The Hidden Costs of Law Firm Attrition
The legal profession both locally and internationally has always had a high rate of staff turnover at the associate level. The churn and burn has a massive effect on team culture and the business bottom line. The costs associated with high attrition rates are huge both directly and indirectly. Not to mention the hidden costs associated with culture, continuity and succession planning. Larger commercial law firms can have attrition rates at the associate level of between 15-25% typically. Legal Practice Intelligence for example reported that the average rate of attrition for lawyers working in Australasian law firms during 2006 was 36%! [embed]https://giphy.com/gifs/oh-snap-anders-holm-damn-l0DEKzl8fVWF1n6E0[/embed]
This was a busy year indeed and since then levels have flattened a little but not by much.
Some of the costs and disruptions that occur as a result of these high levels of attrition include project delays, loss of institutional knowledge, dilution of team culture and morale and the related domino effects that can also kick in when attrition rates spike. For example the NALP update of 2017 suggested that losing one associate can cost a firm between $200 and $500K which is a big hit to take for any business. The NYC Bar Association also recently reported that attrition rates for minorities and women ran at rates that were 50% higher.
Damien Black from Above the Law recently outlined some of the cost breakdowns associated with high attrition rates and included the following:
- Recruiting costs (recruiter fees, advertising costs, time spent by HR and Talent teams);
- Training and induction costs;
- Resource shortages;
- Admin costs;
- HR hours; and
- Lost billings
This a rather simple breakdown of the costs on the surface level but they actually go deeper when you think about it. The biggest issue firms face when looking to replace is the shortage of experienced mid-level talent across key practice areas so the time and money involved in replacing associates at this level in particular is very high. Losing your best intermediate and mid-level people has a flow-on effect for the entire team and when you factor in the amount of time and money further invested in making things right the costs mount up very quickly.
In the same article Black noted that the number one reason given by firms for associates that leave is “not meeting work standards”. This is also an interesting factor as it indicates that a big portion of law firm hiring gets it wrong from a quality perspective, something you would not expect from businesses that pride themselves first and foremost on quality and intellectual standards when it comes to their hiring practices.
Larger commercial law firms can have attrition rates at the associate level of between 15-25% typically.
One more tidbit of information that is worth mentioning is close to 50% of associates that commenced with big law firms as graduates are not with the firm after 5 years and many have altogether left the profession. This is also a very telling statistic. By any standard these figures reflect very badly on the profession and wider industry and given the statistics around mental health and wellbeing in the profession it is little wonder that so few stay the course. We have written extensively around this issue over the past couple of years and the question is can law firms actually do anything to address these high levels of attrition and what changes will they need to implement to begin to reduce the numbers. The best attrition rates amongst large national firms in Australia hover at around the 15% mark but when you start getting to rates of between 20-40% it has a huge impact across all the areas previously mentioned. Especially as the statistics pointed out, more than half of attrition is unwanted.
Some questions worth considering when looking at ways to stem the tide include the following:
- Are the current strategies used by law firms for recruitment and development efforts fundamentally broken?
- Are the current metrics used for hiring out of law schools (ie GPA, academic achievements, law school etc) effective and do they actually correlate with long-term success within the firm?
- Turnover costs for the top 400 US law firms ran at $9.1 billion in 2014 so you can imagine what the numbers are globally. Can anything be done about this that works within the parameters of the big law business model?
- Can traditional law firms offer more flexible work arrangements that cater to a broader range of their associate pool as well as alternative career progression tracks that are not fixed to the lock-step one size fits all approach most presently take?
- What are the key reasons people leave? We know that many do so because of the inability to find balance in their lives while maintaining a career in the law.
- How will traditional firms compete with New Law and Legal Tech businesses that are focussed on delivering fixed fees to clients and better work arrangements to their employees?
We think traditional firms can actually do a lot to retain their best and brightest people if they are prepared to think outside the box about their approach. The good news is very little of it has to do with throwing more money at the problem. Firms really need to understand that the priorities of your associates have far more to do with doing meaningful work, having purpose, being engaged and working in a supportive and collaborative culture than they do with remuneration, bonuses and all of the other stuff the profession tends to measure itself by. We're actively trying to disrupt the culture within law firms and reprioritise life and love of the profession in an effort to decrease the number of associates leaving and increase firms profits and work satisfaction rates.
The question is; can law firms begin to make these changes as time rolls on and will the changes be possible within the context of the traditional law firm business model and approach to managing their associates?
We will be discussing a host of strategies and approaches in the coming months to give firms an insight into what works and what doesn’t as well as what their associates really want and prioritise. Stay tuned for our series on retaining your best and brightest. In the mean time, if you'd like to find out more about how we can help lower your attrition rate while increasing work quality and satisfaction levels book in a quick call with Mike or Maciek - see our calendars here.