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More Gloomy Legal Job News By Brian Baxter While the nation's unemployment rate remained unchanged at 9.7 percent in March, U.S. Bureau of Labor Statistics data shows that the legal sector suffered a setback by losing 500 jobs during that period. The monthly job loss figure is especially striking given that the latest BLS report also shows that, rather than the modest 100-job drop originally reported for February, the sector actually gained 700 jobs that month. That was a dramatic improvement over previous months, when the industry hemorrhaged thousands of jobs. Since March 2009, roughly 31,300 jobs all told have been lost in the legal sector. As reported by sibling publication The Blog of Legal Times in its coverage of a recent conference at Georgetown's Center for the Study of the Legal Profession: While age and practice area often figure into the calculus of whether someone is let go, one's pedigree from a top law school isn't always a factor, The BLT reports. Meanwhile, The Wall Street Journal reported on Monday, even if a full-blown economic recovery is under way, the perks that old jobs once bestowed may never return. Associates dealing with the loss of lockstep compensation and advent of new payment and training programs know that phenomenon all too well. Patterns Emerge from Lawyer Layoffs: No One Is Safe By Jeff Jeffrey WASHINGTON - Think a recent graduate from a top 10 law school is less likely to be laid off from a big firm than the less-prestigious associate down the hall? Think again. A new study by Paul Oyer, a business professor at Stanford University, and Scott Schaefer, a business professor at the University of Utah who was not on the panel, found that the opposite was true, though that trend flipped after lawyers built up a few more years of seniority. Oyer also said younger lawyers were far more likely to be laid off than older lawyers. Oyer presented the results of his study at a panel moderated by The American Lawyer’s editor in chief, Aric Press, at the "Law Firm Evolution: Brave New World or Business as Usual?" conference. Peter Zeughauser, who owns The Zeughauser Group, said during today’s panel discussion that Oyer’s data might reflect a "sense of entitlement" among graduates from prestigious schools that only join a large law firm to pay off loans. "They may have no intention of pursuing a Big Law career and aren’t that productive while at the firm, which would make them more likely to be laid off," Zeughauser said. Oyer also found that what he dubbed "school-based networks" came into play when associates were laid off. Oyer said that meant if there wasn’t a partner in the office who went to the same school as an associate, that associate was more likely to be laid off. For his study, Oyer routinely examined the Web pages of about 300 large law firms. To find which lawyers may have been laid off, Oyer compared snapshots of firm Web pages before and after announced layoffs. He attributed other departures to lawyers leaving voluntarily. Oyer acknowledged that the data isn't perfect, but said he was able to make some interesting assessments about law firm departures. Patricia Gillette, an employment partner at Orrick, Herrington & Sutcliffe who was a member of the panel, said that layoffs should be avoided if at all possible because they permanently change the culture of a firm. "It takes a long time to build up that level of trust again after a layoff," Gillette said. She added that law firms should focus instead on alternatives such as hiring fewer associates in general, not giving offers to as many summer associates, or switching to a merit-based compensation system. Formula for Profitability: Cut Pay and People By Amanda Royal SAN FRANCISCO - Eyes fixed on costs, Northern California's leaner and meaner big law firms saw revenues, and profits, remain mostly flat in 2009. Gone are the days of double-digit increases. But gone too are rampant rumors about which firm might fail next. "2009 was certainly a tough and difficult year on so many levels," said Pillsbury Winthrop Shaw Pittman Chairman James Rishwain. "It tested the resolve of our attorneys and our staff, all of whom made huge sacrifices to help us move forward. We all need to be humbled by what's happened in America." 2009 was a year marked by belt-tightening. Firms nationwide laid off staff and associates, froze salaries, reduced partner pay, slashed summer programs, deferred first-year start dates, and drove out underperforming partners. The tough management appears to have paid off on the bottom line. Of eight firms surveyed, most saw single-digit changes in profits per equity partner. Two exceptions were Townsend and Townsend and Crew, which posted a surprising 15 percent jump in PPP even as revenue and head count fell, and Cooley Godward Kronish, which posted an 11 percent drop in PPP. Consultant Peter Zeughauser said law firm managers are focused on one thing: keeping profitable partners. "Partner retention is critically important," Zeughauser said. "Without those people, there would be no firm and none of the associates would have jobs." Zeughauser said single-digit increases or decreases are "very respectable" and those firms will be seen as well managed. Firms like Cooley with declines greater than 10 percent will have "plenty of good company," Zeughauser said. "I pledged that I would wear a suit and tie every day until the recession is over," said Joseph Conroy, chief executive of Cooley, a place known for its adherence to Valley casual. "I am wearing one today." We Can Be Heroes By The Snark ATLANTA - One of the side effects of lean economic times at BigLaw is an increase in internal competition for work and hours. In the boom times, there was more than enough work for all of BigLaw's worker bees. Partners staffed their matters with associates. Associates billed away the days researching and writing. Secretaries helped ease the workload by drafting letters and filing papers. Paralegals chipped in to review documents and organize deal rooms. The caterer ordered nice box lunches for noon meetings. But when the work gets slow, and everyone needs to fill their own billable-hour quotas, the machine gets thrown out of whack, and everyone starts scampering. Partners stop staffing their matters with so many people and start writing their own letters. Associates stop delegating to paralegals and bill the hours themselves. And secretaries order box lunches because the caterer was laid off. Firm Rescinds Job Offers to 10 Out of 14 New Associates By Francesca Heintz Chicago-based Wildman Harrold had some bad news for some of its new lawyers Thursday, rescinding job offers to 10 of the 14 associates it had hired from the class of 2009. The first-year class had already been deferred until March, but after assessing client needs it became clear that it needed to make some cutbacks, the firm says in a statement. Wildman will still pay the 10 associates who lost their job offers a stipend until March. The firm also announced it had extended offers to only four of the 17 summer associates in this year's program, in keeping with its goal to create a smaller first-year class. Wildman says it will continue to recruit high-quality candidates from law schools. But over the past 18 months it has increasingly turned to staff and contract attorneys to do document review and research -- tasks often reserved for first-year associates. The change provides a better cost structure for its clients, the firm says. Another
Firm Slashes Associate Pay By Alana Roberts MIAMI - Fort Lauderdale-based Ruden McClosky has imposed a 9 percent pay cut on its associates and non-equity partners and informed its equity partners that they are not likely to receive the holdbacks of 18 percent of their pay. The pay cuts have caused many Ruden McClosky attorneys to look for new jobs, legal industry sources said. Firms of all sizes have turned to pay cuts and job cuts to help deal with the economic downturn. In Ruden’s case, its over dependence on real estate transactional work has caused it to be hit particularly hard. The pay cuts at Ruden McClosky come on the heels of roughly 20 jobs the firm cut earlier this year, including two attorneys. It was the second round of cuts since last fall, when the firm dismissed 15 secretaries and a real estate associate. Ruden’s president and managing director Carl Schuster declined to comment through a spokeswoman. But in an interview with the DBR last month, he hinted at possible cuts. "This is a very serious discussion that we have really on a continuing basis so we’re looking at everything and anything where we feel it won’t harm the quality of the practice we’ve always had," Schuster said. "If there are other cuts that can be made that will ultimately save money, but not harm the practice, we’re looking. We’re proceeding with caution." The firm lost 3 percent of its attorneys and 7 percent of its 69 equity partners last year, leaving Ruden with 172 lawyers in 11 offices throughout Florida at year end. The law firm reported a 9 percent drop in gross revenue to $85.3 million, the worst showing of major Florida firms in the last fiscal year. Other firms, including Holland & Knight and Squire Sanders & Dempsey, have cut jobs. And several, including Greenberg Traurig and Buchanan Ingersoll & Rooney, have cut pay. Greenberg recently handed its first-year associates a 10 percent pay cut. And last week, Buchanan Ingersoll cut its associates’ pay by 5 to 10 percent. A Ruden McClosky partner confirmed that attorneys were informed about the firm’s pay cuts at a meeting last Monday. The partner said Ruden McClosky partners didn’t receive their entire holdbacks last year, but this is the first time that they won’t receive any of their holdbacks. Law firms often holdback pay from partners to help with cash flow or when the firm misses its budget. Holdbacks are typically paid back as cash flow improves, but that is not the case at Ruden. "Nobody knows for sure what will happen. We are halfway through the year and if things are going like they’re going now economically in the firm and everywhere it’s not reasonable to think we’d get our holdbacks," the partner said. "If the firm’s financial fortunes turn around in the second half of the year, the firm’s partners could receive some or all of their holdbacks and associates and non-equity partners could get the money cut from their pay returned." A managing partner of a major South Florida law firm said he’s seen resumes from several Ruden partners looking to jump ship. But the Ruden McClosky partner said the cuts are not enough of a reason for them to leave the firm, as it remains financially stable. The firm, for example, is not borrowing money to pay salaries. "I think what you have is responsible management that looks at the projections and looks at where they are and says, ‘We don’t want to go to a bad place or run up our lines of credit,’" the source said. "We don’t have any significant outstanding debt unlike some firms. It’s far from a dire situation." Unemployed and Struggling Lawyers Seek Solace By Jennifer Lee
Hundreds of unemployed New York lawyers flocked to the New York City Bar Association for a daylong program on reviving their careers This was not supposed to happen. The path: become a star in college, get into a top law school, make law review, then take the job at a cushy law firm (maybe after a clerkship or two). Life was supposed to be a regimented ladder to the vacation home, insulated against economic down and up cycles. Until now.The recent wave of legal layoffs, rescinded job offers, and even bankruptcies has created the ugliest market for lawyers — particularly in Wall Street-fueled New York City — in more than a quarter century. The bankruptcy opportunities that were supposed to be anti-cyclical to the mergers-and-acquisitions work never materialized. Thus, on Tuesday, the ornate wood-paneled meeting room of the New York City Bar Association was flooded with 200 unemployed and underemployed risk-adverse people. (Law is a field where optimism is not a career booster.) Still equipped with their BlackBerrys and laptops, Manolo Blahniks and $3,000 suits, they traded stories about "transitioning" and shared their dates of notice against a backdrop of velvet drapes and portraits of Supreme Court justices. Collectively, they wondered, now what? Among the recent law graduates and the almost-partners was a sense of bitterness, resignation and even smidgens of hope. "There is a whole cohort of young lawyers who feel like the rug has been pulled out from under them," said Brian Dalton, the managing editor of Vault.com, a career Web site that co-sponsored the daylong program at the New York City Bar Association, called "Getting Back in the Game: How to Restart Your Career in a Down Economy." "The idea of it as a secure path is being questioned as never before," said Mr. Dalton, who calls himself a former "generically unhappy lawyer" at a large firm. (As City Room discovered, unemployed, prestige-conscious, risk-adverse people do not like to be interviewed on the record.) Of course, some have used the downturn as an opportunity to go on adventures while on partial salaries. But such company-sponsored time off is the exception. At least 10,000 employees at major firms across the country have lost their jobs so far this year. In her opening remarks, Patricia M. Hynes [pdf], the president of the New York City Bar, highlighted the organization’s longtime addiction programs. "In these very stressful times, it’s particularly important that lawyers be aware of it," she said. "It’s too depressing," said David B. Lat, a panelist and the founder of of Above the Law, a popular law blog that has been reporting the bloodbath with a regular drumbeat. (Perhaps it was a sign of gallows humor that his comment drew the first laugh out of the crowd.) He noted that his panel, on how to return to big law firms, was supposed to present an optimistic perspective — but said he couldn’t do it. "It’s just hideous," he said. "Legal services are almost like Miami condos. It’s going to take years years to work off the excess supply." His tongue-in-cheek suggestions for finding work: Marry the general counsel of a Fortune 500 company. Be adopted of the general counsel of a Fortune 500 company. Pull a Rip Van Winkle and wake up when the market has revived. Disguised in those flip comments, he said, was an observation that many other panelists emphasized: the importance of knowing the right people. Mr. Lat said that he tells students at law schools that if he did law school again, "I would focus on getting to know my classmates and less on burying my heads in books." But networking has to be done delicately, as he recounted a phone call from a high school classmate he barely knew. The man first asked him for a job, then asked to borrow money, which Mr. Lat found somewhat repulsive. "It’s like dating," Mr. Lat said. "You wouldn’t immediately go up to someone and ask, ‘You want to go back to my place?’ There has got to some prelude." Big law, as it developed, is over. Sessions discussed the opportunities for working at small- and medium-sized firms, as well as starting as solo practitioners. Others noted that business would be generated by the government rather than finance. Obama-era policies, down the road, could create many opportunities. "We are going to have more of a regulatory state," said John J. Cannon III, the hiring partner at Shearman & Sterling, during a morning panel. "Any young lawyer would be well advised to bring themselves completely up to date in the new regulatory environment." But Helen Long, the director of recruiting at the firm of Ropes & Gray, emphasized the importance of attitude. She advised the crowd to "go on a diet of depressing news," as blogs like Above the Law would color their views of the world. "It will not be helping things when you are presenting yourself to others," she said. "You want to be upbeat." Indeed, Mr. Lat also suggested an alternative to the bloodletting presenting his blog. "If you are looking for happy news, go to Happynews.com. It’s about dogs being rescued for trees, rainbows and lost kids being found. Happy stuff." Good advice for everyone. Latest Additions to Legal Job Market Face Grim Math By Leigh Jones They will be entering an employment market that already is swarming with thousands of laid-off associates who are in about as much demand as a five-year lease on a full-size Hummer. The upshot is a massive pile-up of attorneys looking for work in an environment that is pitting would-be attorneys against more experienced competitors. "Given that a lot of people who have been laid off were younger associates, there's a lot of uncertainty," said Shilpi Agarwal, a third-year student at Columbia Law School. "People are pretty nervous across the board." Agarwal, who will start clerking in federal district court in Houston after graduation, has accepted a job following her clerkship at one of the nation's largest law firms. Like many others, it has deferred start dates for new associates until December. Agarwal was relieved that she chose to clerk for at least a year, given the circumstances, she said. Among the 43,518 law students who graduated in 2008, about 21,000 took jobs at private law firms, according to the latest information available from the American Bar Association and the National Association for Law Placement (NALP). About the same number of people are expected to graduate this year. A big question mark Historically, nearly two-thirds of law school graduates have jobs lined up before they get their diplomas, said James Leipold, executive director of NALP. But a big question mark hovers above the class of 2009. Many, like Agarwal, have accepted positions at firms that have delayed associate start dates for six months or even a year. Others accepted offers only to have them rescinded. But many more third-year students, especially at nonelite schools, are uncertain about where they'll go. Moreover, they fear that those with more experience may snag the scant few jobs that are available now and the other slots that will open up once the economy brightens. "Everything kind of sucks," said William Leef, a third-year student at Seton Hall University School of Law. Leef worked in the Hackensack, N.J., office of an 80-attorney law firm after his first year of law school. He went back to the firm after his second year and had anticipated a full-time job following graduation. The firm notified him in December that he would not get an offer. He already has accepted that he likely won't get a job until after he takes the bar exam this summer, and he's wary about the competition he'll face from licensed attorneys who already have experience as associates but have been laid off. Leef said that the best argument he could make to a potential employer for hiring a recent graduate rather than an associate with experience is that those fresh from law school have a clean slate. "I guess you could say that they can mold you into their style of work," he said. Leef had envisioned working in a health care practice at a private law firm, which was what prompted him to attend Seton Hall, which has a strong health law program, he said. But now? "I'm looking for anything and everything," he said. Although experienced associates have the upper hand from the perspective of graduating students, those who are already in the trenches have their own share of anxiety. Jessie Pinkrah lost her job when Thacher Proffitt & Wood moved to dissolve last year. A 2008 graduate of Georgetown University Law Center, she had four months of experience before she was let go. "I don't fit into the 'experienced attorney' category, but with the class of 2009 entering the playing field, I'm not considered a recent law graduate, either," Pinkrah said. "It's just more competition for jobs that we had very little chance of getting to begin with." In general, experience outweighs the blank slate, said the editor of Hiring Partner Office, an anonymously written blog created by the hiring partner of a large firm. "But if we are talking just a few months, I am not sure that is going to make or break things," said the blogger. More competition In the past 12 months, major U.S. law firms have sent packing about 4,000 attorneys, according to LawShucks.com, a law firm layoff tracker. And for every 100 disclosed layoffs, an equal number of unreported layoffs occur, said a hiring partner at a major law firm. If accurate, it means that about 8,000 attorneys, the majority from the junior associate ranks, or about 38% of the usual 21,000 graduates who take private firm jobs each year, will be fighting for any available spots. Whatever the math, it is clear that there are far more people looking for work than positions available. The odds that job-hunters face may be daunting, but a panicked applicant is a turnoff to employers, said Dana Morris, assistant dean for career development at University of Maryland School of Law. "No one wants to hire someone who's desperate," Morris said. "They need to take the time to stop and take a deep breath." Morris said third-year law students "absolutely" are concerned about the competition they face from laid-off attorneys scrambling for jobs, and she advises them "to look beyond the hype out there," she said. Morris is urging students who had their hopes set on big city, big-firm practice to consider smaller shops in secondary markets. Although a candidate with experience generally is more attractive to law firms than those without, Leipold of NALP said that sweeping conclusions about who is better positioned are difficult to draw. "The two groups of people are competing with each other, but [within each] there are different groups of people with different skills sets," he said, adding, "Law firms hire in a stratified way."
Nonprofits Flooded With Young Lawyers By Rachel Breitman "It’s fabulous that law firms in a time of economic crisis want to figure out how to get more hands working in nonprofits," says Michael Rothenberg, the executive director of New York Lawyers for the Public Interest. "But it’s going to be a challenge to receive all these brand-new attorneys, and we will need to have new infrastructure in place to support their training and supervision." Rothenberg says NYLPI will likely take three deferred associates this year. The biggest question facing nonprofits and public-interest organizations is how to cover the hidden costs of bringing more lawyers on board. While many firms are paying $60,000 to $75,000 stipends to their associates, the organizations taking on these volunteers will have to stretch already thin budgets to accommodate them. "There are out-of-pocket expenses for any person who comes into our organization, from furniture to technology," says Mitchell Kamin, president and chief executive of Bet Tzedek Legal Services, which provides legal advice to Los Angeles’ poor and minority populations. Kamin estimates the added cost of taking on an intern for one year at his organization will come to roughly $10,500 to cover office supplies, parking, and postage (an additional $3,500 will be necessary for the added training and supervision costs for these newbie lawyers). Kamin hopes to accommodate seven to 10 deferred associates. Bet Tzedek will cover malpractice insurance for its interns, but not health insurance. Kamin says he hopes the law firms or the volunteers will pay these costs. If those lawyers are coming from Ropes & Gray and Sidley Austin, there won’t be a problem—both firms have agreed to cover health insurance for their deferred associates who choose nonprofit work. Some other firms have offered instead to give the stipends directly to the nonprofits, which can add the associates to their payrolls and offer benefits. But this scenario presents additional complications, says Kamen, requiring organizations to cover Social Security and Medicare payments. Responding to the lingering questions and challenges, the National Association for Law Placement added a session to its annual education conference held last week in Washington, D.C. Reena Glazer, assistant director of the law firm pro bono project at the Pro Bono Institute, Paul Igasaki, deputy chief executive director of Equal Justice Works, Karen Sarjeant, vice president at Legal Services Corp., and Don Saunders, director of civil legal services at the National Legal Aid & Defender Association, addressed a standing-room only crowd of pro bono coordinators, law school administrators, and public interest staff. "Some law firms acted quickly, but hadn’t anticipated issues implicated in their choices," Igasaki says. "In some cases, the new associates will arrive at their placements without health insurance, malpractice insurance, a computer, or even a desk." The panel recommended law firms make in-kind donations of office furniture and technology to ease some of these burdens. Some nonprofits are also asking law firms to pay training fees, and others are hoping additional fundraising will cover the balance. "We’re trying to convince some of our funders that this is worth their investment long-range," says Barbara Arnwine, executive director of the Washington, D.C.-based Lawyers’ Committee for Civil Rights Under Law, a group that handles matters involving racial discrimination. In an already tough fundraising climate, she is asking existing donors to cough up more cash for the additional volunteers. Her organization expects to take on 12 new associates in its Washington, D.C., headquarters and three others for field placements in New Orleans, filling half of the spots now, and half by the fall. The group also is considering taking on deferred associates who will work from home. "Everybody from the law firms keeps telling us that they would like to have their plans completed by May 15, before the incoming class is out of school and has to make decisions about where they are going to live," Arnwine says. With just six or so weeks before many deferred associates will graduate law school, few are sure what the fall will bring. Orrick Herrington & Sutcliffe pro bono coordinator Rene Kathawala has been working around the clock to complete a 100-page guide for new associates about work opportunities, while simultaneously playing matchmaker for the firm’s new hires. So far, 36 of 43 deferred associates have expressed an interest in taking on an internship, which the firm will subsidize with a $75,000 stipend. Of the 36, only four have actually secured a placement. "The nonprofit
organizations are doing the law firms an enormous favor," Kathawala
says. "Some are unhappy that we aren’t paying overhead or benefits,
and they need to decide whether the amount we are paying is enough
to support a fellow."
Recovering from Law Firm Layoffs By Alana Roberts Gavin Caddy had to move
quickly after he was let go as the partner in charge of the
construction litigation division at the Fort Lauderdale-based
Kopelowitz Ostrow Firm in October. "In this kind of market,
one doesn’t have the luxury of being too selective because there
just isn’t much out there, specifically for someone with
transactional experience," the former Bilzin attorney said on
condition of anonymity. "The opportunities are even more limited as
almost anything that may be available is tied into litigation."
Latest Layoff Wave Pulls 300 Attorneys, 500 Staff Under By Karen Sloan The law firm layoffs haven't let up. Four major firms announced job cuts on Monday, totaling more than 300 attorneys and 522 support staff. White & Case plans to cut a total of 200 associates and 200 administrative staff. Morgan, Lewis & Bockius cut 55 attorneys and 161 staffers. King & Spalding cut 37 associate spots, as well as 85 support staff firmwide, while K&L Gates eliminated 36 associates and 76 staffers in its U.S. offices. Just over a week into March, it appears that the month won't provide any reprieve from the mounting legal job losses. According to the U.S. Department of Labor's Bureau of Labor Statistics, the legal sector lost 4,200 jobs in February and 1,300 in January. Several legal consultants said they don't see the job cuts slowing down any time soon. Peter Zeughauser, a consultant based in California, said the layoff pain will last at least until the fourth quarter of 2009. William Brennan, a legal consultant with Altman Weil, said some law firms had held back on cuts, hoping to weather the storm. "Many firms have been waiting, with hope, that they would be able to get through this without having to terminate employees," Brennan said. "But they keep seeing a slide in the economy, and they have to make adjustments." While layoffs are painful for any law firm, they may well be the thing that keeps the firm viable right now, he said. Brennan noted that the onslaught of layoffs has taken a psychological toll on the legal industry, which was once seen as very stable and lucrative place to be. "The problem is that lawyers have never seen this type of pain before," Brennan said. "The layoffs have shocked many partners and created a tremendous amount of anxiety." White & Case also announced that the firm is evaluating its partnership, "which will result in a reduction in the number of partners, commensurate with current and anticipated business needs." The news also is bad for those about to join the firm: White & Case says it will be "deferring the start date of approximately 60 percent of this year's incoming associate class in the U.S. until 2010." Morgan Lewis Chairman Francis M. Milone informed the firm of the cuts in an e-mail on Monday, in which he wrote that Morgan Lewis had delayed layoffs for as long as it could. "Unfortunately, we have reached the point where we believe that the greatest good for the greatest number of our colleagues will be achieved by eliminating some positions and bringing our overall numbers more in line with the realities of the present economic environment and what we believe will be the expectations of our clients in the future," he wrote. A spokeswoman for Morgan Lewis declined to comment on which practice areas or offices were hit hardest by the job cuts. The firm planned an internal video presentation on Tuesday to discuss the layoffs. In addition to layoffs, Morgan Lewis is making some significant changes with its incoming associate and summer 2009 classes. The law firm will delay start dates for incoming first-year associates for about a year -- until October 2010, wrote firmwide hiring partner Eric Kraeutler in a letter. During that time, incoming associates who choose to work at a public interest law organization will receive a $5,000 monthly stipend from the firm. The result of that delay means that Morgan Lewis won't have a 2009 associate class. Additionally, the delayed start dates will have an impact on the incoming 2009 summer class. The firm informed those summer associates that it still plans to hold the program and will offer the usual number of permanent positions, but start dates will likely change down the line. "However, because we are deferring the start date for our 2009 first year class, the offers we make to the individuals participating in our 2009 summer program likely will be for a start date during 2011, rather than the fall of 2010," Kraeutler wrote. "We intend to offer a public interest option, similar to that announced today, for those of you who are affected by this deferred start date." King & Spalding's chairman, Robert D. Hays Jr., noted in a statement, "[w]hile we have been working hard in many different ways to manage the firm to respond to the reduction in demand, the continuing decline in the U.S. and global economies has unfortunately made it necessary for us to make some reductions in our lawyer and staff ranks." The cuts constituted 4.2 percent of the firm's 875 lawyers -- and 6.4 percent of its nonpartners. King & Spalding has 384 associates firmwide, with 165 in Atlanta, according to its Web site. According to K&L Gates Chairman Peter J. Kalis' note, the U.S. and U.K. layoffs represent nearly 5 percent of the firm's associate force, and about 4 percent of support staff. Through a spokesman, Kalis declined a request to offer more specific information on the offices and practice areas affected by the job cuts. "As with other enterprises adjusting to the global economic downturn, including dozens of major law firms, we have had to adopt measures to strike a balance between the size of our workforce and the demand for certain of our services," Kalis wrote. K&L Gate's cuts are fairly modest compared with other recent law firm layoffs. In the past two weeks, Latham & Watkins trimmed its head count by 190 attorneys and 250 staffers, and Orrick, Herrington & Sutcliffe laid off 100 attorneys and 200 staffers. O'Melveny & Myers let go of 90 attorneys and 110 staffers. Additionally, this is K&L Gate's first major layoff since the financial crisis last fall. Several firms have made multiple cuts in that same time. Despite the reductions, Kalis wrote in his message that the firm is well positioned to weather the down economy. "As for the firm at large, our conservative management, global positioning, and diversification across clients, industries and practices endow the firm with a resilience that serves us well in these challenging times," Kalis wrote. "We intend to remain an industry leader in 2009 and beyond, and the decisions announced today should be seen in that light." The Fulton County Daily Report and The American Lawyer contributed to this report. Laid Off Lawyers Find Themselves Adrift in a Crowd New York Lawyer The ad may be fiction, but the scenario has become a reality for hundreds of attorneys who started law school just a few years ago with prospects of six-figure salaries and their pick of where to practice. Last month alone, an estimated 1,100 attorneys lost their jobs at major law firms, which means that the market is choked with highly educated former associates whose severance is running out and whose bills are piling up. For the first time in their lives, many of these lawyers are struggling with a profound feeling of failure. And while they acknowledge that their troubles are just a part of the jobless scene nationwide, such perspective provides little comfort for these high achievers who are grappling with a loss of purpose and direction. "I feel really lost right now," said Aviva Tiegerman, a former attorney at Kaye Scholer who was laid off in May. As a second-year associate, Tiegerman, 29, worked in the New York law firm's real estate practice group, a job she liked very much, she said. The amount of work in her department had slowed dramatically, so she was not surprised when her boss came into her office and delivered the bad news. But what she didn't anticipate was the continued implosion of the real estate sector across the country and the difficulty she would face in finding another job. "I don't think it registered," said the 2006 cum laude graduate of Hofstra University School of Law. "I don't think I knew how bad the market was." Tiegerman said that she called job recruiters "within five minutes of getting laid off." They told her that the employment market was slow but that she could expect to find a job in three to six months. When the economy was strong, she'd receive two or three calls a day from recruiters, she said. "I used to hang up on them." Under her severance arrangement with Kaye Scholer, Tiegerman continued to go into the office, a situation that became increasingly painful, she said. "I would show up everyday and not know what to do," she said. A spokesman for Kaye Scholer said that the firm could not comment on a former employee but added that it wished Tiegerman well. In September, she was close to landing a job at another law firm -- she'd interviewed with 12 people at the firm -- but just before the final decision, Lehman Brothers Holdings Inc. collapsed. It was one of the biggest clients for the firm, which decided to freeze hiring. These days, Tiegerman is working temporary jobs when she can find them. Before she was let go, she and her husband had just completed renovations to their apartment in midtown Manhattan. They have "blown through" their savings, she said. "I keep finding jobs just in the nick of time." Part of what makes layoffs particularly difficult for many young associates is that they come from a generation with a "trophy mentality," said Larry Richard, a psychologist and consultant with Hildebrandt International. His work focuses on lawyer personality types and management issues. Not only do today's associates have the typical lawyer traits -- risk aversion, skepticism and impatience -- but they also are part of a generation raised on plenty of affirmation and rewards. And for people accustomed to earning gold stars, the pink slip hurts all the more. Even if the law firm assures its associates that the layoffs are a consequence of the economy and not the lawyers' performance, most people will struggle with what they might have done differently, Richard said. The "what ifs" in turn, can undermine self-confidence, he said. Laid-off attorneys also tend to remain isolated from others, which also can take its toll on their self-esteem, Rich said. Commiserating with others who have lost jobs, however, is not something Scott Chait is interested in doing. "I don't particularly care to network with people who have been laid off," he said. "It can be really unhealthy." In October, Chait was let go from New York's Wagner Davis, where his work focused on real estate transactions. A 2006 graduate of Brooklyn Law School, he is collecting unemployment and has moved in with his parents in New Jersey. Without providing specific numbers, Chait, 31, said he is burdened with "a full debt load." Rigorous workouts help keep his spirits up, he said. "It feeds the need inside me." He describes himself as competitive, with a "Type A" personality, and said that critical to his daily routine is not sleeping in. He spends much of his day looking for jobs on employment Web sites. He also goes to his synagogue every morning. "I get a lot of positive enforcement," he said. The uncertainty of joblessness is a "corrosive acid" that raises the threat mechanism, or a sense of danger, among those who are laid off, Richard said. When the threat mechanism increases, people take a fight-or-flight approach, which means that they tend to make rash decisions and to think in all-or-nothing terms. Laid-off lawyers may believe that they will never find employment again or that they performed badly at their previous job, Richard said, and he recommends that people make contact with other laid-off attorneys. "There's safety in numbers," he said. It's not just laid-off workers feeling the emotional impact, Richard said. The uncertainty for those remaining at law firms also can create problems. Supervising attorneys must learn to be "better psychologists" in dealing with workers who are feeling unsettled. Acting-out behavior, he said, can include nit-picking, inattentiveness, work-hoarding and a generally cantankerous attitude, he said. "A lot of people are in survival mode," he said. Megan Logsdon isn't sure how to describe her situation. She was an associate at Thacher Proffitt & Wood, which closed its doors in December. "Can you be laid off if your firm dissolved?" she said. A 2008 graduate of Georgetown University Law Center, Logsdon worked in the corporate practice group at Thacher Proffitt for just two months before she learned that the 160-year-old law firm was going out of business. She knew that it was troubled when it decided to delay her start date, but since she had already committed to a full-time position and had given up options at other law firms, she pushed ahead, only to get cut loose eight weeks after she started. Many of the attorneys in her practice group got jobs at Sonnenschein Nath & Rosenthal, but they didn't take new associates, she said. Her pay ran out on Feb. 20. "It's super stressful," said Logsdon, 28. "Right now, I'm looking for any kind of paid legal work, and I'm going to start looking for volunteer work." She has sent out dozens of resumes and is willing to relocate for a legal job, she said. She applied for one position in Bethel, Alaska, population 6,000. "I would work anywhere," she said. Right now, Logsdon and her boyfriend, also an unemployed attorney, are living in a small apartment in Queens, N.Y., she said. She has about $120,000 in student loan debt. Logsdon said that she is still surprised that as a graduate from Georgetown law school with good grades and the ability to speak Spanish, she is unable to find work. Adding to her worry is the fresh crop of graduates coming out of law schools in the spring, who will intensify the competition for associate jobs. She doesn't have the benefit of having any full-time work experience to speak of, and that scares her. "A lot of jobs I'm qualified for are really geared toward those new graduates," she said. She, too, finds solace in exercise, but she feels isolated, she said, and would enjoy connecting with others in the same situation. A former English teacher, Logsdon considered "running away" and returning to teaching. "But there's no way," she said. "I spent a lot of money and have done a ton of hard work, and I'm not giving up." Axed Associate Starts Web Site for Dishing on Partners By Nate Raymond Meet Sam Smith. Back in 2007, he landed a job at Cadwalader, Wickersham & Taft's Charlotte office as an associate in its capital markets practice. "I got in right at the peak," he says. "They were just doing tons of deals at the time. And then things slowed down." Securitizations disappeared, while Cadwalader's principal Charlotte clients, Bank of America and Wachovia, strained under the weight of the credit crunch. Cadwalader began laying off associates. Among them was Smith, 34, who lost his job along with the 95 other lawyers Cadwalader said it would cut in July. Unable to find a job, Smith got entrepreneurial and opened a Web site, Rate a Partner. The site, which launched in late February, describes itself as a destination for clients, lawyers, staff and law students to critique partners at the biggest law firms. Visitors can rate partners on a five-star system and write comments about them. We touched base with Smith to talk out about his new site, associate-partner relations, and being laid off in Charlotte. Q: Where did you get the idea for the site? A: I'm a laid-off lawyer, so I have a lot of time on my hands. I always thought there should be an upward review process for partners, because big law firms are always doing review process for associates, so there's not a lot of this upward review. And so basically what Rate a Partner does is it takes the conversation to the next level. The business model is pretty simple. The more lawyers talk about each other, the more ads we sell. Good partners will attract good reviews, bad partners will hopefully be exposed. It's not scientific, but it's a gauge. Q: It seems similar to a popular college Web site, RateMyProfessor.com. Are you basing your idea on that? A: I hadn't remembered Rate My Professor until after I started developing this. I have a sister-in-law who's on there, and she was like, oh, there's this Web site, Rate My Professor, you've got to check it out. Q: That site has received criticism over the years for how they conceal the identities of the students doing the reviews of professors, making it impossible to know who is saying what about a person. Are you worried about attracting similar criticism? A: At this point I'm not really concerned about that. If it turns out to be a problem, I'll deal with it, but that's going to be a bridge I'll cross when I get to it. Q: What's been the feedback so far for the site? A: Right now what I know is we launched last [week] and there was an over 1,000 percent spike in traffic over that one-week period. The server went down twice, so we transferred everything to a new server, and since then, it's humming along pretty nicely. And then I had a lot of people, users, signing in to do the ratings and give reviews. Q: Any particular partners getting a lot of reviews over night? A: It's interesting. I think [The American Lawyer] published that Yolanda [Young] is going to be issuing a lawsuit against [Covington & Burling]. And I actually worked with her; I was a staff attorney at Covington the same time she was. I know Pat Davies, the person named in the lawsuit, and then I saw there was a review of him on our page. I've looked at the stats, and I've seen hundreds of searches for [former Cadwalader managing partner] Bob Link. [No reviews yet for Link, though.] Q: You mentioned that you've been laid off. Is the job market so bad that you have to come up with something other than law to do right now? A: It is that bad, yeah. I'm in Charlotte, and as far as I can tell, there are no law firms hiring, at least none in my practice area or in any of the alternative practice areas that I could potentially move into. I was doing securitizations in capital markets. The office here, they laid off people in January, and I got laid off in August. It's everybody. In fact, every firm you call, they're very apologetic because it's just like, we're kind of in the same mode, we're going to be cutting jobs, too, soon. So it is kind of an alternative. Q: What happened to your friends who have been laid off? Are there others starting new businesses? A: I know another guy who's starting a job search-type company for lawyers. And then I know a lot of people who've gone into just business and left the law and gone into management side. Most of these people have actually left Charlotte, though. The Coming Hiring Crisis By Aric Press Law firms are actively considering the prospect of pay cuts, delayed starting dates, sharply reduced offers and more lay-offs. The carnage of Black Thursday will likely continue. This is an ugly situation made worse by the peculiar hiring schemes that were tolerable during good times but now are under serious stress. Not every firm has swung the scythe and some never will. It's notable though that with so many firms pushing out so many people, there is little of the usual talk about how firms are endangering their cultures. For the moment they are more concerned about managing their businesses. If nothing changes, this fall the same law firms that recently laid off lawyers will start welcoming large groups of new lawyers, whom they will pay too well and for whom they will have too little work. If the layoffs were about saving money in a downturn, the new hires will overwhelm any savings and will signal that the firms regard the economic crisis as little more than a mild detour on the golden brick road. I wish it were otherwise. But consider the current Conventional Wisdom: At law firms work (and profits) are down, attrition is far below average, law school graduates hired in an optimistic time are about to join firms awash in anxiety, and the conveyor belt that will bring still more eager and talented young lawyers aboard is about to start up again. This does not seem to be a
sustainable situation. If it's not, it will, at a minimum, force law
firms to make a harsh choice between the lawyers they already have
on staff and the ones they're about to welcome. Dan DiPietro, the Citigroup law firm banker, and Brad Hildebrandt, the consultant, tell us that demand for legal services is flat or down. Download their report to clients. They are correct, though the real pain in the market is disguised by their modest sample and reliance on averages. In fact, some firms, or at least some practice groups within firms, are churning out work at a very healthy pace, which leaves those below the median in far more serious straits than their grim report suggests. Leigh Jones in The National Law Journal, helpfully reports that part of the reason for law firm layoffs is to "replicate [normal] attrition," which one chairman she quotes puts at roughly 25 percent annually. Leaving aside the hat tip to "Star Trek", she's right, at least as far as she and the firms go. The problem is that they may have to go much further. Her unnamed chairman explains that his whole "machine" is built around a quarter of his associates leaving each year. But in a climate when virtually no one is leaving voluntarily, laying off a few dozen lawyers won't keep his "machine" from choking on its unproductive parts. At some firms there are too many lawyers and too little work. Our daily reports on big firm financials show that while top-line growth continued in 2008, profits per partner and revenue per lawyer tended to drop. (See The Am Law 100 -- A Work in Progress.) The situation is not yet dire. Partners continue to earn handsome rewards -- less than last year, more like 2004-05. Many know how good they have it and haven't started grousing. Some are exploring their lateral options; other are scrounging for business; and a few are eyeing their non-equity partners and their associates much as Clint Eastwood glares at his family and new neighbors in the opening scenes of "Gran Torino." The calendar tells us that we are just 200 days from the post-Labor Day arrival of large classes of new associates who, in curious law firm fashion, were hired in the autumn of 2007, during their third semester of law school. To put it more colorfully, these promising young students were offered summer associate jobs at a time when trees were growing to the skies, infallible economic statesman led Lehman, AIG and Bear Stearns, and -- this is the rub - -summer associates, who didn't get ridiculously drunk at a partner's barbecue and scavenger hunt, were guaranteed jobs starting on or about Sept. 10, 2009. That sputtering sound you hear is Leigh Jones' chairman's "machine" gagging on his new hires. The calendar also tells us
that we are about 180 days from the start of summer on-campus
recruiting when law firms, who can't fairly predict what the third
quarter of 2009 holds for them, will begin filling up their incoming
classes for the fall of 2011. Even in tradition-bound law firm land,
this seems a bit much. Instead of vigorously debating whether to
offer a firm-embossed flash drive or a PETA-approved monogrammed
fleece as an interview take-away, the hiring committees and firm
leadership are starting to ask whether they can change the way they
do business Absent the economic calamity, most associates don't want to stay at their firms forever, and firms don't want most of them to stay either. The quarrel is over who decides when they leave. The second- and third-year associates now getting laid off were themselves recruited barely four years ago. They had sterling resumes, passed the correct-fork test at lunch, and have more or less held up their side of the law firm bargain. Once they're on board, first-year associates get little or no respect. Clients don't want to pay for their training. Firms bemoan their costs. It's as though they were human toggle switches: the best and the brightest of their graduating classes only 12 months earlier suddenly rendered into dross and objects of regret once they have moved in. So, if you put all this
together you have a system that doesn't fit the times, a system that
would have firms lay off lawyers with one hand while scooping up new
and presumably less valuable ones with the other. This doesn't make
much sense. Who will get hurt the most in this situation? The
partners without business, the associates without work, or the 2Ls
and 3Ls without experience? No one -- OK, almost no one -- wants to
make these choices. But that's what the times demand. Lower Starting Salaries Firms are concluding that they are paying too much to their first-years. Many, if not all, are still struggling with the last round of across-the-board salary increases given to associates two years ago. Bumping starting salaries up to $160,000 in major money centers arguably made sense when profits were booming and firms feared that they were losing their best talent to the hedge funds of Greenwich. Those days are over and yet the 160K bogie remains as inviolate as though it were handed down at Sinai. If the market -- and not weird lemming-style management -- drove the salaries up, then presumably the market should drive them down. How far? Back to $130,000, where they lodged at the peak of the tech boom? Back to $100,000, which one managing partner refers to as a "life-boat offer" -- if you take it, we guarantee not to throw you over the side for several years? Not every firm will choose to cut starting salaries. Some can afford them, for others it will be a matter of pride. And a clever few will break with the past and pay some of their new recruits more than others. But we've never done that! Correct, and you've never laid off 80 lawyers in a day either. Wage Cuts Several firms have announced wage freezes: no automatic raises for serving another year. This is not particularly novel among clients but it has caused a stir in law firms. It saves some money, but law firm managers admit perhaps not as much as they will need to weather the downtown. When starting salaries bumped up, the rest of the pay scale improved also. If starting salaries get cut, will the rest of the pyramid take a hit too? There are three reasons why it should. First, an across-the-board pay cut could save a lot of lawyers jobs. (Before the blogosphere erupts, I understand it's not your fault, I understand that the partners should be out winning business, I understand that you're the victims. So are the Merrill Lynch lawyers cut loose by Bank of America after their principals ran their firm aground. These are bad times and now we have to figure out how to manage them.) Do the math: In a firm with 500 non-equity partners and associates, a $40,000 pay cut will save almost twice what laying off 50 associates already has. But, you say, some of these lawyers are stars and they must be rewarded! True enough, which brings us to the second reason to go this route: Law firms have too long been wedded to paying their associates in a lock-step fashion. As Citi's DiPietro argued in the August issue of The American Lawyer, it's time to break that routine at most firms, and recognize and reward achievement. Third, by scaling back the pay packages, law firms will be able to pull back their billing rates and allow second- and third-years to do whatever work may be available without incurring the wrath of hard-pressed clients. I take as a given that equity partners will share in this pain. If business wasn't off, profits would still be rising and no one would have read this far. But the owners of the firms are taking a hit, though probably less in percentage terms than I've laid out for the associates. It turns out that the owners have more say than the rest of us. Delayed and Staggered Starts Like snow geese that cross the 44th parallel every fall, new associates enter law firms each September as though they were obeying a biological imperative. If there is little or no work waiting for them this fall, that seems a mite pointless. Instead, look for firms to behave as their clients do, delaying starts of new employees until there is some demand for their services. And look for them to behave unlike their clients -- offering stipends for extended vacations, pro bono service and advanced course work, anything to build loyalty -- and keep them out of the office. Sharply Reduced Summer Classes I doubt that any of the major firms will stop recruiting first-year associates. However, I expect, given the glut of junior associates, that they will reduce the number of new ones they bring on for this summer. It's just your mother's rule applied to hiring: Don't put more on your plate than you need. A class of 10, say, handpicked from Stanford, NYU, Harvard, Georgetown, UCLA, Emory, Northwestern, Columbia, Michigan and Fordham, is likely to maintain the partners' self-esteem without jeopardizing the firm's economics in September 2011. Also, it will allow the firms to continue managing to the metrics established by the National Association of Law Placement; evidently it takes a very brave firm to fall below the 90 percent permanent offer mark for summer associates. They believe that if they dare to cross that barrier they never will be able to hire again. Old beliefs, evidently, die hard. And, finally, it will gently move firms toward the revolutionary idea of hiring new associates out of graduating classes when they might actually know how many they need. Might this leave firms short of labor when and if the surging financial markets return? Maybe. But that's what lateral hiring is for. More Layoffs Next time it will be partners. I posted a grim assessment in January and it hasn't changed. I suspect little will happen until autumn. While most firms long ago got over the horror of de-equitizing or outplacing equity partners, those moves tended to come in ones and twos. If the economic plight continues, lopping off one or two overpriced income partners just won't move the needle. Instead, we'll watch a three-step process. First, partner meetings will be filled with phrases like "pilot fish" and other not-so-gentle put-downs. Then, business-generating partners will begin demanding action even while they plan their own exits. Finally, if it gets bad enough, those without equity will find themselves without jobs. I hope I'm wrong, and that over the next few months the stimulus package will kick in and the global economy will recover. It also would be nice to think that even if it doesn't, law firm partners will exhibit saintly patience and keep paying their associates and partners-without-business as though nothing were amiss. But it doesn't seem likely. More lawyers and staffers will suffer. Someone will create a Law Firm Misery Index. And maybe the crisis will encourage some candid conversation about past practices and the shedding of habits that no longer make much sense.
Addition
by Subtraction?: By Leigh Jones Attorney layoffs have become industry standard in recent months, with at least 50 of the nation's top law firms ushering practitioners out their doors and into a torpid job market. Law firms cite a declining demand for legal services, decreased fees for the work that's left and a lack of usual attrition as reasons for cutting attorneys loose. But just how much do law firms stand to save by slashing ranks? A lot, as it turns out, considering the options. Law firm leaders and industry consultants say a firm cuts costs by an average of $250,000 for each attorney let go. For each legal assistant or other staffer laid off, a law firm saves about $100,000. And because they don't have much room elsewhere to shave expenses, it is little wonder that the head count of the departed is rising. For most big law firms, about 85 percent of their budget goes to rent and personnel costs, say firm leaders, which means that the money saved by scaling back on copies, car services, partner retreats and marketing comes from a small percentage of their revenue. "There's only so much you can save by pulling the tea and cookies out of the conference room," said the chairman of a major U.S. law firm that has laid off attorneys during the economic downturn. In order to speak candidly about his firm's finances, he requested anonymity for this story. "The rent you're stuck with, so you're left with this huge megillah of compensation," he said. Replicating Attriton Because associates are clinging to their positions as the economy declines, law firms are finding it necessary to replicate the attrition they've come to expect, he explained. "We have an entire machine built around 25 percent attrition," the firm chairman said. "We have to engineer that just to stand still. The only comfort one can find in this is that you get the attrition you want." But it is cheaper to have attorneys leave on their own accord than to lay them off. Severance packages that firms are giving to pink-slipped lawyers vary, but the firm chairman said that, in general, every $10 million saved in compensation is offset by $7 million paid in severance. He said it is difficult to let any attorney go, but terminating new lawyers is the most emotional. "Somehow, it feels worse when they don't have any performance [to consider]," he said. The need to hold onto cash is the big driver behind the layoffs, and getting rid of associates can increase liquidity. But the decisions by law firm leaders to drop associates also serve another purpose, said Friedrich Blase, an executive partner with KermaPartners, a consultancy. "They also do it to show partners that they are in control of the situation, that the partnership is doing the right thing," he said. Partners working at firms that have tried to increase cash availability by deferring partner profit distributions, reducing partner draws, making cash calls to equity partners or asking nonequity partners to provide capital also want to see that the firm is making sacrifices at lower levels, Blase said. However, cuts on the bottom rungs may not be the smartest move, he said. He gives the example of a law firm with $100 million in revenue, with 30 percent of that amount going to associate salaries. Layoffs that trim 5 percent of associate costs are the equivalent of just 1.5 percent of revenue. "If you think about saving money, culling associates is really not the big game. It's the easy game," he said. Blase added that, under his scenario, a mere 3 percent savings requires a firm to lay off 10 percent of its associates. The tougher choice is to make cuts at the nonequity and senior counsel levels, he said. Not only are those attorneys typically very expensive for law firms during slow times, but some of those lawyers, out of desperation, hoard work from the attorneys below them, he said. Intense pricing pressure from clients has forced a chairman at another top U.S. law firm to make some difficult decisions, he said. He also requested anonymity to speak openly. "There's less diplomacy in the discussion [with clients] about discounts," he said. "They're not inviting you to a discussion. They're saying 'it's 10 or 15 percent, and if you can't help us out, maybe we'll go somewhere else.' " Although his firm hasn't implemented attorney layoffs -- at least not yet -- it has cut legal staff. "What we're going to try to do is reduce secretarial-to-lawyer ratios," he said. "We haven't gone as far as we think we can go." In addition, the law firm has scaled way back on lawyer travel and is asking attorneys to connect with clients through teleconferencing, he said. Reducing face-to-face contact has its price, he said, and the firm "is not sure how big of a price that is." The real cost savings of any attorney layoffs, he said, take about nine months to see. "The question is: When do we get to the point that we decide we're ready to do that?," he said, adding, "Mission No. 1 is to preserve the partnership." In addition to freezing salaries, the law firm canceled a planned partner retreat. Such events, said the chairman, are "highly visible" to clients and nonpartner attorneys. He said that "symbolically, it's a good thing" to call off the event, given the circumstances. The law firm also had planned a complete overhaul of its Web site, which it has postponed. "We're looking in every corner of the firm," he said. Not Digging Deep Enough But many law firms aren't digging deep enough to find where they can reduce expenses, said Bennett Gross, president of Callydus Group, a New York-based company that helps law firms increase efficiency. The drop in business, he said, is forcing law firms to implement efficiencies they should have initiated years ago. "Suddenly, law firms that were resistant to change are open to whatever can be done," he said. His company scrutinizes expenses such as publication subscriptions, black car services, document management, human resource searches and temporary labor, to find out where to cut the fat. Minor changes add up, he said. For example, one law firm had hired a mail service that was performing pickups at its offices five times a day. Another client was outsourcing all of its printing and copying, at above-market prices. Because law firms have grown accustomed to passing on their costs to clients, they have Punch the Clock By Julie Kay
By Thomas Adcock Mr. Danovitch, a partner at Gersten Savage, said his firm's 9 percent boost in revenues since October is healthy enough for what he termed "baby-step" expansion of its 21-lawyer roster. Gersten Savage, which engages in litigation, corporate and tax law, intends to open a satellite office in mainland China for its recently hired attorney who handles matters for existing clients interested in Asian opportunities. Further, the firm is looking to recruit associates to handle employment law matters. Gersten Savage is not alone. Robert C. Griffitts, Havona Madama and Mary P. O'Hara of Madama Griffitts O'HaraIn the last few months, "when you would think that maybe some of your clients would say, 'Let's hold off on this thing or that thing,' it just hasn't happened," said Havona Madama, of the three-lawyer Manhattan business boutique Madama Griffitts O'Hara, which she said has enjoyed a nearly 20 percent increase in business throughout 2008. Much of that growth, she said, has come by way of ex-Wall Streeters who see the zeitgeist as conducive to long-range entrepreneurial plans, mainly in Internet-based technology and consultive services. "Not everybody who got a pink slip is broke," said Ms. Madama. "A lot of [investment bankers and stock brokers] have been putting money away for businesses they planned to start some day. And now they figure, 'OK, it's going to be hard to get another job. So why not start my business now?'" In which case, Ms. Madama said, a small firm like hers is best suited to entrepreneurs needing "good business lawyers who think about the business first and not so much about making as much in fees as possible, which means making good early hires and avoiding litigation potential with arbitration clauses in contracts to solve problems quickly, quietly and inexpensively." Five years ago, Michael C. Rakower left Latham & Watkins to explore other options. This month, The Law Office of Michael C. Rakower boasts four attorneys, himself included. He said his practice - commercial and civil rights litigation as well as white-collar criminal defense - grew by 50 percent more billable hours in the past year. "I don't know the reason, but I'm thrilled to say that," said Mr. Rakower, who received the New York State Bar Association's Outstanding Young Lawyer Award in 2006. "There's no magic bullet. All I know is that I worked my tail off for four years, and I think you reap what you sow." He said the formula for succeeding and growing is simple. "I tried to get my name out there. Then when I did, I proved that I could handle certain matters and I got more clients," said Mr. Rakower. "I did well by them, and then I told people how I did well by them." Mr. Danovitch tied the poor economy directly to his firm's increased business, along with executive ineptitude and criminality in certain cases. "There certainly seems to be more [legal clean-up] work," he said. "There's a lot of restructuring now. There are firms hemorrhaging and struggling. They're going to need assistance to wind down in a professional and logical manner." Business firms that manage to overcome the downturn, or at least tread water, said Mr. Danovitch, want to execute merger and acquisition deals quickly. The reasoning among his clients, he said, is "even though my stock isn't anywhere near where I want it to be, my competition is worse." He added, "There's a lot of smoke right now, but I don't know that we've found the fire. I don't have the sense that this [downturn] is really going to be long-term. Am I happy we're growing in this environment? Absolutely, it's great. But our celebration is muted. We don't know what's coming next." Luckily, he noted, a small law firm expands and exists conservatively, "sometimes just month by month," managing both to avoid big mistakes and big overhead. Luckily, too, Mr. Danovitch said, clients "stick with you through thick and thin so long as they're happy with your work." Large-Firm Clients To some extent, even small firms as venerable as Gersten Savage, established more than three decades ago, may benefit in economic hard times by attracting financially hard-pressed clients from Manhattan's big firms. While the hourly rate for a large-firm partner could run to $900 or $1,000, said Ms. Madama, her own hourly charge for comparable work would run about half that. In the context of such figures, she said, her firm intends this year to "basically go out and poach the smaller clients from the bigger firms and remind them that they can save a lot of money." She added, "It would seem antithetical to think you should invest time and money in advertising when things are bad, but that's exactly what we're going to do." Beyond paid notices in trade journals, Ms. Madama said she and her colleagues plan to devote funds to direct mail campaigns and will seek appointments with in-house general counsels at small to medium business firms. Like Ms. Madama, Mr. Rakower noted cost savings to large-firm clients who would switch to his or other small firms for their needs. Mr. Rakower said his firm bills at 40 percent to 50 percent less per hour than partner rates at large firms. "We're already seeing higher value appellate cases come our way, cases that aren't document-intensive," he said. Legal specialization can help shelter a small firm from a national economic storm, according to Jeffrey G. Steinberg, even if not a guaranteed recession-proof business strategy. Mr. Steinberg, of White Plains-based Steinberg & Cavaliere, said his niche practice of professional liability litigation and insurance coverage serves his seven-lawyer firm well in an environment where "probably more people than usual bring suit against their lawyers." "If you look at the last 40 professional liability decisions in the state, probably 38 of them are cases my firm is involved with," said Mr. Steinberg. "We have an established expertise. We're not affected by the economic downturn. There's a steady stream of work for us. We do OK." Looking ahead, he said, "This economic market has instability problems, which is not something that's bad for me. In fact, it's probably going to mean more litigation." Attorney Ari Kaplan, a law firm consultant and the author of "The Opportunity Maker: Strategies for Inspiring Your Legal Career," said small-firm attorneys should spend more time "becoming business partners" with their clients "rather than just problem solvers." Lawyers should also consider deeper relationships with clients and the exponential value of knowing them beyond business at hand. "A good lawyer should spend time learning about his client," said Mr. Kaplan. "What are my client's motivations? How does his business impact his industry, or his community? Does my client have aspirations beyond his particular business - political aspirations, for instance?" He added, "Then the good lawyer can call his client and say, 'I think you might need to meet so-and-so.' That's thinking of your client as an individual, not just a business prospect." Firm Asks
Some Senior Associates By Lynne Marek Kirkland & Ellis is edging some senior associates and income partners toward the door as part of its regular annual evaluation process, perhaps being carried out with a bit more gusto given the difficult economic times. The Chicago-based firm has asked the lawyers to look for other work in the wake of the reviews and as the economy slows work in some areas, said Chicago-based legal recruiters who have heard from some of the attorneys. The legal Web site Above the Law reported earlier that the firm may have asked 15 to 25 non-equity or "non-share partners" to leave. Some recruiters said the number may be closer to 15. Kirkland didn't immediately return calls seeking comment. The law firm has long had a large 250-to-300-lawyer group of income partners, also known at the firm as non-share partners, because it tends to promote lawyers to this level earlier in their careers than some other firms, typically moving them up the chain from associate level after they've been at the firm a little more than six years. It's not surprising that the firm might trim from the large group amid difficult economic times because the lawyers are well-paid, making between $275,000 and $400,000, and unlikely to leave on their own, recruiters said. "They stay until the checks quit coming," said John Cashman, a recruiter in the Chicago for Major, Lindsey & Africa. The downturn in the U.S. economy has slowed work in a variety of practices, including the real estate, corporate, securitization and transactional areas. While some practice groups, such as restructuring and bankruptcy, have seen a rise in demand from clients lately, the firms don't shift lawyers from one area to another as much as they have in the past, especially at higher levels, preferring instead to hire specialists if they're available, recruiters have said. Kirkland is not alone in trimming from the ranks of income partners. Other Chicago-based firms, which are more likely to have the two-tier partner system than some other parts of the country, have done the same during the past couple years. Jenner & Block, Sonnenschein Nath & Rosenthal and Mayer Brown are among the firms that have asked some of their non-equity partners to exit. Kirkland has also has done the same type of pruning in the past, recruiters said. Income partners get squeezed between the business-generating equity partners and the lower-paid senior associates, sometimes hoarding work in difficult economic times and keeping it from trickling down to less expensive associates that could perform the work at lower rates for clients. "They're the most expensive non-rainmakers in the firm," said Art Gunther, a recruiter with the Chicago-based Gunther Group. "The income partners always have a tenuous existence, even in a good economy." More Associate Layoffs to Come in New York Jeremy Hodges The international firm's New York office houses around 140 lawyers, including 60 partners, and the layoffs come as part of a range of cost-cutting measures introduced in response to market conditions. Baker & McKenzie said in a statement issued Friday: "We are in strong financial health, thanks in part to a sound strategy and fiscal discipline, as well as our firm's geographic and practice diversity. However, over the last few months, as a consequence of the downturn affecting the global economy, we have seen declines in some areas." "In particular, we are focusing on helping our clients manage through these turbulent times, and we are acting to reduce our own operating costs. These actions include, but are not limited to, slowing or deferring some long-term projects, travel and hiring restrictions, and some limited workforce reductions, including six associates in our New York office this week." The cuts make Baker the first major U.S. firm to announce redundancies so far this year following cuts made by Orrick, Herrington & Sutcliffe and Dechert in November last year. The layoffs come after Clifford Chance on Thursday launched a significant redundancy program in its London headquarters, with the Magic Circle firm potentially set to cut 70 to 80 lawyers. The firm had already cut 20 litigation associates in its New York office in October. A Glut on the Market By Leigh Jones "I just feel fortunate I never met Mr. Madoff," said the 62-year-old attorney, referring to broker Bernard Madoff, who allegedly bilked investors out of $50 billion. A corporate and transactional partner at Minneapolis-based Leonard, Street and Deinard, DeRuyter said he's in better shape than a lot of other workers these days. Still, he's not feeling nearly as confident as he was just a few months ago about his plans for his golden years. "I probably could retire, but I won't be as comfortable doing so," he said. 250,000 Attorneys By some estimates, about 250,000 baby boomer attorneys have begun entering retirement age. And with the recent plunge in the values of 401(k) plans and other nest-egg assets, DeRuyter and attorneys like him are seeing their dreams of a worry-free retirement vanish. At the same time, many law firms that had expected attorneys to leave because of retirement -- and would now welcome it as work has slowed -- can no longer rely on older attorneys to hit the road. As a result, many law firms are saddled with too many attorneys and too little work. "You have to clear the decks for new blood," said Bruce MacEwen, a consultant and editor of Adam Smith, Esq., a blog that focuses on law firm management. "Retirement is the flip side of associate attrition." In 2005, about 50 percent of law firms had mandatory retirement plans requiring attorneys who reached a certain age to either leave or relinquish their equity status, according to a survey by Altman Weil. The trend since then has been for law firms to do away with such policies, spurred in part by a lawsuit against Sidley Austin brought by the U.S. Equal Employment Opportunity Commission on behalf of 32 former partners. The action alleged that the law firm violated federal age discrimination laws because of its retirement practices. The case settled in 2007 for $27.5 million without a decision on its merits. In addition, the American Bar Association last year passed a resolution that called for law firms to end mandatory retirement, describing the practice as outdated and contrary to public policy. In 2007, K&L Gates announced that it was ending its policy requiring equity partners to withdraw from equity status at age 70. At the time, Chairman Peter Kalis called the old policy "anachronistic." Also in 2007, Pillsbury Winthrop Shaw Pittman abandoned its policy, moving instead to a system based on individual evaluations. BigLaw
Is Making Its List, Checking It Twice, By Susan Beck This December, nerves are worse than racked, they're frayed. The pain is acute at firms that do a lot of corporate financing, M&A and private equity deals, and not just because there's no new work. Making matters worse: Firms that were working on one of the many deals or financings that have been postponed or terminated may never get paid for the significant hours they did log. That's because in most instances, law firms don't get paid until a deal closes. "There are a large number of deals in some areas, such as capital markets, that will never be billable," says Mel Immergut, the chairman of Milbank, Tweed, Hadley & McCloy. Firms can try to negotiate a broken deal fee, he says, but have to accept a deep discount. "Sometimes you can get paid a little bit, but not 100 percent." When a deal fails, the law firms generally don't have a contractual right to any money. And that can make for messy negotiations. These days most firms don't want to drive too hard a bargain with clients they want to hold on to. "If it's an ongoing client we may be a bit more generous," says one partner. "We'll ask them to pay us a fraction of the fees, but there's an understanding that when the market turns around they owe us." But, these days, who knows if the contact person at your client will even be around when the market turns -- let alone next week. In fact, the person you're negotiating with now may be a stranger who has been taken over in one of the many corporate restructurings. "If a group has blown up, it's difficult to collect," says a lawyer at one financial institution. The cold hard fact is that with so many firms begging for work, lawyers don't have too many bargaining chits. "Law firms don't have a lot of leverage here," says one lawyer. Firms that lay down tough payment terms may find themselves passed over in the future in favor of one of the hordes of hungry firms offering discounted rates. At least one firm has taken steps to make representing a company or issuer less risky. "Years ago we started getting a little smarter, and asked our issuer clients to pay us monthly," says a partner at this firm, which she didn't want identified publicly and which appears to be in the minority. Most partners the Am Law Daily spoke to say they don't get monthly payments when they represent companies in these deals. Representing underwriters and investment banks is even riskier. "We never get paid as we go along," says this partner about underwriter work. "If the deal doesn't close, the underwriter hasn't made any money." For matters billed on a regular basis, like standard corporate work and litigation, firms stand on firmer ground, although payment isn't assured this year. September was particularly scary, says Jay Zimmerman, the chairman of Bingham McCutchen. "Even the best clients were holding payment," he says. "Everybody was sitting on cash and we had a build up in receivables." Since then, he says, the money has been flowing in fairly normally. "The September bills did get paid. October turned out to be very good and November is looking very good." Zimmerman says Bingham did a few things differently this year to keep collections on track. "We were very aggressive in analyzing the quality of our inventory and writing it off," he says. "Historically we did some of that early, but this year we had the discipline to do that from the very start. We made sure the inventory was cleaner than it ever had been." If a client didn't look credit worthy, he says, the firm might stop working for it. "In general, clients are paying slower," says a partner at another major firm. And an accounting professional at yet another major law firm says she has seen the average age of receivables increase by about 30 days. Still another manager says he's seen that figure rise about 10 percent. This partner says his firm is more closely monitoring each partner's inventory: "It used to be if we saw a balance in the millions and it was outstanding 60 to 90 days, we'd ask questions." Now, he says, they approach the partner if a few hundred thousand dollars has been due for 60 days. "If the partner is not paying attention, we'll pull in people higher up on the food chain, like the practice group chairman," he says. What if a client says it simply doesn't have the cash? "If it's a client you have a relationship with, you work with the client," says one law firm leader. "The name in this game, particularly in times like this, is keep relationships strong. What we've found is that if you're willing to work with a client, they remember." For the more troubled receivables, some firms use high-end collection agencies. "They're very professional and sophisticated," says one partner about these bill collectors, who typically work for a commission. The client doesn't know that they're being contacted by an agency; the person on the phone appears to be an employee of the firm. "They're a great tool to have. They can do a lot of legwork and research," says the partner. He notes that they've used professional collectors in the past, but they're relying on them a lot more this year. Still, there's only so much a firm can do to try to make December merry, especially for those that relied heavily on Wall Street's financing machine. "We're worried," says one partner whose firm has typically pulled in 25 percent of its revenue in December. "In terms of end-of-year pop, there won't be a lot." This article first appeared on The Am Law Daily blog on AmericanLawyer.com. NY BigLaw Firm Axes 35 Associates, 25 Staffers By Zach Lowe Yesterday, it was Proskauer Rose's turn. The firm is parting ways with 25 administrative staff and 35 associates, according to a statement the firm released this afternoon (a link to download the memo is available below). (News of the layoffs first appeared on Above The Law.) The statement does not say which offices or practice areas will suffer the most. The firm said the layoffs are due to both the economic crisis and the "unprecedented reduction in our historical lawyer attrition rate." The layoffs, in short, do not appear to be performance-related. The Am Law Daily reached out to Allen Fagin, Proskauer's chairman, but we haven't heard back yet. (An unemployed lawyer's website www.unemployedlawyers.com who noted a link to American Lawyer's "DeFarge List2", showing law firms letting go associates and others) Too Many Associates + Too Little to Do = ? By Karen Sloan The West Peer Monitor Index — a measure of legal market conditions — found that large law firms had the lowest productivity during the third quarter of 2008. Overall, law firm productivity was down by 4.5% in the third quarter, but it sunk by 6.5% at larger AmLaw 100 firms — law firms with the highest revenues as ranked by The American Lawyer, an affiliate of The National Law Journal — said Mark Medice, the national manager of the Peer Monitor. The index report attributes the low productivity level to large firms having too many associates with too little to do. "In spite of the various reports of layoffs and firm contractions, the factor that looms largest is the swelling of unproductive associates in firms," the report reads. "This is especially true with the large firm segment, which is experiencing the lowest productivity in the industry." The West Peer Monitor Index report is published by West, a Thomson Reuters company. Many of the larger firms are experiencing lower productivity because the type of capital markets and securities work that they handle has dried up in recent months, leaving some of their attorneys idle, Medice said. "The higher-end firms have had aggressive hiring patterns in recent years. Even though they have slowed down, it hasn't kept up with the reduction in demand," he said. Layoffs have become increasingly common at major law firms, but those staff reductions have lagged behind the falloff in demand for legal services, further pushing down productivity. Still, the legal industry is definitely in downsizing mode. Associate hiring has declined by 6% compared to a year ago, and law firms are offering equity partnerships to half as many attorneys as they did the previous year, according to the index. Lateral growth, however, was about the same as it was in 2007. With respect to demand for services, billable hours dropped by 2.5% during the third quarter, according to the index. That reduction followed a 2% decline in billable hours in the second quarter of 2008, according to the previous index. The dropoff in billable hours during the third quarter was especially steep in July and August — 5% — but demand rebounded in September to bring up the quarterly average. Some areas were hit harder than others regarding declining demand for services. New York saw billable hours decrease by just over a half a percent, while Washington saw billable hours decline by 4.5%. Both Los Angeles and Chicago saw billable hours drop by 2%, according to the index. Certain regional markets did better, however. Austin, Texas, was among the areas that saw steady demand for legal services. The international legal market wasn't immune to slowdowns. The Middle East still experienced growth, but expansion slowed in Beijing. Established markets such as Frankfurt, Germany; Tokyo; and Hong Kong saw demand for legal service shrink. Law firms have been waiting for countercyclical practice areas to pick up amid the down economy, and it appears that the increase has finally starting to happen. Fees collected for bankruptcy work increased by 17% in the third quarter, compared to a 5% increase in the third quarter of 2007. Regulatory work and litigation also began to heat up, according to the report. Not surprisingly, growth in corporate work was slow, and fees for capital markets work dropped by 2%. Mergers and acquisitions and intellectual property litigation also saw growth drop off. Overall, law firms were successful in containing their expenses during the third quarter. Overhead expenses grew by 6%, compared with 8.3% in the third quarter of 2007. Direct expenses grew by 8 %, compared with 9% growth last year. Collections remained a serious question for law firms, however. "A primary concern is [fourth quarter] collections," reads the report. "Many firms are experiencing collection issues and are taking precautionary actions now to mitigate any downside effects on profitability." Go Somewhere Else, Young Man!: BigLaw Firm Asks 30 Associates, Paralegal to "Explore Opportunites Elsewhere" By Karen Sloan A higher than usual number of associates are being asked to leave following the annual associate review process, the firm confirmed in a statement on Thursday. Altogether, 30 associates and paralegals have been advised that they should "explore career opportunities elsewhere." It was not immediately clear how many attorneys were among the 30 people asked to leave, though the firm specified that three of the departing associates are from the Phoenix office. The firm declined to comment beyond the statement. "Admittedly, current and projected business conditions influenced the timing of these decisions," according to the firm's statement. "Like all firms, we are forced to align our resource capabilities with project client service levels and make some hard personnel decisions." Squire Sanders said it is working closely with employees asked to leave and is giving them "support and assistance." The firm is hardly the only one to reduce its workforce in recent months, as the economy has been in a downward spiral. Economists are predicting that 2009 will be a difficult financial time. Many firms have characterized their cuts as layoffs tied to the economy, while others have been tougher than usual in associate reviews and are trimming personnel through that process. Squire Sanders seemed poised to take advantage of the recent economic turmoil. It was one of two firms awarded contracts from the U.S. Treasury Department to assist the agency in administering the $700 billion bailout package. That contract, worth about $5.5 million, was awarded earlier this month. The firm also has been in merger talks with Chicago-based Seyfarth Shaw. News of the Squire Sanders downsizing was first reported on the legal gossip blog Above the Law.
By Gina Passarella PHILADELPHIA - Bad economic times may have exacerbated law firm failures like those of Thelen and Heller Ehrman, but they certainly weren't the cause, according to a white paper issued Wednesday by Hildebrandt. The consultancy said there are a few common characteristics shared by firms that have faced dissolution and often early warning signs are ignored. Firm failures, just like mergers, are generally the products of a "rapidly consolidating and segmenting marketplace," the white paper commented. In a 2004 study, Hildebrandt looked at 80 firms that had failed between 1998 and 2004. They all shared at least one of three common characteristics. Below average financial performances that included excessive leverage, significant deferred obligations, low productivity and poor realization was one main category. Internal dynamics involving leadership problems, incompatible goals among partners, differences in compensation philosophies and a lack of succession planning was the second common theme. External dynamics dealing with competitive pressures over a historical client base, access to new clients or an ability to recruit was the third major component shared by failed firms. There were four types of events Hildebrandt highlighted as "triggering events" that brought these underlying problems quickly to the surface. Those included an overexpansion that weakened the firm over a long period of time, a rapid or gradual defection of significant partners, a breakdown in merger talks for a firm already financially stressed, and the impending expiration or renewal of the firm's primary office lease. There are often multiple triggering events, Hildebrandt said. In the current economic climate, certain financial performance issues should be closely watched, the consultancy said. Problem areas include excessive borrowing to pay for growth or to pay partners, having high debt levels due to a lack of capitalization, chronic productivity problems among partners, and showing poor financial hygiene, which might mean giving partners too much autonomy over which clients they take or when they discount fees. Poor growth strategies can also be a big problem -- the growth for growth's sake phenomenon. Or as Hildebrandt put it, "some firms seem to be committed to a strategy of being the largest and least profitable firms in their markets!" Other firms run into problems because of a failure to understand or plan for market changes. They don't pay attention to a potential loss of work because of changes in a client group's business. "Failed firms often try belatedly to address these issues through eleventh-hour mergers or rapid expansion, but such actions are a poor substitute for careful strategic planning and action early on," Hildebrandt said in the white paper. Law firms also have to be sure to manage partner expectations and know the firm's place in the market. Hildebrandt said most of the firms that failed in the last decade could have avoided it if they acted earlier and more prudently. White & Case Layoffs Cut Deepest at NY Office By Anthony Lin New York took the biggest hit in the round of associate layoffs disclosed Tuesday by White & Case. Firm spokesman Nicholas Clarke declined to provide an office-by-office breakdown of the 70 lawyers and 90 staff who were let go, but said that New York, White & Case's largest office, had seen the most cuts. The firm's London office and U.S. locations including Los Angeles, Washington, D.C., and Palo Alto, Calif., were also affected. "We are living in a time of unique economic challenges, and well-managed, successful businesses, including White & Case, must assess their operations in light of current market realities," Chairman Hugh Verrier said in a statement. "We believe this is a necessary step to adjust to the global economic downturn and to ensure a strong, long-term future for the firm." The layoffs represent about 3 percent of the headcount at White & Case, one of the world's largest law firms with around 2,000 lawyers in nearly 40 offices around the world. Mr. Clarke said the layoffs were spread among practices, with no particular group targeted for cuts. White & Case does boast a significant banking practice, which would have been hit hard by the ongoing credit crunch. The tough economic times have already produced significant layoffs at a range of firms including Clifford Chance, McKee Nelson and Cadwalader, Wickersham & Taft Law Firms Feel Strain of Layoffs and Cutbacks By Jonathan D. Glater You know things are bad when even lawyers are getting laid off. In downturns of years past, law firms exploited corporate failures and bitter, protracted lawsuits to keep busy and keep billing. But in this still-unfolding crisis, the embittered and the bankrupt have been relatively slow to appear, at least in court. Law firms in turn are feeling the strain. Thelen and Heller Ehrman, two firms whose deep San Francisco roots extend back decades, have collapsed outright, in part because of the business slowdown. Each firm left several hundred lawyers out in the cold. Many others, including Sonnenschein Nath & Rosenthal and Katten Muchin Rosenman, two Chicago firms ranked among the nation’s hundred most profitable by American Lawyer magazine, and the international giant Clifford Chance have jettisoned dozens of associates. Still others, like Powell Goldstein, a firm based in Atlanta with more than 200 lawyers, are merging with larger rivals in deals that may be bids for stability. Over all, the Bureau of Labor Statistics reported on Friday that the legal services industry lost more than 1,000 jobs in October. This is not how it is supposed to work; businesses are supposed to need lawyers in good times and bad alike. A few big companies are in dire straits or well beyond, including the collapsed Lehman Brothers and Circuit City, and the number of corporate bankruptcies is beginning to rise, according to the American Bankruptcy Institute. The group reported there were 18,456 bankruptcies in the first half of this year, compared with 12,985 during the same period of last year. But because the financial crisis damaged Wall Street first, corporate collapses in many other sectors — automobiles, airlines and the like — have not happened, at least not yet. A wave of big company litigation — those suits that pit armies of associates against each other — has also not materialized. A recent survey by one big firm, Fulbright & Jaworski, found fewer large companies reporting new lawsuits against them this year. Although executives may desperately want to sue one another over recent losses, they may not know how big those losses are or want to know how big they are. In any event, cash is precious in this downturn, and litigation is both costly and risky. "You have to wait and see if you have any damages and, if so, what they are," said Ward Bower, a principal at Altman Weil, a consultant in Newtown Square, Pa., to law firms. "That tends to cause a lag." The number of lawyers affected at big firms is tiny when measured against the thousands of jobs disappearing at brokerage firms and banks. But in the rarefied world of corporate law, layoffs are unusual. It is striking to have just 20 associates sent packing — as a spokesman confirmed had happened at Clifford Chance, which has 3,900 lawyers worldwide. Lawyers at firms that have taken such drastic steps say that the problem is simply that they have too many people with the wrong kinds of expertise at the wrong time. Sonnenschein, for example, cut about 24 of its 700 lawyers last month, mostly people who worked on real estate deals or related transactions, said Linda Butler, a spokeswoman for the firm. The layoffs were the second round for Sonnenschein, which cut more than 30 earlier in the year. McKee Nelson, a New York firm, announced last week that it had shaved 17 corporate and finance associates, reducing its complement of lawyers to 174. In a statement, the firm cited the "devastation that befell the credit markets." Bell Boyd & Lloyd, a Chicago-based firm with about 260 lawyers, cut loose 10 associates, also blaming "unprecedented market conditions." Beyond the current crisis, corporate clients are trying to rein in spending on law firms. Now that firms are increasingly desperate for business, some corporate general counsels say, the firms are more willing to accept less profitable payment arrangements that do not reward the firms for simply assigning more lawyers to spend more time on a project. A survey of about 600 corporate executives by Acritas, a London-based research firm, found that 32 percent expected billing practices to change over the next two years. "Rather than having hourly rates, we are increasingly negotiating flat fees or fixed fees, or success fees," which include a premium based on predetermined conditions, said Ivan K. Fong, chief legal officer and secretary at Cardinal Health in Dublin, Ohio, and chairman of the Association of Corporate Counsel. Some law firms have resisted those changes, he continued, but may find they have to accept clients’ wishes. "It’s a pretty significant change," Mr. Fong said, and it is occurring as companies use internal lawyers for more work, to control costs and take advantage of the broader expertise of their own legal staffs. Lawyer departures, whether voluntary or through layoffs, pose special risks to firms. Layoffs scare off law school recruits, who crave security and wealth. "Students are also very much aware that ‘if they did that last year, it can happen to us again,’ " said Mark Weber, assistant dean for career services at Harvard Law School. He said that this year, offers of employment are harder to come by and firms are hiring fewer interns for next summer. Lawyers’ voluntary departures create the perception that a firm’s condition is deteriorating. If enough lawyers leave, perception becomes reality. Thelen, founded in San Francisco in 1924, suffered several defections over the past year. Those departures, combined with the credit squeeze, led the partners to decide to dissolve last month, said Douglas E. Davidson, managing partner of the New York office. "Our commercial litigation practice did not get as active as it might have in the past when the economy slowed," so there was not enough other work to offset the decline in corporate business, Mr. Davidson said. "The depth of the economic downturn here is, of course, something that we haven’t seen for maybe 60 years, and so we were more seriously impacted." While there are plenty of lawsuits filed by investors against companies, an anticipated explosion of litigation by corporations against one another has been held up just like any other corporate spending, said Stephen P. Younger, a partner at Patterson Belknap Webb & Tyler in New York. "Clients often don’t want to invest in discretionary litigation in a downturn," Mr. Younger said. Responding to government investigations has been keeping lawyers busy but does not generate continuing work for armies of associates, like a big lawsuit does, he said. "There are tons of government investigations going on now." The slowdown also has made it much harder for lawyers looking for work to find positions, said Robin S. Miller, a principal at Corrao, Miller, Rush & Wiesenthal Legal Search Consultants in New York. "It’s a bad market," Ms. Miller said. While the litigation departments at some firms are busier, activity is less widespread than anticipated, she said. As for bankruptcies, she said that most of the activity is concentrated in financial services, so it is not providing work for lawyers who serve other industries. "The last time we saw anything like this, this bad, was in the early ’90s," Ms. Miller said. "But it’s starting to feel even worse." Another Firm Axes Associates in Layoff By Karen Sloan That announcement comes just two weeks after Katten Muchin Rosenman dumped 21 attorneys and Sonnenschein Nath & Rosenthal showed the door to 25 associates. Both those law firms have their largest offices in Chicago. Jenner & Block, also based in Chicago, has cut 10 partners in recent weeks. As with the other firms, Bell Boyd & Lloyd said the attorney cuts are in response to the slowing economy. "Like many firms, Bell Boyd is facing unprecedented market conditions and we are taking measures to ensure the firm's efficient operation and growth," said Managing Partner Nancy Bertogio in a prepared statement. "This is a belt-tightening measure that will put us in a better position to ride out the economic storm and remain competitive in what we expect will be a challenging business environment for law firms and our clients." All 10 of the laid-off associates worked in the Chicago office, and they came from a number of different practice areas, according to Bertogio's statement. Their employment with Bell Boyd & Lloyd will cease at the end of 2008. None of the laid-off attorneys are first-year associates. The stalling economy has hit hardest at firms that rely heavily on real estate and capital securities and structured finance deals. Bell Boyd & Lloyd has several of those slower practice areas, including real estate, mergers and acquisitions, and capital markets. "Firms are doing something they probably should have done more of in recent years," said Kay Hoppe, a legal consultant in Chicago. "This is a business correction." While a number of prominent Chicago law firms have recently announced cuts, Hoppe said the city isn't being hit any harder than others by the cooling economy. Many law firms in other cities are also making reductions, even if they aren't publicizing them, she said. "I can't imagine that there will be a firm standing at the end of this that has not made an adjustment in its work force," Hoppe said. "Chicago may be unique in its candor." Amid the cuts, Chicago firms have kept up with lateral hiring, Hoppe said.
Survival Tips for Law Firms: Cut and Cuddle By Julie Kay NEW ORLEANS — So, how will the law firm of the future survive? Here are a few tips: Be willing to discount fees or use "success fees," and embrace other other creative arrangements over large hourly billing rates. Also, step up diversity initiatives and work hard at deepening relationships with clients. That was the opinion of a panel speaking on the issue of "The Law Firm of the Future — Who Will be the New Winners and New Losers" last week at the DRI conference in New Orleans. More than 1,200 defense lawyers attended the conference, one of the largest gatherings of lawyers held annually. While the biggest crowds gathered to hear the headline speakers — former House Speaker Newt Gingrich, Newsweek contributing editor Eleanor Clift and NPR's Juan Williams — the session on law firms of the future drew an estimated 600 lawyers. The law firms that survive during these trying economic times are the ones that are willing to discount rates, said panelists, which included Bruce MacEwen, a New York-based law firm consultant; Sheryl Willert of Williams Kastner in Seattle; Patricia Diaz Dennis, senior vice president and assistant general counsel of AT&T; and Raymond Williams of DLA Piper's Philadelphia office. "We are facing pressure on rates," said MacEwen, who said one company fired its law firm after it became public that firm was charging $1,000-an-hour rates. Other cost-cutting trends he has observed include major law firms training lawyers in India, where labor is cheaper, including Clifford Chance and Baker & McKenzie; Fortune 500 companies appointing task forces to do line-by-line examination of legal bills; and highly-itemized billing. Diaz Dennis noted that AT&T sent out a letter to all its outside law firms two years ago advising them that their budget had to be cut. "The ones that stepped up to the plate and offered to share that pain with us are the ones who are still working with us," she said. Willert said she is increasingly offering clients the option to pay "success fees" — bonuses upon winning a case — instead of straight hourly fees. Some panelists advocated a return to the days of "retainer" fees, whereby lawyers are paid an upfront retainer for legal advice, as opposed to the current law firm model in which companies are billed for every hour of service and law firms are under pressure to bill. "Nowadays I'm under pressure to put dollars in my pocket so I'll be an expert on everything," Willert said. Midsize firms have an advantage over larger firms in pricing and should exploit that, said panel moderator Henry Sneath of the 11-lawyer Picadio Sneath Miller & Norton of Pittsburgh. "Small firms can promise partner level attention that large firms can't," Sneath said, adding that he refuses, however, to just be "window dressing" as local counsel for a large firm. Diaz Dennis said AT&T is not adverse to hiring smaller law firms "when we get to know them. They deliver high quality services." Also continuing to be a key factor to law firms is diversity of outside lawyers. In 2004, Fortune 500 companies such as Wal-Mart Stores Inc. signed a vow promising to increase the diversity of their lawyers and to fire firms that did not meet certain diversity criteria. Next month, the Minority Corporate Counsel Association will reveal in a long-awaited report on how the companies have fared — and whether they will actually fire poor-performing law firms. The difficulty is in defining diversity, said Williams. Between age, gender, geography, sexual orientation, disability, race, religion, "we're all diverse," he said. "If you go into a room and it's all male lawyers, you want to see a female," he said. "If you go into a room and it's all black lawyers, you want to see a white lawyer." Willert encouraged law firms to also consider law schools when thinking about diversity of applicants, noting that Harvard and Yale aren't the only law schools to produce "excellent" attorneys. Panelists also were unanimous in recommending that lawyers develop deeper relationships with clients by taking the time to visit them at their offices — without the meter running — to ascertain their needs. "It will pay off in spades," MacEwen said. "You can't just come into your office and answer the phone in this environment. You have to provide impeccable service." Job
Prospects for Lawyers Left Adrift By Amanda Bronstad On Oct. 28, the partnership council at Thelen, which has lost dozens of partners in recent months and is in default of its credit arrangement, recommended that the full partnership vote to dissolve the firm, which originated in San Francisco, in coming days. The announcement comes about a month after Heller Ehrman, another firm originally based in San Francisco, closed its doors. For attorneys at Thelen, the job market couldn't be worse, particularly for associates and those involved in corporate transactions. In recent weeks, Katten Muchin Rosenman, Sonnenschein Nath & Rosenthal and Clifford Chance have laid off dozens of associates. New York's Chadbourne & Parke also announced it would freeze hiring of lateral associates and legal staff. Nowhere has the economic downturn's effect on law firms been more apparent than in New York, the hub of the financial markets. "People in New York will have a much more difficult time than they might have in other parts of the country," said Ed Wesemann, a partner at Kerma Partners, a legal consulting firm based in New York. That doesn't bode well for Thelen's 130 lawyers in New York, its largest office. At Heller, which had about 75 attorneys in New York before dissolving, fewer than 20% of have landed at new jobs in the past month, by far the lowest percentage among the firm's most sizeable offices. Thelen's dissolution discussions come as a group of 30 lawyers in its prized construction practice, including Chairman Stephen O'Neal, are in talks with Washington's Howrey, according to recent reports. Attorneys in some practice areas, such as bankruptcy, litigation and regulatory work, face a more promising job outlook than those in corporate transactions, Wesemann said. And Thelen's New York office already has dwindled considerably since merging two years ago with New York's Brown Raysman Millstein Felder & Steiner. This year's departures include name partners Richard Raysman, Jeffrey Steiner and Peter Brown. Whether an attorney from Thelen gets a job "is going to depend on what their own business generation prospects are at this point," said Eric Sivin, founder and principal of Sivin Tobin Associates LLC, a legal search firm based in New York. But being in New York doesn't help. In the past week, Sivin's own firm opened an office in San Francisco, headed by the former senior manager of partner recruitment at Heller, in part because "the practice in New York is so financial services oriented that it's been more affected than it may be in other markets." In the month since Heller dissolved, its 550-some lawyers have scattered to more than a dozen firms. Most firms have hired partners, but few associates. Firms facing economic uncertainties aren't going to "load up on associates," Sivin said. But location has played a role, also. Since Heller's dissolution, more than half of its attorneys in San Diego and Washington have secured new jobs, and nearly half of the 150 attorneys in San Francisco have landed at other firms. In Seattle, 40% have new jobs. About 35% of those in Menlo Park, Calif., have been hired, and, in Los Angeles, about 30%. But New York's percentage of less than 20% is the lowest. One former Heller partner, Paul Downs, who specializes in international corporate transactions, declined to discuss the general state of New York's legal job market, although he acknowledged that the economic slowdown impacted his decision to join Jones Day's New York office. Which
Economic News Do You Want First, By Karen Sloan That's the gist of the latest client advisory from Hildebrandt International, which director James Jones called "the grimmest one I've ever written." The advisory released this week predicts that average law firm profits per partner will be flat in 2008, and could decrease by 15% or more at certain firms. Those predictions are a departure from the consulting group's advisory issued in the beginning of 2008, which projected that firms would see slight growth in profits per partner this year. "By mid-year, even that was a looking a little rosy, so we dropped the projection," Jones said. "It's just not pretty out there at the moment." Of course, news that law firms have hit hard times would surprise few in the profession at this point, but Hildebrandt's advisory is notable for the sheer extent of doom and gloom that it portends. Among its bleakest findings: • The economy is unlikely to see a significant turnaround until late 2009 at the earliest. • Firms will continue to resort to layoffs, hiring slowdowns and eliminations of unprofitable practice areas. • With fewer clients overall in the financial and capital markets sector, firms will face "more vigorous competition" for that type of work. • Firms will not be able to count on 6% to 8% across-the-board billing rate increases in 2009 to boost profitability. " We see 2009 being a tough year," Jones said. Law firms saw productivity drop partway through 2007, but the latest financial mess has only served to compound and prolong the problems that began with onset of the sub-prime mortgage crisis, Jones said. Hildebrandt's advisory includes a number of suggestions for how managers can help their firms weather the current storm. For one thing, all necessary layoffs should be made at one time and in 2008, which will give law firms a stronger start in 2009. Firms should also trim unprofitable practices and underperforming attorneys, according to the advisory. Law firm expenses have risen dramatically in recent years, and the advisory suggests firms trim costs where possible while avoiding a "slash and burn" approach. Jones said most firms are already looking for ways to cut costs, meaning attorneys could find themselves sipping Yellow Tail Shiraz at the firm holiday party this year instead of the appropriately aged Burgundy they are accustomed to. Firms should also maintain frequent communication with attorneys and clients, who are likely to be anxious, given the instability of the economy and the uncertainty of the future. Despite all the bad news, Jones pointed out a few positive developments. Firms are beginning to see an uptick in traditionally countercyclical practice areas such bankruptcy, litigation and regulatory work. That should help make up for some of the losses in real estate, capital markets and finance work. Also, demand for legal services will bounce back in time. "The legal
industry tends to come out of an economic downturn faster that other
industries," Jones said. "Once deals get going again, you need
attorneys to work BigLaw Learns Layoff Lessons By Karen Sloan Law firm leaders spent a month developing a plan for how to tell 20 associates on Oct. 14 that they were being let go, and how to break the bad news to the rest of the firm and the media. First, the associates were told in person by a supervisor that they were laid off. The firm then held group meetings at which attorneys could ask questions about the downsizing. Finally, Clifford Chance had a prepared statement ready to send out at 3 p.m., after the group meetings were slated to wrap up. But information is difficult to control in the Internet age, and rumors of the layoffs hit the popular legal gossip blog Above the Law shortly after 2 p.m. A half-hour ahead of schedule, Clifford Chance rushed out a brief statement that attributed the layoffs to "sluggishness in litigation matters." Lessons from 2001 Clifford Chance is not the only firm to find itself in the unenviable position of laying off attorneys—at least three other firms have announced significant cuts in October alone, and legal experts predict more to come. Firms in downsizing mode must decide if and how to go public with layoff news, which can make a firm appear weak and unstable. For Clifford Chance, it was crucial to get out in front of the layoff story, said John Christian, chairman of the firm's personnel committee. "In today's world, we knew it would become public right in the beginning," he said. "We thought it would be best to address the situation early and shoot down the rumors, which so often turn out to be exaggerated." Cadwalader, Wickersham & Taft took a similar tack when it cut 96 attorneys in July. Chairman Chris White immediately explained to the press that the cuts were a direct result of a slowdown in the firm's real estate and mortgage-backed securities work and not performance related. The latest wave of attorney layoffs has shown that firms are generally more willing to disclose bad news than in the past. It's not uncommon in the current economic climate for firms to quickly confirm the size of their layoffs and offer reasons for their downsizing. The movement toward greater transparency began in 2001, when the dot-com bust and the economic slowdown that followed the Sept. 11, 2001, terrorist attacks led a large number of firms to trim their ranks through mass layoffs, said legal consultant Peter Zeughauser. "Things have definitely changed," he said. "Ever since the [Cooley Godward Kronish] layoffs in the dot-com bust, firms have been more candid about the reason they were laying people off. That was a real turning point." Before 2001, it was common for firms to attribute layoffs to attorney performance, a move that helped protect the stable image of the firm but ultimately hurt the laid-off employees, Zeughauser said. Some firms wouldn't say anything at all about layoffs, said Altman Weil principal Ward Bower. But Cooley became the first in 2001 to lay off a sizable number of associates, and it was forthright about its problems. Other firms followed Cooley's lead. Assume a leak As Clifford Chance learned, however, layoff news is bound to leak out regardless. "Firms know they're not going to be able to execute layoffs under the radar. The rumor mill is fierce," said Karen Schwartzman, president of Polaris Public Relations in Boston. Schwartzman, who advised Boston-based Testa, Hurwitz & Thibeault in its 2005 dissolution, advises firms to anticipate that bad news will get out. When writing a memo explaining decisions to employees, firm leaders should assume the document will be leaked. Thus the memo should contain the information the firm wants to put out to the media and clients, Schwartzman said. Law firms laying people off now have a few advantages from a public relations standpoint. First, the slowing economy has hit a broad range of industries, and the uncertain financial climate makes it easy for people to understand why layoffs are necessary, said Clifford Chance's Christian. "This is an unprecedented time," he said. Second, downsizing law firms aren't alone in the spotlight, since a growing number are resorting to layoffs. "If you have the luxury of being in company when you are announcing bad news, it's always better than being alone," Schwartzman said. Just one day after Clifford Chance's layoff announcement, Katten Muchin Rosenman laid off 21 associates and Sonnenschein Nath & Rosenthal laid off 15 associates. "No one wants to deliver the bad news, and no one wants to hear the bad news," Christian said. "But people will respect you for being straight with them." Economy, Elections Equal Boon for Employment Lawyers By Gina Passarella PHILADELPHIA - Bankruptcy attorneys and litigators aren't the only ones putting in extra hours dealing with legal issues stemming from the ongoing financial maelstrom. Labor and employment attorneys are also facing a plethora of opportunities thanks to a combination of counseling and litigation due to the financial crisis and a possible significant shift in labor law depending on the victor of November's presidential election. On the litigation side of the practice, wage and hour litigation has been at the fore of many labor and employment practices over the last two years. Morgan Lewis & Bockius' practice in that area grew by about 40 percent in the past year, according to the firm's labor and employment practice group leader Steven R. Wall. But other employment issues are emerging out of the financial industry and Wall said he expects significant growth opportunities for the department in the coming months. While employment litigation is often hot even in a good economy because employees aren't as fearful of losing their jobs or not being able to find another, Wall said there will be a "tremendous" amount of litigation stemming from the thousands of layoffs that are occurring across several industry sectors. It probably won't be until the first or second quarter of 2009 when litigation ensues over alleged wrongful terminations, fallout from mergers or plant closings or alleged WARN Act violations. For now, Wall said he and his team are busy counseling clients on how to avoid possible litigation down the road. He said the attorneys who work with the financial industry are constantly on the phone working with human resource departments to answer employment-related questions. As other law firms are facing dissolution or layoffs, Morgan Lewis is taking the opportunity to grow its labor and employment practice, Wall said. Attorneys who wouldn't have moved two years ago are now willing to look around as their firms are facing tough times. Morgan Lewis is looking to add lateral labor and employment attorneys in Texas, California and Europe, he said. While Wall said the practice is busy across all of the firm's offices, he said the Chicago and New York offices have been most heavily affected by the economic troubles of late. Chicago is seeing a big increase in ERISA cases because of breach of fiduciary duty claims that are being filed after shareholders see their stocks plummet, he said. The New York and Princeton, N.J., offices are much busier just given the employment issues stemming from problems on Wall Street. Sidney L. Gold of the Law Offices of Sidney L. Gold & Associates represents employees in labor and employment disputes. The co-chairman of the Philadelphia Bar Association's labor and employment section said age discrimination cases are certainly on the rise given the events of the past month. High-level managers with bigger salaries are the most vulnerable as companies look to cut costs, he said. Even before the economy went south, companies were becoming much more proactive in those types of cases in terms of working with attorneys and human resource professionals to try and stem any potential problems at the time of termination rather than facing litigation down the road, Gold said. But for industries so negatively affected by the poor economy, there isn't always time for such measures, he said. "Some companies are moving so quickly to make a move that they're not considering the ramifications of what they're doing," Gold said. Companies in the banking, financial and brokerage industries along with other discretionary industries such as the entertainment and food fields are the most likely to reduce their workforce, he said. Businesses in that situation often look to employees on long-term disability or leave under the Family and Medical Leave Act as initial targets for layoffs. That could result in litigation over wrongful termination, Gold said. Gregory A. Miller, one of the leaders of Buchanan Ingersoll's labor and employment practice out of Pittsburgh, said it's too early to say the firm has seen evidence of a significant increase in work out of the financial crisis given the sharp downturn was so recent. He said the firm does expect to see in the next six to 12 months a big uptick in litigation and counseling related to terminations, retirement and buyout packages and other efforts to reduce labor forces. All of those matters are starting to trickle in, but Miller said they will most likely be a substantial part of the labor and employment practice in the coming months. What the firm has seen in the past few years is a big rise in the number of wage and hour class actions stemming from the Fair Labor Standards Act. He said he expects those cases to continue to increase through 2009. Election Results Possibly even more anticipated than the opportunities arising out of the financial crisis are those that loom just past the presidential and congressional elections. That is particularly the case if Sen. Barack Obama, D-Ill., is elected president and the Democrats pick up more seats in the House and Senate, labor attorneys have said. Wall said Morgan Lewis' traditional labor practice will "take off" if the above scenario comes to fruition. There are numerous pieces of legislation proposed that he said would "amend traditional labor laws in very significant ways." That has already resulted in a lot of work counseling clients. Almost all of the attorneys who spoke to The Legal for this article pointed to the potential passage of the Employee Free Choice Act. John DiNome, a labor and employment partner in the Philadelphia office of Reed Smith, said the passage of the act would be "the biggest and most dramatic shift in labor law since the 1940s." He said it would "fundamentally" change the way unions are organized. The law essentially would favor a check-card system over secret ballots and make it more difficult for employers to challenge union organization that was done via the check-card system. The RESPECT Act is another piece of legislation attorneys said would create dramatic change. The act changes the National Labor Relations Act's definition of a supervisor and would align a supervisor more with employees and less with management. Gold said plaintiffs have done fairly well over the past few years and have won several cases before the U.S. Supreme Court. And if more Democrats get into Congress and Obama beats out Sen. John McCain, R-Ariz., Gold said there's likely to be an increase in legislation that would benefit employees. "And given what's happened in the market and to homeowners, Congress will be trying to do anything and everything to lean over and do things for employees" because it was viewed to have helped Wall Street, he said. There are different versions of legislation in Congress that would overturn the Supreme Court's ruling this year in Ledbetter v. Goodyear Tire & Rubber Co. The divided court ruled employees claiming pay inequity based on gender or race must do so within 180 days of the original discriminatory action — not within 180 days of their last paycheck. Regardless of the new administration, some things are already set to change come Jan. 1. Miller pointed to amendments to the Americans with Disabilities Act that are set to take effect at the start of the new year. The amendments, he said, "will significantly reduce the threshold of what is a disability." Both Wall and DiNome pointed to the probability of increased enforcement on employers from a variety of agencies if Congress gains Democrats and Obama wins. Wall said he hasn't seen the amount of zealous enforcement he might expect from some of those agencies. Even if some of the legislation being discussed doesn't get passed, he said the presence of added enforcement would be a shift. Lehman
Brothers Owes NY Firm $2.8 Million in Unpaid Bills By Zach Lowe Milbank has applied to represent the Official Committee of Unsecured Creditors in the Lehman bankruptcy case, a process which involves an exhaustive look at all of Milbank's potential conflicts, including Milbank lawyers who have husbands and domestic partners at Weil Gotshal & Manges, the law firm representing Lehman. The financial details of the application reveal that Lehman owes Milbank $2,847,153.30 in unpaid bills, which Milbank has agreed not to collect for now. In the calendar year before Lehman went bankrupt, Milbank billed Lehman for nearly $4.3m. In total, bills to Lehman or its subsidiaries amounted to 1.84% of Milbank's gross revenue in 2008. In comparison, Weil Gotshal made $51.8m from Lehman in the calendar year before the investment bank's collapse. In 2007, payments from Lehman accounted for 2.95% of Milbank's gross revenue. Last year, Milbank grossed $642.5m (£406.5m), meaning Lehman's payments amounted to about $19m for the year. The application also revealed that one Milbank partner owned 2,000 shares of Lehman Brothers Holdings, and two others owned 1,000 shares each. These partners have been instructed to stop trading those shares. It's the End of the World as We Know It By The Snark ATLANTA - The world as we know it has, it seems, ground to a screeching halt. Countries, clients, credit markets and yes, even BigLaw associates are in full crisis mode. Everyone from partners to the security guard is showing signs of extreme stress. I wish I had some words of wisdom to offer, but alas, like most of our world leaders, I have no clue what to do. In lieu of wisdom (hey, a lack of wisdom works for politicians, right?), I will attempt to explain the stress and offer my best guess at how to survive. Bored stress Stressed-out lawyers are as common a sight in the halls of BigLaw as mahogany paneling. But they usually are stressed out from being overworked or having to make decisions that could costs their clients bazillions of dollars. Couple this day-to-day stress with the big-picture stress of an economic crisis that is undermining clients around the globe and you've got the foundation for an associate's nervous breakdown. Think about it. an associate's stress, right now, comes from knowing he must bill an additional 600 hours in the next three months or else he won't hit his annual billable requirement. That requirement doesn't change—even though he only has 25 hours worth of work to do. As an associate, you have yearly billable requirements in excess of 2,000 hours, but no control over having enough work to meet those requirements—subjecting you to potential "smart-sizing," pay freezes or a straight-up invitation to pack your bags. After all, if you can't bill enough to cover your own inflated salary, you've got to go. This means boredom is bad. To put it bluntly: Boredom = no BigLaw job. That's why anything less than a solid 10-hour billable day creates not just boredom, but also extreme anxiety. Our minds start racing: "As soon as I finish these revisions, I only have one more small research task. That will only take me 4.9 hours … but I must bill another 5.6 hours today to stay on track!" We must be constantly stimulated, overworked and challenged. If we have time to pause and wonder what we will do with ourselves after we finish a project, something is amiss. Bored stress is not limited to associates, of course. Partners also are expected to bill hours and bring in work. When their top business-generating clients impose across-the-board budget reductions and freeze all non-essential legal work, partners also get stressed by the fear of boredom—and de-equitization. Bored partners are the worst because not only are they stressed, they also are not bringing in business. That means they're angry at you, associates, because when they stalk the halls they will see that you are not busy either, which means you are not billing enough hours to ensure their paychecks will sustain their previous levels. See, partners who have an equity stake in the firm don't get a regular paycheck like the rest of us plebes — their pay rises and falls with the profits (or lack thereof) generated by the firm as a whole. Partners in an economic downturn hate associates more than usual because of the steady income associates receive: "You little twerps got these huge pay raises because of all my hard work and now that times are lean and my own paycheck has plummeted 25 percent, you little brats still are getting the same, safe, direct-deposit check even though you are not billing enough hours. It is just wrong, and you will pay." Indeed. This rationale leads to associate layoffs — fewer mouths to feed means bigger pieces of the profit pie for partners and more billable hours for the associates who remain. Of course, not everyone is bored right now. But even those of us with work stacked on our desks still stress about being bored … and broke. The matters we are handling take on a whole new significance. "We must win this lawsuit for BigCorp or it will cease to exist, we will have no more billable work and our children will have to … gasp … quit piano lessons!" Client crisis BigLaw clients also are feeling the stress of an economic crisis. In-house counsel not only have budgets to meet, they also want to avoid being a casualty of the crisis. This means they may be keeping more work on their own desks and spending more time scrutinizing the monthly invoice from BigLaw. This often is when formerly happy clients stop appreciating the thoroughness of BigLaw legal work. Client: "Partner, what in the world is up with this $845,987 legal bill for last month? Why were you drafting anything? Can't you delegate? Do you really need to have so many conference calls? Who are all these little associates and how on earth can you justify charging $250 an hour for anything done by a lawyer six months out of school?" Partner: "Want to go to a Falcons game? A little Brady Quinn will cheer you up!" Angry clients yelling at partners causes a downward flow of anger that lands on associates. Partner: "Associate, why in the world did it take you 12.8 hours to draft a 20-page memo? This is unacceptable and the client is furious. I am writing your time off." So — what is an associate to do? Here is where my one piece of advice comes in. Do not — under any circumstances — answer the partner's question honestly. Do not tell her it took you 12 hours because she kept changing the project or because she asked you to re-write it four times. In times like these, you must smile and apologize. "I apologize, Partner. It won't happen again." Practice these words — they come in handy. Other than groveling and keeping your nose in the Georgia Code, I recommend not standing out in these times of crisis. Come into the office, scavenge for work, look busy and don't do anything flashy like buy a new suit or upgrade your BMW lease. And don't laugh, giggle or skip. Look somber. If you need any motivation, check your 401(k) balance and walk by the empty office of the associate who failed to bill enough hours last month. The Snark is an anonymous associate at a BigLaw firm based in Atlanta. Corporate Clients Slashing Spending on Outside Lawyers By Sheri Qualters Companies reported median spending of $1 million on outside counsel in 2007, compared with $1.1 million in 2006 and $1.8 million in 2005. The association and Serengeti attribute the drop in spending to two possible factors: "a growing amount of work being kept in-house" and this year's higher number of small-company respondents. Companies that responded to the survey reported a median spending rate of 0.35% of worldwide revenue on outside legal help in 2007. That compares with a median spending rate of 0.38% of global revenue on outside counsel in 2006 and 0.28% in 2005. Median spending also varied significantly according to company size. Small companies, or those with less than $100 million in revenue, spent $350,000 on outside legal help. That compares with midsize companies, with revenue between $100 million to $1 billion, which spent a median of $852,000 on outside attorneys. Large companies, which have revenue over $1 billion, spent a median $4.8 million on outside counsel. The survey results reflect in-house counsel's response to heightened pressure from company management to lower legal costs, said the association's president Frederick J. Krebs, in a statement. "Year after year in-house counsel voice their frustration and finally, they are taking action," Krebs said. The survey also concluded that companies' median in-house legal spending rose in 2007 to 0.23% of company revenue, compared with 0.20% of revenue in 2006 and 0.18% of company revenue in 2005. The overall spending decrease includes an increase in billing rates. According to the survey, average outside counsel hourly rates climbed by 6.5% in 2007, compared with 6% in 2006 and 5.2% in 2005. "Continued annual increases in outside counsel hourly rates, and the growing rate of such increases, are having a negative impact on the volume of work being sent to outside counsel," said Serengeti's Rob Thomas and survey author in a statement. The association and Serengeti collected data about hourly rates from 108 law departments and online surveys from an additional 337 law departments on the other parts of the survey. Small companies submitted 30.3% of the surveys compared with 37.9% from midsize companies and 31.8% from large companies. A Grim Verdict Awaits Law Grads By Leigh Jones "It's definitely not the best economy to try to find a job in," said the third-year student. Hall, president of the law school's Student Bar Association, is not sure where he'll end up after graduation in May. "You have to be innovative and creative," he said. Nearly 44,000 law students nationwide will graduate next year with an average of about $73,000 in loan debt, according to numbers from the American Bar Association. And while most would-be lawyers already have accepted that only a small fraction will start their careers with a big-firm salary of $160,000, the past few weeks of economic chaos have caused many to wonder if any kind of attorney work is in their near future. Aware of the dismay, law school career services professionals say they are working simultaneously to bolster morale among students and to keep the job outlook realistic, a feat that requires a sympathetic ear and a bit of a nudge. "I've got students coming in asking if they should go for an LL.M.," said Carole Montgomery, director of career development at George Washington University Law School in Washington. If students want to pursue the advanced law degree to avoid looking for a job, Montgomery advises against it. "I tell them, 'you need to make a good-faith effort to get yourself a job,' " she said. "They've got to have a backup plan, and a backup, backup plan." It is too early to tell to what extent law firms scaled back hiring this fall for summer associates in 2009. But James Leipold, executive director of the National Association for Law Placement (NALP), said that, anecdotally, law firms were more cautious in the offers they made. "For the class of 2009, it will be tough," he said. The help that career services offices provide has become increasingly important as schools compete for top students and tout their connections to firms and public interest organizations as a distinguishing factor. Think About Hud In addition, law school rankings in U.S. News & World Report depend partly on graduate employment rates. The recent economic crisis means that many offices are working overtime to connect students with jobs. At George Washington University Law School, Montgomery is encouraging students who planned to work at large law firms to instead apply for jobs with government agencies. Not only can graduates gain solid training, but they also can take advantage of loan-forgiveness opportunities, she said. She is urging students to consider positions beyond those at the more prestigious agencies, including the U.S. Department of Justice or the U.S. Securities and Exchange Commission. Students should open their eyes to possibilities at places such as the U.S. Department of Housing and Urban Development, she said. In Hall's case, he lives in Tallahassee, Florida's capital, and would welcome a government job. But he said that a hiring freeze imposed on state agencies has blocked that option. He hopes to become a trial lawyer. "My dad has his own little firm. I may be going there sooner rather than later," he said. 'Clearly Nervous' At the University of Iowa, the College of Law is trying to provide extra help to students through workshops such as "The Job Search in Tough Times" and "Attributes of Successful Candidates: What You Need to Know in Tough Markets." The Midwestern law school, to a certain degree, is insulated from the turmoil of Wall Street, said Steve Langerud, assistant dean for career services. Still, as much as two-thirds of the law school's graduating class leaves Iowa to take jobs elsewhere. "They're clearly nervous," he said. Students get caught up in the news coverage of bank failures, plummeting stock values and jobless rates, he said, and they get panicky about their own prospects. "What they're hearing can be more frightening than reality," he said, adding the school actually saw an uptick in the number of on-campus interviews this fall. But there is genuine cause for concern. The number of legal jobs nationwide is steadily declining, according to employment figures released this month by the U.S. Department of Labor. Jobs in the law sector shrank by 2,000 in September -- the fifth consecutive month of losses. The legal work force of 1,165,100 was down by 1.15 percent from a year ago, when the industry employed 1,178,600 people. It's All Timing The current employment troubles for law graduates is a sharp contrast to the job market that classes even just a year or two ahead of them enjoyed. In July, NALP reported that the job market for law graduates was at its highest level in 20 years. By Feb. 15, nearly 92 percent of all 2007 graduates for whom employment status was known were employed, NALP reported. But it seems that times quickly have changed, said Eric Toscano, a third-year student at the University of California, Davis School of Law. Toscano, who is president of the Student Bar Association there, said that many second-year students who participated in on-campus interviews this year are frustrated by the lack of job offers. He will start full-time with Reed Smith's San Francisco office next fall. Toscano recently met with a group of second-year students who expressed their concerns. Even students in the top 15 percent of their class were not getting offers, he said. The situation is particularly bad for students who are counting on summer associate income to help pay down some of their loan debt. "My heart goes out to second-year students at the top of the class who aren't just academically qualified, but who have the personality to fit into a law firm, who are just not getting the opportunities we had a year ago," he said. One of the biggest challenges for career services professionals is dealing with the rumor mill among law students, who are a "worrisome lot" by nature, said Tom Ksobiech, assistant dean for career services at the University of Alabama School of Law. "Everyone has heard something from 'a friend,' " he said. "According to the 'friend,' there are no jobs anywhere." His school has made a push in recent years to get more law firms to participate in on-campus interviews. This year's turnout was strong, Ksobiech said, but he remains guarded about the future. "Where we are in two years as a nation, that's the thing that everyone has to watch out for," he said. For prior articles click here. |
