Elevated first-year associate salaries seem to be the new normal at top law firms, but Michael Ray, Chief Legal Officer of Western Digital Corporation, thinks the new compensation schemes are “largely unsustainable.”
“First-year lawyers, junior lawyers — when they’re just out of law school, there is a limit, I think, to how much value they can provide, because they are learning. Everybody understands that,” Ray said.
The question, he said, is whether companies should pay for it. Asked whether top firms run the risk of losing business to lower-tier firms who can afford to charge lower rates, Ray said, “Absolutely.”
“If you get salaries that high, you just can’t pass the cost of those salaries onto companies like us,” he said, “because the pressure on us to get the most value out of the dollars that we spend is such that we really can’t subsidize learnings of junior lawyers.”
Ray added, “What we need is exceptional lawyering for every dollar that goes out the door.”
Headquartered in Irvine, California, Western Digital is a computer data storage company and one of the largest computer hard disk drive manufacturers in the world. The company brought in $14.5 billion in revenue in 2015 and is presently ranked 194 on the Fortune 500 list.
The company’s legal department has about 85 attorneys. Cleary Gottlieb, O’Melveny, Skadden, and Wilmerhale are the law firms Ray leans on most heavily. A graduate of Harvard Law School, Ray has been top lawyer at Western Digital since 2010. Previously GC, he was named CLO in 2015.
Last week, we spoke to Ray by phone about several issues facing his company and the legal industry, including law firm compensation.
Below is an edited transcript of the first installment of the interview.
Big Law Business: What do you think about the law firm associate raises this year?
Ray: I think it’s a very difficult issue for the legal industry. First-year lawyers, junior lawyers — when they’re just out of law school, there is a limit, I think, to how much value they can provide, because they are learning. Everybody understands that.
The challenge is, of course, how to pay for that. Who’s paying for their effective training, which is really what the first few years of practice are all about? What’s the extent to which companies like us ought to be paying for that?
I think it’s a very difficult issue, but I do think it’s something that firms are going to have to come to grips with. If you get salaries that high, you just can’t pass the cost of those salaries onto companies like us, because the pressure on us to get the most value out of the dollars that we spend is such that we really can’t subsidize learnings of junior lawyers.
What we need is exceptional lawyering for every dollar that goes out the door. I think it’s a real challenge that big law firms are going to have to come to grips with, and whether or not they’re going to subsidize that learning by writing off or discounting first-year rates — that’s something that might be a possibility — I think it’s largely unsustainable.
We don’t think about firms. We think about lawyers, because every problem is eventually going to come down to the work of individual lawyers, and often times it’s not many lawyers working on a project. We want to work with the best.
What we need is exceptional lawyering for every dollar that goes out the door.
We think that’s how we get the best return on the dollars that we’re going to make available when we’re going outside. It’s hard to square that with the idea of a first-year working on our matters.
We have a very sophisticated practice in-house. It’s one of our calling cards. It’s one of the best reasons to come work for us, and it’s also an opportunity, because the work is so interesting and cutting edge and sophisticated, to work with the best lawyers.
Unfortunately, most first years are not going to be in the category of the best lawyer. They just don’t know enough yet. It’s not a criticism. It’s an observation. The problem is: How do you get a first-year to become a very good fifth-year, tenth-year, fifteenth-year?
They have to work. They have got to get in there. They’ve got to struggle. They’ve got to think about issues. They have to be mentored. They have to be brought along, and somebody has to pay for that. I’m sympathetic to the problem, but I don’t think asking companies like us to pay for that is going to be the answer.
Big Law Business: A lot of those raises came at top firms. Do you think there are opportunities for firms lower down the rankings to capitalize on price?
Ray: Absolutely. I think there’s a continued fragmentation in the market. There are going to be a certain category of projects, whether it’s a very large cross-border transaction or a very complicated multi-jurisdiction litigation, where scale and size are going to matter, but those issues or categories of work are exceptional.
We’re not just going to go to the very top band of firms and say, “Who do you have?” We’re going to do some work to figure out who’s the best lawyer in an area.
There are lots of projects where just getting an exceptionally good or experienced lawyer, really focused in a practice area, is all you need, and a firm offering that can price very differently. Boutique firms that are going to specialize in a particular area are very attractive to us.
Regional issues come up all the time. Whether it’s in Germany or elsewhere in the world, or a discrete issue in the United States, you don’t need, necessarily, a mega-sized global law firm with a global footprint to address, very effectively, that particular issue.
A company like us, and I don’t think we’re alone, is going to search out what we think is the best value proposition to address an issue. We have, again, internal capability, but if for some reason we want to enhance that capability by going outside, we’re going to find the best resource.
We’re willing to spend some time to figure out what it looks like, and we’re not just going to go to the very top band of firms and say, “Who do you have?” We’re going to do some work to figure out who’s the best lawyer or lawyers in an area, and we’re going to see if they’re willing to work with us.
Our experience has been that law firms in that category are happy to provide that value, and will do it on terms that are very satisfactory to companies like us.