com or (303) 825-2600.