Can the traditional pyramid law firm structure meet today’s pricing and service pressures?
After the deep economic recession of 2008, more and more corporate legal departments and general counsel have requested concessions on hourly rates, volume discounts, and alternative rate agreements. While the traditional pyramid model of law firms is far from extinct and will likely never go away, there are questions about whether it is flexible enough to meet these demands. Undoubtedly, technological and economic pressures on the pyramid model are driving dynamic change in the legal field and in the way law firms are structured in particular. This article addresses the possible solutions to these challenges.
In the traditional pyramid law firm model, the base is broad and includes a pool of associates that generally shrinks as they move into partnership. Depending on the company, this reduction continues through senior associates and income partners to the much narrower top of equity partners. As you move up the pyramid, compensation and hourly rates generally increase. In a true pyramid model, a lawyer moves up or moves if they don’t go to the next level. This model is also used in other professional services companies.
While this model has been highly successful for more than a century, it can exclude mid-level to highly experienced attorneys who are qualified to provide legal services, but who do not want the additional demands of the traditional law firm. For example, an attorney who is the parent of young children may want to work 30-40 hours a week, but cannot handle the demands of a large litigation load. However, a partner level attorney who prefers to provide legal services rather than develop new business. At many firms, only one attorney generating millions of dollars in origination can make it to the top of the pyramid. Not all lawyers want this lawsuit as part of their professional life.
Another model, called the “Diamond” model, concentrates a significant portion of the legal workforce in the middle. This includes senior associates and partner-level attorneys who are experienced and capable, but who do not want to be in the traditional way of joint ventures. Staff attorneys, as well as paraprofessionals, provide additional staffing opportunities. By controlling overhead per attorney, a “diamond” law firm can theoretically provide lower cost legal services to clients. Additional efficiency can be gained by concentrating the company’s business in one or a few practice areas, for example a “boutique” model.
While the future of the diamond-shaped model has yet to be determined, they present interesting potential solutions to reduce the cost of legal services.