The Cravath System... Origins of Lockstep... and its Death.

I was reading up on www.law.com today and noticed that the first NYC based law firm, Kelly Drye, is abandoning lockstep.  They have joined the company of several large firms based outside of New York; Wilmer Cutler Pickering Hale & Dorr; Sonnenschein Nath & Rosenthal; DLA Piper; and Orrick, Herrington & Sutcliffe.  I think that lockstep compensation may be dying and I'm pretty happy. Although I wish and bitch about attorney salaries today, I do not actually want attorneys to be paid more. As a libertarian, I just want the costs of an education, the number of jobs and the salaries to be shaped by accurate information, supply and demand.  So, naturally, I'm rather excited that the coveted salaries at big firms will not be guaranteed at $160K.  It will be determined by the market. 

I never actually knew about lockstep until I was a 2L.  So, for those of you that haven't heard of it, lockstep is "a system of remuneration in which the employees' salaries are based purely on their seniority within the organization. For example... all law school graduates hired by a law firm who graduated in the same year receive the same base pay, regardless of the background, experience, or ability of each." 

In my short career I remember lockstep went from $85K to $125K to $145K to $160K.  With each jump, I got a little dizzy.  It was an unsaid secret among those in the legal profession that lockstep was out of control.  But depending on who you were, you would smile happily to yourself or groan with envy.

But I think we all knew that it was bound to die.  Big Law Firms were increasing 1st year salaries because of what the "competition" was doing, and not because quality first years were any less abundant or business was so much more profitable or first years were any more qualified.  It seemed like a stupid idea.  Well, it's all done now. I imagine that salaries will float back down to $90K to $120K and remain there for years to come.  Of course, this would be for the lucky few... not the majority of law students.

Law firms are in the practice of implementing and following business models.  The most obvious one--and most people do not know it by name--is "The Cravath System," named for Cravath Swaine & Moore, which was formulated in the 19th Century.  Some of the tenents have stuck, and other have not. I will go through a few of them after the leap....
Recruiting the Staff



Mr Cravath preferred to hire the "best of the best" and looked to the better law schools for candidates. Graduates were expected to be members of Phi Beta Kappa and have served as editors for the school law reviews. A graduate from a university outside the top 5 was expected to be at least the equivalent of a "B" student at Harvard. Only new graduates were to be hired, except in extenuating circumstances. The belief was that someone who had worked anywhere else had learned bad habits already.

This is still true, although it's down to law review, grades and sometimes moot court.  And the number of law schools has grown exponentially--so it's the T14.  And if you go to a lesser school, you have more to prove.  The stupidity in this logic is that you lose out on more senior attorneys who are already trained in an area of the law and can hit the ground running.  Instead, you sink money into a new graduate for several years before they produce and then jump ship.

Compensation


Early law firm hiring practices paid the associates nothing, except what they could bring in for themselves. By 1910, the Cravath firm was one of the first to hire incoming lawyers on a salary. Since they preferred to hire the best, this led to wide disparities in starting salaries. Collusion among law firms and law schools led to uniform starting salaries across law firms from the end of WW1 to WW2.

A-ha!  The birth of lockstep!  Can you believe that it has lasted this long?  The concern for the disparate salaries among the top 5% of graduates ironically led to the very severe disparity among all graduates now.  As stated many times before in this blog, salaries can vary from $0 to $165 in the legal industry today.

Tenure


Generally, only partners may have permanent employment at the firm, and as long as an associate is promotable, they may stay. Those who were not suitable for promotion were dismissed in the "up or out" policy.

Up or Out is definitely still alive.  And it is this fact that eludes so many 0Ls.  Even if you are the best of the best and attend the most amazing school, make law review and do moot court--your days on top are numbered.   One day, you will most likely be sat down and told that you have no future with the firm and you should start looking for a job.  If you're lucky you will end up in-house counsel at a profitable company that lasts a life time or you end up down in the drudges like the rest of us.  I'm actually working a doc review project with a former in-house counsel to a huge retail store chain. He worked there for 30 years and was very happy.  But when the company merged with another, he was let go and unemployeable anywhere else.  When you're 60 years old, no one will hire you without a book of business.  Others will leave a large firm to become a starving politician. Whatever way you cut it, it's a pay cut.
As to choosing partners


Unless there is some need for expertise unavailable within the firm, partners should only be chosen from within the office.

Definitely NOT true. More often than not these days, partners are chosen from a pool of high profile lawyers outside of the firm.  So all of your years of hard work in a law firm will not help you land a position a the pinnacle of your firm.  Ex-Attorney Generals or Ex-Judges and the like will be imported for their name recognition and ability to attract business.  The truth of the matter is that you have no ability to get new clients if you have been working for the same firm for 1 to 8 years.

and some additional fun holdovers traditions that started with Cravath....
Interests outside the firm
Partners and associates may not have business interests outside the firm. Charitable, educational and artistic interests are permitted. There are no part time associates and partners, and all business in the office is company business.


Relationships of the partners
Partners are expected to work with each other. Silos and cliques are to be avoided.


Scope of the practice
Cravath handled predominantly civil matters in the early years, and the majority of firms adopting this system are likewise civil law firms.


As to "influence"
The firm would avoid lobbying or currying favors with politicians. The firm would stick with skill and diligence in applying the law.


I wonder what else is going to die from the old system.  I'm just happy to hear that Capitalism is being permitted to do what it was intended to. 

Down with Lockstep!