Leverage and the 10-20-30-40 Rule

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Today’s Australian Financial Review Legal Affairs section has an interested article – ‘Junior lawyers bring in the money‘ – reporting what we all already essentially know: that law firms make their money from their junior lawyers.

What spiked my interest in the article was despite reporting the fact that “the conventional profit-driven pyramid model is still the dominant method adopted by most of Australia’s top-tier law firms” the percentages where the work is done has changed over time.

Early in my career we followed what was known as the 10-20-30-40 Rule, whereby [roughly]:

  • 10% of a matter’s work was done at partner level,
  • 20% of a matter’s work was done at senior associate level (there was no special counsel level in those days, but they would be included today),
  • 30% of a matter’s work was done at associate and senior lawyer level (in times when there was a difference between an ‘associate’ and ‘lawyer’), and
  • 40% of a matter’s work was done by the junior lawyers / trainees / graduates / paralegals (i.e., everyone else).

The problem with the metrics in this Rule is that not many clients are willing to pay for the 40% these days.

Which makes the AFR article’s mention that:

…16.6 and 17.7 per cent of lawyers working on ­matters for clients are partners.

interesting and raises a question in my mind:

are law firms recalibrating the leveraging model at the request of clients, or are there other reasons why this change might be taking place? 

As always, welcome feedback from readers.

RWS_01

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