Some Lawyers Struggling to Make a Living

by Brendon Carr

The execrable Korea Times reports a polarizing legal community, where solo and small-firm lawyers struggle to survive and others—those in larger law firms—prosper. In other words, a real marketplace, with winners and losers. The current Korean legal market is a far cry from the not-too-distant past, when simply passing the bar exam was an achievement which more or less guaranteed a lifetime of prosperity and prestige.

Those days are over:

Last March, the Seoul Bar Association initiated a fundraising campaign after hearing the heart-wrenching stories of the wives of two late attorneys who had to peddle on the street to make a living.

“It was the first time funds were collected to help family members of deceased lawyers. It would have been unimaginable in the past. But it’s true now,” an association official said.

(Sounds like the Seoul Bar Association ought to commission a group life insurance policy for its members, similar to the American Bar Endowment project of the American Bar Association, and those run by state and local bar associations.)

In the tougher marketplace, the number of bankrupt lawyers is noted by the Korea Times as a new development, with “one or two” insolvent lawyers filing for bankruptcy in the Seoul District Court each year since 2006.

Apparently, the number of lawyers is increasing faster than the load of work available for them to do: The article says that the litigation caseload for attorneys has fallen by nearly half since 1997, from 57.2 lawsuits per year for the average solo practitioner in 1997, to 31.5 in 2007. With the number of lawyers projected to double over the next seven (7) years, this is a worrisome decline.

The figure of seven million Korean won is offered as the average per-case fee for these struggling lawyers, although in 1997 I think the number was lower. Anyway, W7,000,000 multiplied by 31.5 yields a gross annual income of W220,500,000. But it doesn’t go as far as you might think…

The article alludes to high overhead costs for these solos—needing to “hire two or three secretaries and a researcher, maintain an office and promote business”, which the Seoul Bar Association says costs about W15 million per month (W180,000,000 per year).

Now, I used to work in a small firm where I was intimately familiar with the costs. Let’s take a look at those numbers: Secretaries cost about W1,000,000-1,500,000 a month, while a good researcher costs about W2,000,000-2,500,000. Offices for these types of law firms down near the courthouse tend to be filthy holes in the wall, costing not more than W2,000,000-3,000,000 per month. So the overhead for salaries and rent could range between W6,000,000 a month on the low end, and W10,000,000 a month on high end.

“Promote business” is what’s killing these lawyers. Unaffiliated solo practitioners who have not worked as a judge or prosecutor, instead coming out onto the market armed only with a law license, frequently have to hire a non-lawyer broker to help them find cases—and these guys cost money. Usually a good broker demands a salary of W7,000,000-10,000,000 a month plus a share of the profits (although here we’re talking about no-profit law firms). Everybody knows it’s illegal, while at the same time the practice is completely ubiquitous. (In this respect it’s a lot like making foreign lawyers partners in the larger Korean law firms. There are a lot of ethnic-Korean, US-admitted lawyers who are partners—even owners—of Korean law firms.)

The need to hire a broker highlights a number of problems in the traditional Korean lawyer’s way of doing business.

First, the lawyer has to have a bunch of staff doing his job for him—in a traditional “high street” law office, the lawyer doesn’t actually prepare any case for trial, including interviewing clients and witnesses and writing briefs to be submitted to the court. His “researcher” does all of that, while the lawyer merely stamps his name on the papers and drops by the court a couple times a week. His license is really kind of a license to print money.

Because the world owes him a living, the Korean lawyer is relatively inert at the marketing-related activities of speaking, writing, and educating clients and potential clients about the law. Even in large law firms, it’s very difficult to get lawyers to focus on education-based marketing efforts.

(Okay, this is a little unfair—most lawyers, everywhere, are inert marketers. The difficulty in getting Korean lawyers to speak, write, and educate may be more pronounced due to the characteristics of their market, but this is not a problem unique to Korea.)

Furthermore, his tax obligation to the government is not rooted in the actual performance of his business. Because “lawyers are rich” and the fact that many individual clients might not request a receipt for cash payment, the National Tax Service assesses a turnover tax on the lawyer’s office, based on number of matters the lawyer handled—the court reports how many Powers of Attorney (necessary for appearance in a case) are filed by an attorney, and the NTS multiplies that number by its supposition of what the fee must have been. That becomes the lawyer’s taxable income as far as the NTS is concerned.

And finally—and most importantly—note that the Korea Times and the Seoul Bar Association keep talking about “cases”. A traditional Korean lawyer is merely a person who shepherds litigation matters through the court. No lawsuit, no work for the lawyer. However, in a more developed legal market, the lawyer is both an attorney and a counsellor at law—the lawyer provides planning and advisory services to help clients build their business and avoid legal entanglements. In the United States, something like 90% of the lawyers in practice work as counsellor-advisors, rather than as litigation attorneys. The underdevelopment of this segment of practice is what’s making these lawyers poor.

With the number of new lawyers projected to be competing in the future marketplace, the new law schools and the bar associations must begin preparing lawyers for the reality that the legal market is indeed a market—and help them understand how to compete in a market-based system. Not all lawyers are going to be good at it—in the United States, too, there are extremely wide variations in lawyers’ income, based on the fact that not everyone is good at business—but more of them will make it if they are properly educated and prepared by their profession.

September 1, 2008 | Filed Under Legal Market

Comments

3 Responses to This Entry

  1. Anon on

    The NTS doesn’t even trust (big?) law firms to report their taxable income without committing fraud?  Did I really read that correctly?  Makes me wonder if as a newly-arrived foreigner bringing large sums of money earned back home, I’m going to get hounded for undue taxes just because I’m “rich” like the lawyers.

    Any more tidbits on the NTS would be fascinating.

  2. Brendon Carr on

    Big law firms get their accounts audited. That saves us the turnover taxation. For smaller law firms it’s a real burden—especially if their profit margin is less than what the NTS thinks is “appropriate”. Basically, they want 20% of the gross revenue of the law firm, if you can convince them to accept your number, or 20% of the deemed turnover.

    Want to know why nobody will represent you for a small amount of money? They’re going to pay tax as if you paid them W7,000,000 for your case, even if you paid W1,000,000.

  3. Eric Thorpe on

    Well, I hear shoe repair worked pretty well for Lionel Hutz as a side business.

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