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BigLaw Firms Lay Off Lawyers By Lynne Marek Katten this week eliminated 21 associates and counsel "across multiple offices and practices," firm spokeswoman Tasneem Goodman said in an emailed statement. No adjustments are being made to the first-year associate class and no legal staff members were laid off, she said. "This measure was taken to further improve the firm's efficiency, to allow for the continued growth of its associates and to ensure the firm's long-term success," Goodman said in the statement. "The firm's financial performance remains strong despite the current economic downturn." The pain at law firms is being felt across the country. Layoffs at Katten and Sonnenschein, both of which have their biggest offices in Chicago, follow a move earlier this week by London-based Clifford Chance to lay off 20 associates in Washington and New York and the demise last month of the San Francisco-based law firm Heller Ehrman. Clifford Chance cut the associates from its litigation and dispute resolution practice group. Heller Ehrman associates bore the brunt of that firm's collapse with only about a quarter of them landing jobs with partners. Sonnenschein, which in May cut 37 lawyers, has now laid off another 25 attorneys and a larger number of support staff with an eye to right-sizing for 2009, according to people familiar with the situation. The Above the Law legal news Web site reported 60 employees, including lawyers and staff, were cut. "We look at staffing levels around this time every year as part of our budget and practice planning processes, and it is not unusual for us to make adjustments," the firm said in a statement. The firms' troubles come as economies across the world are squeezed by a lack of credit and liquidity in the financial markets and as stock exchanges worldwide react to financial uncertainty with volatile swings not seen in decades. U.S. and other government measures to ease the credit crunch and anxiety over the lack of lending have yet to bring stability to the markets. Katten and Sonnenschein each have between 650 and 700 attorneys practicing in a broad range of areas. Katten's focus is on corporate, financial services, litigation, real estate, commercial finance, intellectual property and trusts and estate matters. All eight of the firm's offices are in the U.S. except for one outpost in London. Sonnenschein, which has been trying to expand to about 1,000 lawyers, has significant corporate, litigation, public policy, financial and real estate practices. The firm's 15 offices are also concentrated in the U.S. with just two foreign offices in Zurich and Brussels. Amidst
Credit Crash By Leigh Jones With the economy reeling from the credit crisis, law firms no doubt are edgy about their looming year-end results as they enter the fourth-quarter home stretch for 2008. Many are touting an increase in litigation and restructuring business as offsets to declines in capital markets, deal work and real estate matters. But the fact remains that any hours law firms billed in 2008 are only as valuable as the client's ability to pay for them. With clients expected to hold on to as much cash as possible amid a credit squeeze, law firms may well be walking a tightrope during this year's collection push to get the dollars rightly owed to them while at the same time remaining flexible with clients in trouble. "It's a balance that always exists, but in this market it becomes heightened," said Paul Irving, co-chairman of Los Angeles-based Manatt, Phelps & Phillips. The 320-attorney law firm focuses on intellectual property, telecommunications and Internet matters. Observers are predicting a more aggressive collection push this year, with law firms starting their efforts to get paid earlier than usual and contacting clients more persistently about outstanding bills. They are hoping at least to get near target numbers for the year, set months ago when few predicted the current state of the economy. Even in prosperous times, the year-end push is crucial to balance the books at law firms, which often operate in the red during the first half of the year and cover their costs with credit lines. They repay those credit lines out of the cash collected toward the end of the year, and the amount they collect as late as in December determines pay and bonuses firmwide. Ideally, law firms should consistently bill throughout the year so that fees constantly flow in, but attorneys more concerned with billing hours rather than collecting on them frequently procrastinate on housekeeping matters. This year, law firms will have a tougher go during the push as clients seek to hang on to their own cash in a tight credit market. Ed Wesemann, a consultant with Kerma Partners, expects law firms to be more willing to compromise in order to recoup at least a portion of what they billed. "Lawyers will be looking to cut new deals," he said. "Now is the time to do it." Bracing for laterals Another impetus for law firms to get as much as they can from clients before the end of the year is the lateral movement that comes at the start of a new year. Partner reshuffling will remain brisk, Wesemann predicts, as law firms look to dump unprofitable practices and attorneys seek more promising futures at other law firms or elsewhere. "Once a lawyer leaves, it's much harder to collect," he said. The nervousness that many law firms are feeling stems from an economic crises that experts say the country has not experienced since the Great Depression. So far in 2008, the larger failed or nearly failed financial institutions include American International Group, Ameribank, Bear Stearns, Fannie Mae, Freddie Mac, IndyMac, Lehman Brothers, Merrill Lynch, Wachovia and Washington Mutual. On Sept 29, the U.S. House of Representatives rejected a $700 billion taxpayer bailout plan. The vote was followed by a nearly 7% plunge in the Dow Jones Industrial Average. On Oct. 3, the House followed the Senate in approving a revised version of the bill. The economic chaos of 2008 follows years of solid growth by size and revenue among the country's biggest law firms. Last year, some 19 law firms had profits per partner of at least $2 million, according to The American Lawyer, an affiliate of The National Law Journal. In addition, the number of attorneys at the nation's largest law firms grew by 5.6%, the biggest growth increase since 2001, according to The National Law Journal's 2007 annual survey of the nation's 250 largest firms. During prosperity, law firms have a tendency to "get sloppy" with collections, something Irving calls a lack of "good firm hygiene." When work is abundant, attorneys grow lax in sending out their bills and following up when they're not paid. A true test of a law firm's commitment to its clients, Irving said, is how a law firm deals with them when times get leaner. A knee-jerk reaction for law firms that see a drop in business is to fortify collection efforts. But if a law firm encounters a downturn in business, its clients likely are having the same experience. A little flexibility can go a long way in preserving the relationship, Irving said. "Those firms that listen and respond come out with more business in the long run," he said. Manatt Phelps is encouraging its partners to keep in close communication with its clients so that the firm fully understands their financial situations, Irving said. "They need to meet with, drive to, go see their clients to express flexibility or to have just an understanding of the environment that they're operating in," he said. Prodding partners to follow up on unpaid bills generally is easier at larger firms than smaller ones, said Robert J. Henderson, founder of RJH Consulting based in Jackson Hole, Wyo. The close-knit culture of smaller law firms can deter managing partners from hounding their colleagues to get their bills paid. In addition, larger firms often have accounts receivable administrators that handle the follow-up chores, he said. Those professionals can be more persistent and effective in getting clients to pay. Whoever is dealing with nonpaying clients needs to do so early, Henderson said. The longer a payment remains outstanding, the less likely the chances are that the law firm will collect anything on the account. Vinson & Elkins is reminding its attorneys to get the invoices out the door as quickly as possible, said managing partner Joe Dilg. "We have them touch base with clients to get a better sense of what their accounts payable look like," he said. Although Dilg said that his firm does not have "any serious concerns" about the ability of clients to pay up this year, he added that the impact of the economic turmoil is uncertain. Should communications break down completely, the parties may find themselves in court or arbitration, an outcome that most firms are loath to experience. Taking action for nonpayment frequently opens the door to legal malpractice claims. Clients assert that the reason for not paying is due to substandard legal services. It is uncertain just how many fee disputes end up in court, but Eric Tuchmann, general counsel for the American Arbitration Association said his organization has seen a 30% increase in the number of attorney-client fee disputes since 2005. The "vast majority" of those disputes are between law firms and businesses, not individuals, he said, adding that many local bar associations offer fee dispute resolution services. The benefit of confidentiality in arbitration may be driving the increase, Tuchmann said. "Businesses are not necessarily interested in having news of their loss or a deal gone bad made public," he said. "The tough times they're facing may steer parties to arbitration." Firms Lassoing Clients With Old School Ties By Sheri Qualters BOSTON — Lawyers are fostering connections at their local business schools and adding former student entrepreneurs with growing companies to their client rosters. Lawyers develop relationships with students by sponsoring business-plan competitions or school entrepreneurship centers and advising participants. The lawyers and firms say they invest substantial time and sponsorship money up front to reap rewards down the road, when the former students' companies are up and running. Philadelphia-based Pepper Hamilton sponsors the business-plan competition at Babson College in Wellesley, Mass., and the annual, so-called "rocket pitch" program that gives students a chance to present business ideas to a large audience, including venture capitalists. But corporate and securities partner Matthew S. Gilman of the firm's Boston office invests his own time by critiquing students' business plans and rocket pitches before the events, holding offices hours once a semester at the school and teaching occasional seminars at the school. "This is a long-term investment from the law firm perspective," Gilman said. "It's not like these students have all sorts of money to pay legal fees . . . .Eventually, the hope is that they have work that they can pay for." Gilman has expanded his client list as the students he's met have grown businesses. A few of his many clients from Babson include nanotechnology company Inanovate Inc. in Research Triangle Park, N.C.; children's modular furniture maker P'kolino LLC in Dania Beach, Fla.; and online jeans retailer True Apparel Co. in Woburn, Mass. Wilmer Cutler Pickering Hale and Dorr has sponsored many business-plan competitions throughout the years, but has most consistently sponsored the Massachusetts Institute of Technology's $100K Entrepreneurship Competition, said John Chory, who chairs the WilmerHale Venture Group in Waltham, Mass. MIT's $100K competition, which awards cash to teams of students with winning business plans, is open to students at MIT Sloan School of Management and MIT's other schools. WilmerHale has garnered many relationships with startups through this work, and got in on the ground floor with the now-public company Akamai Technologies Inc. of Cambridge, Mass., whose technology helps clients manage Web delivery of content. The firm's legal work for the startups runs the gamut from corporate to licensing, patent and trademark work to real estate, Chory said. On the West Coast, Morrison & Foerster sponsors events at numerous California business schools, including the University of California, Davis Graduate School of Management, that school's Center for Entrepreneurship and the University of California, Berkeley Hass School of Business. Relationships with business schools are critical for firms with emerging-company practices, said Suz Mac Cormac, a San Francisco corporate partner and co-chairwoman of Morrison's venture capital/emerging companies group. Even if the students don't form their own companies, many eventually work for firm clients and potential clients, Mac Cormac said. The firm's sponsorship and judging of the Global Social Venture Competition at the Haas School has been particularly fruitful. Morrison & Foerster's client roster includes past competition winners such as healthy school lunch vendor Revolution Foods Inc. in Alameda, Calif., and MicroEnergy Credits Corp. in Seattle. How to Look Busy When All Your Clients Have Collapsed By The Snark This reaction may sound strange, but when you are expected to bill as many hours as physically possible, every minute you sit in your office without billable work feels like an eternity and causes severe anxiety. Drive, determination, fear, abuse and insurmountable workloads are what fuel us. We need the adrenaline rush caused by impossible deadlines and more work than we can handle in order to motivate ourselves to plod through the tedium. As associates, our jobs, salaries and entire existence are based upon billing as many hours as our exhausted minds and broken-down bodies will allow. When the economy puts a screeching halt to the mergers, acquisitions and real estate financing projects on which we have been billing 15 hours a day, we must still show up and sit at our desks and look busy to avoid being another "smart-sized" casualty. We aasociates must put in our face time — just in case our BigLaw firm lucks up and scores some work in this madness: "Associate #451! Thank goodness you are here. The client is going belly-up and needs some quick research on what happens when the global credit markets crash. Quick—hop on Lexis!" But that, frankly, isn't happening as often as one might hope in these days marked by the Lehman Brothers collapse, the AIG bailout and the wildly volatile stock market. So when times get tough — and slow — associates get creative. I've seen them find many ways to decompress, keep their sanity and look busy in the process. Here are a few of the most popular: Are you ready for some (fantasy) football? Luckily for many associates, this economic downturn and accompanying lack of billable work falls conveniently during football season! Cogs can turn all that competitive drive and "I know more than you" attitude into a productive outlet by guiding their own make-believe team of real NFL Players to total domination over their friends' teams. All of this pleasure while still sitting in your office in front of your flat-screen monitor typing away? Yes! No one will ever know you aren't drafting a business development presentation to save your job — rather than drafting a quarterback. Well, unless you start smiling and whooping. Don't do that. For those of you who are not yet taking advantage of this endless source of intellectual and competitive stimulation, here's how it works. Or at least so I'm told by, um, people I know who play these sorts of games. You and a group of pals, strangers or enemies form an Internet-based league of fake NFL teams comprised of actual NFL players. You participate in an online "draft" of real NFL players in certain well-known positions such as quarterback, receiver, kicker, etc. to your little team. You get points for what your players do in their real-life games (Go T.O.! — That's Terrell Owens, for those of you not accustomed to the joy of the pigskin.) and have virtual head-to-head match-ups against other fake teams. Fun! If you are wondering about the point of this game . . . well, you clearly are not playing. It's all about using your superior knowledge and intellect to pick the right people to do the actual work of defeating an arbitrary opponent. A perfect lawyer past-time! This game will actually prepare you to one day be a partner. Fantasy football has many ways to suck in bored BigLaw lawyers. An associate's competitive nature will lead to hours spent researching whether a combination of wet field conditions, windy weather and new cleats will affect our wide receiver's ability to score against his opponent's zone defense. Just like in the real world, BigLaw types can research a simple decision, one which will have little impact on the world one way or another—to death—for hours on end. Awesome! Second life OK, so maybe you could care less about spending your downtime keeping track of the injured reserve list. Maybe you prefer to use your lull in billable work to live out the life you missed in an alternative Internet-based reality. If that's the case, Second Life— www.secondlife.com — "a 3-D virtual world created by its Residents" may be your ticket to discovering your inner self along with "millions of Residents from around the globe." Basically — again, this is just from what I hear — you create your own virtual persona, or "avatar," and run around in a fake Internet reality full of other avatars and places created by fellow users. In Second Life, you can be whoever you want. You can escape from your boring life as a BigLaw associate who wears a suit every day, sports a clean-shaven face and drives a BMW and instead be a rock star with a mullet, muttonchops, a six-pack, leather pants and no shirt, driving a Harley and living in an ice cave. Rock on! In Second Life, you can even have a virtual fling with a Playboy Bunny (even if she may actually be a he who works in accounting at your office). Virtual dating using a 3-D fake version of yourself is far better for your career advancement than using this downtime to "show the ropes" to that new First Year across the hall. Bad idea. And experimenting in a virtual world with how many clients you could get by becoming a professional psychic is far safer than quitting your real job, buying a crystal ball and a pack of Tarot cards and actually pursuing that dream. Poker party Of course, some of you money-grubbing associates no doubt want to find ways to pad the coffers in these times of crisis—in case you get axed. So you use your Internet time to try to outwit the market by doing a few hours of day-trading online. If a baby with a BlackBerry can do it, so can you. If you prefer your gambling to be a little more straight-up, you should opt for a good old-fashioned game of on-line Party Poker during business hours! Sure, some people make Fantasy Football into a series of bets, but nothing says gambling like a game of high-dollar Texas Hold 'em played online against some laid-off Lehman Brothers iBankers in New York City. You can show them once and for all that lawyers are smarter than bankers by taking away whatever they have left. If you can't decide which Internet-based distraction suits your fancy in these times of boredom, you can always combine them all by being an NFL coach in Second Life who plays poker with a Playboy Bunny. Or, you can pretend to be developing more business by using the Internet to "re-connect" to old friends on Facebook or whatever other social network tool suits you … but we will talk about those time-sucks next time. Until then—go all in! The Snark is an anonymous associate at a BigLaw firm based in Atlanata. Layoffs Launch Solo Career By Meredith Hobbs One of them, M. Katherine Durant, is hanging out her own shingle today, while two others, Janice D. Ward and Deborah D. Wellborn, are considering their options. J. Clifford Head, the fourth lawyer, did not return a call by press time. While she'd never planned to change jobs, said Durant, she'd "daydreamed for years that if I ever left the court I would start my own appellate practice boutique." Now she is doing just that. "I've seen first-hand the myriad ways that lawyers can bungle an appeal," she said. "Trial lawyers without the time or inclination to learn how to do an appeal properly will need me to help them." Durant said she is marketing her services statewide, advising lawyers on how to preserve their client's appellate rights in the trial court and on filing a successful appeal. "I can help them save face with their client and their malpractice carrier," she said. The four attorneys laid off from the court were central staff attorney who worked for the entire court, not individual judges. They vetted all incoming appeals and appeal applications to ensure they were in the correct venue and reviewed applications for discretionary and interlocutory appeals. The cuts leave the court with only two central staff attorneys. Each of the court's 12 judges has three staff attorneys. There also are three floating attorneys who fill in for the judges' attorneys. The court's chief judge, Anne Elizabeth Barnes, said that more than 90 percent of the court's $14.9 million budget goes to salaries and benefits, leaving the court little choice but to cut staff to meet the state's mandate to reduce its budget by 6 percent. "We have lost some efficiency," said Barnes. For instance, she said, preliminary jurisdictional reviews are still being done, but it is now just a "rough cut" screening, with some of the work being handled by non-lawyers. The laid-off attorneys said reviewing applications for discretionary review and interlocutory appeals took up the bulk of their time, but agreed that jurisdictional review was often the knottiest area. "Appellate jurisdiction is very esoteric," said Durant. "We had mastered it. We sweated every detail. Justice got done when we reviewed those applications." Vetting jurisdiction is routine for most appeals, Ward explained, "but when it's not, it can be horrendously difficult and complex." "Jurisdictional review issues are easy until they're hard. It takes a certain level of expertise to even see that they're hard," she said. Ward said the six central staff attorneys often worked as a team on cases with tricky jurisdictional issues. "We might split three to three on if it should get an appeal." She said determining the correct venue for a case was a crucial part of their job, since otherwise an appeal could wend its way through several judges—only to have it turn out that the case was not in the appropriate jurisdiction. "I felt we were an extremely cost-effective unit on the court," said Ward. Durant spent 13 years as a staff attorney for the court—two as an "elbow clerk" for Senior and the rest as a central staff attorney. She started her legal career as a corporate attorney at Long Aldridge & Norman, then worked for Grenwald, Salo & Sheftall, a boutique firm that spun off from Hansell Post after the latter firm's implosion. She left private practice to join the Resolution Trust Corp. in 1993, where she assisted in the cleanup of holding companies established by the failed S&Ls for three years before joining the Court of Appeals. Ward also worked at the court for about 13 years—first as a staff attorney for Judge Harold R. Bankey Sr., then as a floating staff attorney and, for almost three years, as a central staff attorney. Law is a second career for Ward, who spent her 20s and 30s as a high school and college instructor, teaching political science and history. Ward said she hopes to stay in the public sector, which could mean a district attorney's office, the attorney general's office, the prosecuting attorneys' council or another government law job where she can use her appellate expertise. "I've invested 13-and-a-half years doing appellate work," she said. Wellborn, the other central staff attorney out of a job, said she is considering both the government sector and private practice. She spent 13 years as a central staff attorney for the court and seven before that as an assistant regional counsel for the Department of Housing and Urban Development's Atlanta office. Welcome to the Future: Law After the Boom By Paul Lippe I recently saw a fabulous movie called "Bottle Shock." The film portrays the Judgment of Paris, a 1976 blind taste competition that pitted California wines against the traditional world-beaters, the French. Chateau Montelena, a California chardonnay, won the competition and shocked the world, representing the first successful challenge to the conventional wisdom about the unassailable superiority of French wines. Stephen Spurrier, the English-born, Paris-based wine shop owner who had organized the event, closed the movie by saying to the shocked French oenophiles, "Welcome to the future." So, let's just make it official: The boom in the legal industry, sustained by the boom in financial services, is over. Welcome to the future. For those of us who've spent most of our careers as clients, it seemed pretty obvious that the legal business was in an unsustainable boom. Consider: In a country where most people's incomes have been flat or declining over the last eight years, and most companies face increasing global competition and flat profits, partners in big law firms generally saw their income double every four to six years over the last 15 years. And the firms have generally grown in profits, staffing and revenues faster than most of their clients. Many folks in law firms have come to believe that the law business operates according to a different set of economic rules than their clients' businesses, but the truth is much simpler: When you're inside a boom, you always think your industry has achieved immunity from the laws of gravity, because it's the only reality you can see. I was in Silicon Valley in 1998, believe me, I know. That's not nuts. As noted business strategist Geoffrey Moore wrote a decade ago in his book "Inside the Tornado", when you're [in a boom,] the first rule is "just ship." Translation: Respond to demand, don't think too much. As Cadwalader Chairman Christopher White recently acknowledged, "There was a bubble, we rode that bubble, it contracted, and we adjusted. Even knowing what I know now, I wouldn't have changed a thing." But what happens when the boom ends? The first order of business is to quickly get past the denial stage and move to acceptance: Be honest with yourself and your team about what's happening. Post-boom, law firms must get back to the basics: delivering value and listening to clients. All the other elements of "strategy" that so many firms have embraced over the last ten to 15 years -- increase concentration on the financial services industry, raise prices, grow for growth's sake, increase leverage by hiring more associates, make fewer partners, and deequitize existing partners -- have been about the firm and not about the clients. They made sense only in the context of a financial services-driven boom. My purpose in this space is to begin a conversation about what the future of law and the delivery of legal services will look like, as today's widely held assumptions are turned on their head in our fast-changing world. As a lawyer who has spent most of my career straddling law and other domains -- and lived and managed through the tech boom and post-boom -- my goal is to explore: What's changing in the world of clients? How will those changes affect lawyers? How much of the language that lawyers use reflects yesterday and not tomorrow, clouding their ability to see the world that is emerging, and reducing trust among clients who are not only more a part of the emerging world, but shaping it? How can lawyers readily adapt to the future in ways that sustain and enhance the best aspects of their jobs, even if it causes short-term discomfort? I will relentlessly challenge the conventional wisdom of today's law firms. Those of you who think I'm way off, I ask, indeed beg, that you comment on my post and explain why I'm wrong. I'm an optimist. I believe the post-boom world will recapture the best qualities of the legal profession, the reasons we went to law school and became lawyers in the first place. I predict that over the next few years there will be positive change for those prepared to embrace and promote it. I'm working on a project helping a large company rethink some of its legal work. I'll be meeting with an Am Law 20 partner who handles a lot of the company's work. I'll explain to the partner that every day of the year, every one of my client's thousands of customers around the world asks, "How can you deliver more value to us for less money?" And every day, my client asks its suppliers, "How can you deliver more value to us for less money?" At first, the partner will look at me like I am a little crazy and will say, "But you don't understand, law is different." And I’ll reply, "Law is not different. Being in a boom is different, and now the boom is over." Welcome to the future. Bis a founder and chief executive officer of Legal OnRamp. Corporate Law Firms See Dark Days Ahead By Anthony Lin The nation's top law firms are facing an uncertain new landscape
following the demise of two of Wall Street's biggest and most
established investment banks. BigLaw Storm Warning By Dan DiPietro In a trend that started last year, expense growth this year has stayed relatively high, driven largely by continued growth in lawyer head count. But revenue growth was the weakest it's been in the seven years since we began tracking quarterly results. Demand for legal services was also the weakest seen in the period from 2001 to 2008. Because law firms continued to add lawyers to their ranks despite the drop-off in demand, firms experienced a slowdown in productivity comparable to the second quarter of 2001 and lower than every other second quarter between then and now. All told, for the first two quarters of 2008, profit margin compression -- that is, expenses increasing faster than revenue -- was the greatest it's been in the last eight years. The slowdown is hitting the most profitable firms the hardest. In the first half of 2008, demand dropped off even more dramatically and expenses increased at a more rapid pace at the top firms, resulting in even greater margin compression and a steeper drop in productivity than experienced by their less profitable rivals. The practice areas that normally provide a lift in a downturn -- restructuring, bankruptcy and litigation -- have not helped cushion the drop-off in transactional work. There is a silver lining. A bad year (and the numbers suggest 2008 will be even more trying than 2001, when partner profits were down slightly) will enable firms to take steps that partners would resist in a good year -- winnowing out unproductive lawyers and applying greater discipline to expense control. At Citi Private Bank, we provide financial services to more than 650 U.S. and British law firms and over 35,000 individual lawyers. For 28 years, Citi Private Bank Law Firm Group has confidentially surveyed firms in The Am Law 100 and Second Hundred, along with a number of smaller firms. These reports, together with extensive, ongoing discussions with law firm management, provide a comprehensive overview of financial trends in the industry and insight into where it is headed. The report for the first half of 2008 uses data gathered from 165 firms -- 75 Am Law 100 firms, 55 Second Hundred firms and 35 smaller firms. Our report found that, across the industry, revenue growth was a tepid 4.8 percent, less than half the compound annual growth rate (CAGR) of 10.6 percent for the previous seven years. The slumping revenue growth was driven largely by a falloff in demand, measured by gross billable hours (which declined by 0.3 percent). That's in sharp contrast to the seven-year demand CAGR of 3.9 percent. Despite the falloff in work, leverage actually increased during the first half of 2008. Total lawyer counts rose by 5.6 percent, more than three times the rate of equity partner growth. But the controlled approach to making new equity partners was not enough to counter the lack of demand, and firms saw profits per equity partner (PPEP) drop by 9.1 percent in the first six months of 2008. There's no question that it's a dramatically different economic environment from the previous seven years, during which PPEP had a CAGR of 9.3 percent. It may seem paradoxical to see an increase in head count while demand drops, but law firms are not like corporations in this regard. Firms generally set their new associate hiring goals two years in advance. They are also much more reluctant than corporations to resort to mass layoffs, since they need to keep on enough junior associates to ensure that they won't suffer from a lack of midlevel talent when business picks up again. And when the economy goes soft, lawyers are less inclined to leave their firms. This has definitely been the case over the last six months. Although we don't track lawyer attrition on a quarterly basis, anecdotal evidence from conversations with managing partners suggests that associate attrition has dropped dramatically. This unique aspect of the legal industry is already causing short-term pain. The uptick in total lawyer counts, coupled with the decline in demand, caused productivity, or average hours billed per lawyer, to drop by 5.5 percent in the first half of 2008. The decline is comparable to the falloff in productivity that firms experienced in the first half of 2001, where their business got slammed by the burst of the high-tech bubble. This time around, the profit pie is being sliced even thinner as a result of an increase of 1.8 percent in the number of equity partners, up from 1.5 percent in the comparable period last year, although still trailing the seven-year CAGR of 2.9 percent. Firms are feeling the squeeze from both sides. At the same time that revenue growth has fallen, expenses have stayed high. In the first half of 2008, expenses grew by 10.1 percent, which is down from the 13.7 percent increase in the comparable period last year, but still above the seven-year expense CAGR of 9.5 percent. Associate compensation, which accounts for about 23 percent of firm revenue, continues to be the primary driver of expense growth. Compensation costs rose by 15.2 percent, again down from the 17 percent rise in the first half of last year, but still well ahead of the seven-year CAGR of 10.1 percent. Firms did manage to get operating expenses under control, slashing increases in occupancy charges and overhead to 6.9 percent, notably down from the almost 12 percent increase in these expenses during the comparable period last year. Tougher at the Top When firms are broken out by profitability, our data produced an interesting finding. The firms that soared in 2002 through 2007 were harder hit in the first half of 2008 than their less profitable peers. From our sample of 165 firms, we broke out 63 top-tier firms (defined as those with profits per equity partner above $650,000 in the year 2000). Over the past six years, this group has consistently produced higher growth in revenues and PPEP than other firms. That changed dramatically in the first half of 2008. Growth in PPEP for 51 of the 63 top-tier firms that reported their results to us plummeted from an 11.7 percent increase in 2007 to an 11.8 percent drop in the first six months of 2008. In contrast, their less profitable rivals experienced a 5.3 percent drop in PPEP in the first half of 2008. After reaching a seven-year peak of 7.4 percent growth in 2007, demand at top-tier firms actually dropped 1.6 percent in the first half of 2008. Again, this decline compares unfavorably with the 1.1 percent rise in gross billable hours at the other firms in our sample. Top-tier firms experienced even greater profit margin compression than their peers, with revenue growth of 4.3 percent and an increase in expenses of 10.9 percent. In contrast, the other firms we surveyed had revenue growth of 5.5 percent and a rise in expenses of 9.1 percent. Demand at top-tier firms declined in both the first and second quarters of 2008, in contrast to their less profitable competitors, for whom demand dipped in the first three months but increased in the second three months. What's going on? Simply put, top-tier firms tend to rely on certain kinds of transactional work, such as high-end private equity deals, securitization and structured finance, and also tend to have a higher percentage of clients in the financial services sector. That client base served top-tier firms well during the prior six years. But since the second half of 2007, the deal environment has languished, and top-tier firms are paying the price. These firms also have had a tougher time turning off the expense spigot. When times were flush, top-tier firms experienced higher associate attrition rates than average, due to lawyers leaving to work for clients and other opportunities in the financial industry. To make up for this, top-tier firms typically hired more new associates than average, since they expected more to leave. In fact, at top-tier firms, head count grew by 7 percent in the first half of 2008, versus 4.2 percent at their rivals. This continued head count increase, coupled with an abrupt decline in demand, resulted in productivity (measured by hours per lawyer) dropping 8 percent at top-tier firms in the first six months of 2008, versus a 2.9 percent decline at the other firms. International Firms Take a Hit Our data points to another interesting finding: International firms -- those with between 10 percent and 25 percent of their lawyers based overseas -- experienced greater profit margin compression than any other group of firms. Like top-tier firms, last year international firms outpaced their domestic counterparts across virtually every key financial benchmark. Their rather abrupt reversal of fortune suggests that the economic slowdown in the United Kingdom and Western Europe that has followed the slowdown in the United States is disproportionately affecting international firms, which typically have a heavier presence in those regions than their peers. On the other hand, global firms -- those with more than 25 percent of their lawyers based overseas -- have experienced the least profit margin compression of the group. Global firms tend to have a wider reach than their international counterparts, with more lawyers in Asia, Eastern Europe and the Middle East. The relatively stronger performance of the global firms suggests that simply having an international presence is not enough to ensure success. Rather, what matters is the extent and location of a firm's global footprint. Looking Ahead As I write this, all signs point to the second half of 2008 continuing the trends of the first half. The common wisdom is that this economic slump is more akin to the downturn of 1991 -- deeper and more complicated than the downturn of 2001, which was largely limited to the high-tech industry, coupled with the disruptive effects of 9/11. Although firms with a big technology client base suffered in 2001, growth was largely flat across the legal industry overall, with the top tier slightly down. In contrast, the numbers we are seeing now suggest a much more significant decline. Typically, inventory -- accounts receivable and time worked but not yet billed -- serves as an excellent predictor of future revenues, and higher inventory levels should suggest strong revenue momentum in the third and fourth quarters. In the first and second quarter of 2008, inventory levels rose by 8.2 percent. This should be good news, but in this case, the inventory increases are attributable in large part to slowing collections, which does not augur well for revenue growth in the second half of 2008. Early this year, in a joint advisory issued by Citi and Hildebrandt International (pdf), we projected that profits would increase by 3 percent to 5 percent. Based on the six-month results and our sense of the dynamics in the market, we now believe PPEP will be flat, or even down by as much as 10 percent, in 2008. The top-tier firms will have an even tougher year, with profits down by 5 percent to 15 percent. Our reason for providing a range is that there is an elephant in the room: How will firms, particularly the top-tier firms, handle associate bonuses this year? The rational approach would be to pare them back, but, while lawyers display rationality and dispassion in the practice of law, they have exhibited "irrational exuberance" on this issue in the past. Managing Through The Slump Tying associate bonuses to the firm's performance -- which would create a smaller bonus pool -- can help somewhat. Firms also need to manage the expectations of their partners, particularly the more junior partners who had not experienced a downturn until now. There are several other steps firms can take to stay financially healthy. First, firms should make an effort to get in front of their clients and engage in active dialogue about their business. This is especially true for firms that rely heavily on clients in the financial services sector because the nature of deals is going to change, and firms don't want to be behind the curve when that happens. Second, firms should consider sending a tough message to unproductive lawyers at every level. When demand was high, firms often let their unproductive lawyers slide. In a time of soft demand, such lawyers become a real drag on profitability. Third, firms should start their year-end collections push now. The higher the mountain of unpaid bills, the more formidable a climb it becomes. Keeping inventory low makes the collection process much more manageable. Finally, firms that haven't already done so should conduct a systematic expense review to eliminate redundant or nonessential support staff and functions. Firms that have grown by bringing in groups of lateral partners and small firms, in particular, may be surprised at the effect that inefficient staffing can have on expenses. The results of an expense review conducted now will not be felt until 2009, but it's still a good idea. There's no doubt that 2008 will be the most challenging year the legal industry has had since 2001 (and perhaps even earlier). But downturns present opportunities. The dislocation in the market and dissatisfaction among partners offers law firms the chance to gain market share by bringing in select lateral partners. However, when hiring in a soft economy, it's particularly important to vet candidates to differentiate between laterals who are looking to move because they’re not happy and those who are looking to move because their firms are not happy. At the end of the day, law firm management should take heart that the legal industry is, in fact, healthy and resilient. There are a lot of other business sectors who would love to be able to define a bad year as profits that range from flat to down by 10 percent. Dan DiPietro is client head of the Law Firm Group of the Citi Private Bank Married to It By The Snark ATLANTA - BigLaw lawyers are often described as being married to their jobs. Indeed, the journey through BigLaw employment is very similar to a long-term romantic relationship — complete with infatuation, intrigue, disappointment, failed expectations, unexpected surprises and sometimes, ugly break-ups. The Dating Game Most courtships between MegaFirms and their lawyers begin the way two overorganized, professional people look for love and companionship: using a defined list of characteristics each wants in a mate. While there is no online dating tool for such matchmaking, there is Fall Recruiting, complete with on-campus interviews (speed-dating) and candlelit callback dinners. BigLaw can list what it's looking for: top-tier law school, wit, top-tier grades, charm, sophisticated good looks, law review membership, ambition and conformability. And associate candidates can choose to apply for interviews with the BigLaw firms that offer what they seek: stability, prestige, worldliness, wealth, sophistication, country club memberships and top-tier season ticket seats. Of course, they can also meet each other through mutual friends — also known as lateral recruiting — "Lisa, I think you and BigLaw could be sooo happy together. You have the same 'old-world' tastes, love for the finer things in life, desire for global domination and resentment of small children. It's so perfect!" The infatuation period Once you have found a BigLaw that reciprocates your affections, the infatuation period sets in — also known as the summer associate phase. At this point you both have committed to giving the relationship a chance — a six-to 10-week trial period. This phase is like the first few dates of any promising relationship — you focus on the positive and are blinded by a giddy excitement fueled by fancy dinners and the luxuries of courtship. Summer Associate: "OMG — I cannot believe how much BigLaw and I have in common! We went to dinner at Taurus ('where Midtown meets Buckhead') and BigLaw paid for an amazing meal — complete with tuna tartar, filet mignon and squash soufflé — to die for. And what great taste in wine! There is just something very sexy about a law firm with good taste in wine. We talked for hours about the opportunities for our budding relationship. Ahhh . . . ." BigLaw: "Man, Summer Associate is so refreshing — she is so excited about the simplest luxuries and eager to spend long hours with me. She is sooo impressed by my office space, sophisticated practice areas and international clients. She wants me!" The Imbalanced Stage But after the courtship full of great dates to Jazz Night at the High and Willie Nelson concerts at Chastain, the BigLaw love affair transitions to the less comfortable, somewhat awkward stage where one party to the relationship seems more into the relationship than the other — the phase where BigLaw starts to test the boundaries of the relationship. This occurs during the years of associate status — the associate phase: BigLaw: "associate is so lucky to be with me. I am so much more sophisticated than she will ever be, and there are a million other associates out there dying to be with me. And I am famous — people know me. Who is she? She better step it up if she wants to continue to hang with me and my peeps." Associate: "After two years in a committed relationship with BigLaw, I just feel like he doesn't listen to me anymore. He is all about his needs, but he never asks me what I want anymore. It's just become so routine — bill, bill, bill. No more fine dining. No Paul Simon concerts. No flowers. Would he even care if I just left? What happened? I miss the good old days." Fish or Cut Bait Like many long-term relationships, at some point you must decide whether to take the plunge into marriage or give up and head your separate ways. Maybe one of those relationship saboteurs — headhunters — has lured away the associate with promises of more concerts and dinners. Or maybe BigLaw has decided associate is not worth all the luxuries lavished upon him and has cast him aside. But if the associate manages to survive into years seven and above, the "fish or cut bait" stage kicks in. The only problem with this phase is that BigLaw firms are very traditional in their approaches to relationships and marriage, and the associate is at the mercy of the firm. It is not one of these modern relationships where both parties can decide whether they want to take the next step. It is totally up to BigLaw — and he is not communicating what he is thinking. Poor associate is completely in the dark and just has to wait patiently to see if BigLaw will "pop the question." Associate has spent her best years trying to get a commitment from Big Law. She doesn't look quite as attractive to other suitors as she did two or three years ago. Now she is damaged goods. Having given her best associate years to BigLaw, she must wait to see if BigLaw will commit to the long term. What anxiety! Associate: "I don't even love him anymore, but at least I know his flaws. I am too old to 'get back out there.' I am comfortable with him. He is stable and provides a good life for me. I'll just have to show him I am worth the commitment! I will bill more hours!" Just Married! If you are lucky enough to one day get the big proposal and commitment from BigLaw to hit the married phase, you may enjoy a honeymoon phase of about one or two days when your love is rekindled, and you feel appreciated and valued. The security of the legally reassociatenized union only lasts a little while — until you realize that a Big Law marriage is almost as likely to lead to divorce as any other marriage. No matter how many years you remain a devoted spouse, nothing stops BigLaw from changing its mind about you and trading you out for a younger, sexier model. And it works both ways; you may realize that your old crotchety firm can't give you what you really need, so you leave for bigger and better things. BigLaw divorces can be just as scandalous as a celebrity divorce. They can lead to highly publicized litigation where each party is fighting over the assets. Who will get the kids — a.k.a. "clients"? Oh, the drama never stops! The Snark is an anonymous associate at a BigLaw firm based in Atlanta. Do you have dirt to dish? Do you have a column idea? Or do you just need to vent in six-minute increments? Email the Snark at snarkatlanta@yahoo.com. Blood in
the Water at the "Shark Tank": By Anthony Lin The Price of Partnership Is Going Up By Leigh Jones Becoming partner is getting pricier. A combination of factors, including the current credit market and longer client payment cycles, means that incoming partners -- whether newly minted or lateral -- are shouldering more of the responsibility for law firms' capital requirements. The upshot is that while partners have made much more in recent years, many are having to pay a higher percentage of their earnings to stay in the game. "It's more expensive to run a law firm now," said Cesar Alvarez, chief executive of Greenberg Traurig. Partner contributions industrywide are becoming a larger portion of law firms' capital as opposed to capital borrowed from banks, said Alvarez, who added that partner capital as a percentage of revenue at Greenberg Traurig has remained constant in recent years. Especially now, some law firms are feeling a pinch as some of their best clients, laboring in a dragging economy, are taking longer to pay their bills. When that happens, the revenue gap becomes longer and law firms need more capital to meet their compensation obligations to partners and highly paid associates. According to the latest data provided by Citi Private Bank, law firms have reduced their borrowing in recent years. In 2000, firm liability was 19.8 percent of net income, compared with 14.1 percent in 2006. The percentage for 2007 is expected to be in line with 2006, said Dan DiPietro, client head of the law firm group at Citi Private Bank. Law firms are inherently conservative, DiPietro said, and the 2002 collapse of San Francisco's Brobeck, Phleger & Harrison, which had some $90 million in debt, has added to their aversion to borrowing. More recently, banks have tightened the credit terms for capital loans to law firms, which has firm leaders looking to their partners to satisfy capital needs. In addition, law firms more often are requiring incoming partners to pony up a lump-sum contribution, as opposed to a hold-back from compensation, DiPietro said. "Firms feel like they want to have use of the money from day 1," he said. INDIVIDUAL LOANS UP Citi, which has relationships with about 600 law firms, has seen a "noticeable pickup" in the number of loans made to individual attorneys who need to pay their capital contribution upfront when they join a firm as a partner, DiPietro said. Individual partners, generally, are liable for the capital loans they acquire, although law firms, which often already have lending relationships with the banks that loan to partners, frequently agree to pay the bank first should the partner leave. The interest the partner pays is tax deductible. As partner capital requirements have increased, the percentage of partners paying into the capital fund has declined, since more law firms have created or boosted nonequity partnerships among their ranks. And although the increase in partner capital requirements is offset by the higher profits per partner created by fewer equity partners, the rising cost of commercial loans means that firms have a greater reason to avoid them. Losses in the subprime market have made the terms of commercial loans stricter, including those to law firms. But the credit crunch has not significantly affected individual loans to partners, said Andrew Johnman, head of Barclays Bank PLC's U.S. professional services team. Return on partner capital loans, which have higher interest rates than commercial loans, are more attractive to lenders than loans to firms, Johnman said. "I would expect that to be the last lending product to be tightened up," he said, adding that while Barclays and other banks are seeking higher margins on commercial loans, partner capital loans, generally, are excluded from the push. The reason? "They [partners] generally carry large deposit balances and have more complex financial requirements that the bank can service," he said. Having little or no long-term debt is a bragging point among law firms. For example, K&L Gates, the 1,550-attorney firm that has grown by nearly 600 lawyers and 19 offices in three years, said that one of its greatest strengths is its lack of debt. "It is a real competitive advantage in the marketplace," said Glenn Graner, chief financial officer of K&L Gates. But the money has to come from somewhere. Its partner capital contributions are about 35 percent of earnings, a percentage that the firm increased about two years ago, Graner said. He declined to provide the percentage that partners previously contributed. A DOUBLING AT DLA The nation's largest law firm, DLA Piper, in the past seven years has almost doubled its percentage of net income in partner contributions to avoid bank debt while expanding. "You want people to be vested in the firm," said Stephen Colgate, executive director of DLA Piper. "You want them to have some skin in the game." Asking partners for more money creates a "polite tension," he said. The law firm's continued growth, however, has "mitigated the pain," he said. Besides increasing the percentage that partners must contribute, many law firms are holding onto capital longer when a partner leaves. The issue of returning capital has been a point of contention between partners and their former firms. Pillsbury Winthrop's merger with Shaw Pittman in 2005 sparked disputes between the firm and several former partners. Some of those disputes ended up in court. In addition, former partners of Jenkens & Gilchrist and Hunton & Williams also have sued their former firms over capital contributions. Mayer Brown last summer changed its policy of returning capital contributions to enable the firm to retain the money for up to six months after a partner leaves, according to partners who left the firm. Also last summer, the New York Court of Appeals, the state's highest court, ruled that former law firm Fish & Neave acted properly when it amended its partnership agreement to spread out the return of partners' capital contributions over four years. DLA Piper has lengthened the time it takes in returning capital, Colgate said. "That's, generally, a trend we see." Lawyers Fleeing NY Firm Say "It's the Economy, Stupid!" By Amanda Bronstad The slump has prompted the New York-based firm to cut at least 60 associates from its payroll. Some former partners, speaking on condition of anonymity, said the departures come as firm profits are anticipated to slide substantially in 2008. Last year, Thacher Proffitt reported slightly more than $1 million in profits per partner, down about 22% from 2006, according to The American Lawyer, an affiliate of The National Law Journal. Other departing partners downplayed the significance of the firm's finances in their decisions. Most of the departing partners are not in structured finance, which, along with related areas such as real estate, made up more than half of the firm's revenues before the layoffs. Last fall, Thacher Proffitt let go 24 associates, the first major layoff among law firms in the recent economic downturn. Since then, the firm has conducted two more rounds of cuts, offering buyouts to associates, said Paul Tvetenstrand, chairman and managing partner of Thacher Proffitt. He said the recent partner departures were unrelated to the layoffs. But he acknowledged that the total number of them was "a lot, for a short period of time." "It's a tough marketplace to be in," Tvetenstrand said. "I would fully expect in 2009 to bounce back to the levels we had beforehand. But I don't know what 2008 will be." Partner departures Thacher Proffitt is one of the first law firms to lay off associates in recent months. Since then, Cadwalader, Wickersham & Taft of New York; Sonnenschein Nath & Rosenthal; Thelen Reid Brown Raysman & Steiner; and McKee Nelson of New York have laid off dozens of associates. Since then, Thacher has suffered from additional departures. Some former partners raised concerns about the firm's profit projections for 2008, which were alarmingly reduced as the year progressed. They said that partners who chose to stay at Thacher were taking a financial risk. In March, V. Gerard Comizio, a banking partner at Thacher Proffitt, joined Paul, Hastings, Janofsky & Walker's Washington office. He declined to comment. A month later, Christopher F. Graham, the former head of Thacher Proffitt's bankruptcy practice, joined McKenna Long & Aldridge's New York office. Graham also declined to comment. That same month, two other partners, Steven R. Howard and Thomas M. Majewski, who focus on mutual funds and hedge funds, joined Bingham McCutchen. Neither returned a call for comment. Robert Villani, a securitization partner who joined Clifford Chance's New York office last month, also declined to comment Legal Sector Loses Jobs for Third Straight Month By Nate Raymond The U.S. legal service sector lost 1,100 jobs in May, according to U.S. Department of Labor statistics released Friday. The decline marked three consecutive months of losses for the industry and made up part of the 49,000 jobs lost in the overall market last month. The national unemployment rate increased to 5.5 percent, the highest increase in two decades, according to The New York Times. Legal jobs were down 1.4 percent, the same decline the industry posted in April. That month, the sector lost 1,900 jobs. Layoffs at large firms, along with tightening throughout the market generally, contributed to the lost jobs last month. Among the largest firms to shrink their payrolls was Sonnenschein Nath & Rosenthal, which cut 124 lawyer and administrative positions. Hiring remains slow, making it harder for lawyers and nonlawyers to find new jobs in the sector. In total, 1.17 million people, or less than 1 percent of the overall U.S. job market, call themselves legal service employees. They include: lawyers, paralegals, librarians and secretaries. Overall, the legal services sector has lost 9,700 jobs since a year ago and 4,200 in the last six months, according to the Labor Department. The statistics are seasonally adjusted. When not adjusted, the department reports 7,500 jobs cut during the last 12 months. The last time so few people were employed in legal services was during a lull ending in December 2005. Layoffs,
Headhunters Confirm Bad Omens: By Niraj Chokshi SAN FRANCISCO - The job market got a bit colder this week when word broke that Sonnenschein Nath & Rosenthal had laid off 37 lawyers as well as dozens of staff. Those lawyers will join a job market that recruiters say is requiring more patience from laterals -- especially junior associates with out-of-favor specialties. According to California legal recruiters, firms are spending more time now filling fewer open associate positions. "A little bit more thought goes into the hiring process now, and I think consequently it's more competitive for associates," said Delia Swan, of Los Angeles' Swan Legal Search. "Where, normally, we'd see an offer in a week or two, sometimes it takes months." In some cases, firms are dragging their feet by expanding the interview process. Scott Dubin, a San Francisco recruiter, said he had a senior associate candidate interview at the Silicon Valley offices of two top California firms. She got into late stages of the process with both, but one began asking her to interview at other offices -- something Dubin said is pretty unusual. Ultimately, the other firm made an offer and she took it. "Firms are a little skittish given the economic slowdown," Dubin said. And they're in a good position to take their time. "From May of '07 to May of '08, the market has changed from a seller's market to a buyer's market, with the buyers being the firms," Dubin said. "We've even had some firms that had given us positions to work on let us know a couple weeks later, 'Never mind,'" said Valerie Fontaine of Seltzer Fontaine Beckwith in Los Angeles. The market is worst for junior associates, recruiters said. Where they have had an easier time than senior associates finding jobs in the past, now firms are hiring associates with more experience. "Right now firms are being conservative and they're making do with the summer associates and the associates they're hiring in the fall," said Fontaine. There are more midlevel to senior associate openings than junior ones, she added. But there are a couple of silver linings for California job seekers. Fontaine noted that while fewer associate positions are available locally, lawyers elsewhere may be worse off. "We've had some people who have left New York ... [and] they were surprised at how many opportunities we have here." And with tech companies doing relatively well in the current economic downturn, some recruiters said the Bay Area market today isn't as bad as it was in the early 2000s. "It's a lot shallower than the last market downturn, which was really led by Silicon Valley," Dubin said. "And this one is Silicon Valley being dragged down a little bit by the economic slowdown nationwide." In addition to Sonnenschein, a smattering of other firms have announced or confirmed lawyer layoffs this year, including Cadwalader, Wickersham & Taft; Dechert; Sutherland Asbill & Brennan; and Thelen Reid Brown Raysman & Steiner. Earlier this month, a fired San Francisco Paul, Hastings, Janofsky & Walker associate created a fury on the Internet with an e-mail claiming she was part of a clandestine layoff. The firm denied to Recorder affiliate The American Lawyer that it had conducted layoffs, with a spokeswoman saying some associates had been let go, but only as part of the firm's performance evaluation process and in numbers similar to last year. Firms that have confirmed layoffs claim that being proactive with their news may at least minimize the damage to those who are suddenly unemployed. Otherwise, "the danger ... is that you injure the people who are affected," said Gregory Markel, the head of the litigation department and a member of the management committee at Cadwalader, which laid off 35 attorneys in January. "If we were to do what we did in effect below the radar screen, in the dead of night or a few at a time, the perception would be that these individuals would be let go for performance rather than economic reasons," Sonnenschein Chairman Elliott Portnoy said Wednesday. Of course, in the Internet age, keeping it quiet might not have been much of an option. "In this period of time, I can't imagine much that any firm does stay private or undisclosed for very long," Portnoy said. Your Firm Could Be Laying Off and You Just Don't Know It By The Snark ATLANTA - We associates all are sitting on the giant BigLaw roller coaster together — one day giddy with excitement and anticipation, listening to that steady click as things (a.k.a. salaries) get ratcheted up, the next day (that would be today, if any of you are missing the point) hearing that eerie silence before the inevitable downward free fall. Throw your hands in the air and scream, fellow associates — 'cause the ride is about to get crazy. I feel your pain. I hear you saying, “What the heck happened here?” I see you checking the balances in your bank accounts again, and again. Mere months ago, we BigLaw associates were having money hurled at us by “market forces.” Now those same “market forces” are causing us to be canned, laid off, “attritionized,” downsized, smartsized … fired. Ouch. I will not speculate as to the complex market forces, economics, practice over-specialization or cluelessness that led to the current state of affairs—I am but a mere associate. I know, however, that many of you associates out there may be wondering how this change of economic forces affects you. I have no idea, of course, but I can think of some possibilities and will try to prepare you. Option 1: The Stealth Layoff BigLaw is all about appearances. Big Firms cannot appear unable to handle a little economic downturn, especially after jacking up billing rates and salaries. They must appear strong, robust, burgeoning … not hemorrhaging, shrinking or struggling. Accordingly, in times of trouble, Big Firms do not “lay off” associates. It is just a coincidence that 20-plus associates are told during their semi-annual review that their previously “exceptional” performance is now “sub-par.” With a stealth layoff, the firm doesn't necessarily fire you. Rather, they essentially let you know that they plan to can you in the next three months—but as a “professional courtesy,” they will give you a few months to find “other career alternatives.” When firms undertake a slew of stealth layoffs, word inevitably gets out, and associates who fear they are next at least have time to prepare for the ax that may be swinging their way. If you are not familiar with the stealth layoff strategy, or if you think it is only happening to associates who are “dead weight,” or not otherwise as talented as you—be forewarned. You don't want to be that first unlucky associate who walks into a review expecting more of the praise you've been hearing from partners—only to be told that “This isn't working out. Your performance is below expectations.” The stealth layoff is also effective because it motivates associates who hear about their colleagues' layoffs to jump ship of their own accord rather than endure a painful, esteem-killing meeting with the powers that be. Option 2: Classic Canning Firms needing to trim the payroll also may opt for old-fashioned firing “for cause.” It is better, they reason, to appear to be dumping lazy or incompetent associates than to gain a reputation as home to partners who can't bring in enough business to feed all the associates they were scampering to hire only a few months back. When the firm was busy, they could find uses for all associates, mediocre or not—hey, throw them on a document review in a warehouse, they can't screw that up—and they can still bill! But when times get lean, partners have their own hours' requirements to meet, and they suddenly decide to make their own edits to letters, draft their own briefs, or even review their own due diligence documents—gasp! Such actions leave no trickle-down work for associates. Here's where the “for cause” part comes in: Suddenly, as an associate, your hours decrease and you are canned for failing to meet your billable goals. Some firms do not wait for the lesser hours to kick in as a justification. They simply fire you because you are not as good as Associate #276 and there is no longer room for both of you. So your failure to proofread that draft one last time before you sent it to the client—resulting in two typos—will now lead to your demise for “lack of attention to detail.” Option 3: Smartsizing Other firms simply fess up to having too many associates in their ranks and admit to the layoffs. But nobody ever admits the true motivation: to maximize sinking profits per partner. Instead, they claim such layoffs are an effort to “more efficiently serve our clients.” Option 4: Attritionizing Given the rates of attrition at BigLaw, the fact that firings or layoffs are even necessary is amazing. Most firms run off plenty of associates each year and can tighten the budget by simply not replacing them. You may feel safe under such a scenario because you are not likely to be canned, laid off or smartsized. But oh, you are not safe. You will be “attritionized.” What is this? you ask. Well, when associates leave, someone has to take over their workload. If you are still around and the firm doesn't hire anyone to take the place of the associates that are checking out of the machine, you get to do their work—plus yours! This is fine if the work truly does slow down, but most firms err on the side of keeping the associates that stick around super busy. They do not have to trim your salary or fire you. They just load you up. Bill, bill, bill! You've been attritionized! Whoo hoo. Roller coasters are so much fun! Strap on your seatbelts, associates — I see a high-speed curve ahead! The Snark is an anonymous associate at a BigLaw firm based in Atlanta. http://www.nylawyer.com/display.php/file=/news/08/05/052208a Firm Cuts Attorneys' Pay by 12 Percent as Downturn Deepens By Jordana Mishory Attorneys at Becker & Poliakoff are being hit with a 12 percent pay cut for the foreseeable future to help the real estate-dominated firm deal with a drop in profitability and delays in collections. Becker & Poliakoff is the first major South Florida firm to turn to its lawyers to make cuts to help it deal with the economic slowdown and real estate downturn. Other firms have trimmed staff jobs, including paralegals and secretaries, and cut back on other expenses to help cope with the economic landscape. The firm has 12 offices in Florida as well as locations in New York and Prague, the Czech Republic. Its Web site lists 128 lawyers. Alan Becker, the firm's managing shareholder, informed attorneys and support staff about the pay deferment plan via podcast Wednesday. The cut took effect Thursday and affects only lawyers. No layoffs are expected. The Fort Lauderdale-based firm specializing in real estate, construction and government law brought in $60 million in revenue last year, but clients failed to pay $2.5 million, or about 4 percent of total billings, Becker said, adding that it was the firm's best revenue year ever. "Look at the economy out there," Becker said. "We have a tremendous number of real estate developer clients, and many are hanging on by their fingertips. So what am I supposed to do? Tell them I'm going to cut them off instead of trying to work with them?" During the past month, Becker said he visited many of the firm's Florida offices and explained the firm's problem with collections. He reminded the attorneys to work hard to get clients to pay their bills. Nearly 70 percent of the firm's expenses are staff-related, he said. He could not cut spending on rent or insurance, so his staff bore the brunt of the fallout from the downturn. He said he knew accounts receivable would be slow, so the only responsible thing would be to get expenditures in line with revenue. "It's simple math: If X dollars come in, you can't pay more than X dollars out," Becker said. "If you want to be conservative and cut costs, there's not a whole lot of places you can do it -- where 70 percent of your expenses is people -- except people." A managing partner speaking on condition of anonymity said Becker's math does not add up. "In order to cut all lawyers' compensation by 12 percent the problem must be bigger than a 4 percent reduction in revenue," the managing partner said. "I believe he's either off more now or afraid he'll be off more later." The managing partner also said that it is highly unusual to cut pay to associates when the firm's profitability is suffering. Becker said the pay cut would be lifted if clients begin paying again, provided the attorneys are still with the firm. He said he expects to pay the money retroactively to attorneys who stay with the firm. "I support the people who support us," Becker said. He is hopeful the firm will be able to reimburse its attorneys this year. This is not the first time the firm has deferred pay while waiting for clients to pay, and he said the firm has always been able to pay its deferrals. Neil Schiller, an associate in government law and lobbying at the firm's Fort Lauderdale office, said he is glad the firm decided to defer salaries rather than impose layoffs. "This is a family," Schiller said. "I would rather take a temporary deferral than see a family member leave permanently." Schiller said he and his colleagues are extremely busy. It's just that clients have been slow to pay their bills due to the economic downturn. Several other attorneys at the firm either declined comment or did not return a call for comment before deadline. The Becker & Poliakoff cutback strategy is uncommon. When firms hit a rough patch they typically hold back partner compensation and borrow money -- unless the problem is particularly acute. It is also rare for a firm to turn to associates to help keep the firm afloat financially. Typically that is a burden faced by partners who share in a firm's financial ups and downs. The managing partner said the downturn has led firms to be more vigilant when assessing which clients to take. He said it's important to ensure that both new clients and existing ones pay bills. To make sure accounts receivable stay in line with projections, the managing partner said his firm makes sure that bills go out promptly, there is follow-up with clients, and lawyers get appropriate retainers. Deferring salaries is not a common method to battle a down economy, the managing partner said. "Law firms generally have enough cash flow to be able to cover their salaries even in a down economy," he said. Employment lawyer Suzanne Bogdan, a partner at Fisher & Phillips in Fort Lauderdale, called Becker & Poliakoff's approach a "creative way to try to keep businesses running at a level they need to run while they give clients a little bit of time to catch up on payments." The economic environment
has led all businesses on a quest to find creative means to maintain
the optimum number of employees while cutting costs, she said. Some
businesses are having employees squeeze a 40-hour work week into
four days to cut operating costs one day a week. Others are having
people work part time in slower months. Bogdan emphasized the
importance of management keeping up morale through constant
communications. Becker attributed the larger accounts receivable
balance to the economic slowdown, which has hit condo associations
and developers hard. He conceded he was slow to notice the impact of
the downturn because revenue was growing. Before the cut was
announced, equity partners received large disbursements, and other
partners and associates received large bonuses and salary increases,
he said. Becker said his clients were fantastic during good economic
times, so he said he would prefer to help them resolve their
problems now that they're suffering. He decided to make the deferral immediate to address the firm's cash flow shortage more quickly and reasoned that giving a longer notice wouldn't have made anyone any happier about it. He decided to do a podcast because he thought e-mails or memos were too cold and he would not be able to tell people in each office personally. The news comes just weeks before the firm's annual retreat. Becker said the emphasis is on education, but he is sure the salary deferral will be a major issue and he plans to answer any questions that his employees have. "How do you avoid it?" Becker asked. Get Your Head in
the Clouds: By Gina Passarella Editor’s Note: This is the third installment in a series looking at business development issues and rainmaking methods. Ah . . . to be young again and not have these responsibilities. If only. Considering there are high-level partners out there who are concerned about not having a substantial book of business, the pressure on associates to think about business development – self imposed or not – is intense. Yet there seem to be two camps of younger attorneys who don't, or can't, focus on chasing the rain. There are those who don't do it because there is no clear path to success, and those who don't have the support of their firms to spend the time and money on networking. The general consensus is that firms can create all the programs they want, but if the partners don't buy in, then no program will help. Roger Braunfeld, currently the chief operating and chief compliance officer of an asset management company in New York, spent nearly all of his associate life looking to build business. He started out at Harvey Pennington and moved to Blank Rome in 2001 as a second-year associate so he could build a business law practice. It used to be the case, he said, that an attorney didn't have to deal with clients and would still be able to put in the hours and make partner. That's no longer the case. "It's almost like the big lie," Braunfeld said. "If you work hard and just do other people's work for the rest of your life, you'll make partner and be happy." A lesson he learned early on, however, is that those who control the firm are the ones bringing in the business. Partners are owners and if associates want to be partners, they have to act like owners and bring in the business, he said. "In any business, not just law, if you control revenue coming in, then you're in a much safer place," he said. But making rain means taking risk and many attorneys are risk-averse by nature, Braunfeld said. Lawyers at many large firms did well on the LSATs to get into law school, were at the top of their class in law school and did well in summer associate programs. They became associates at these firms, and the goals were clear. Make billable hour requirements and please the partners, and they would be all set. But the employee handbook doesn't come with a business development manual, and there are no clear guidelines for how to see a return on investment from hours spent networking. Braunfeld said legal business development is no different than sales. Attorneys have to take risks. They might fail nine times out of 10, but the 10th time is worth it, he said. Braunfeld wasn't No.1 in his law school and admitted he wouldn't be the traditional person to be hired by Blank Rome as an associate. It was his early demonstration of business development skills, however, that caught the eye of Blank Rome partner Alan L. Zeiger, who became an advocate for Braunfeld in the firm. Zeiger and partners Steven Dubow and Morey Rosenbloom became his mentors in the firm, as well as a support system that allowed Braunfeld to spend time away from billable hours taking out clients. In other firms, he said, he would have had to write five memos just to get reimbursed, which becomes a disincentive to network. Sabrina Mizrachi, a seventh-year associate in Ballard Spahr Andrews & Ingersoll's environmental litigation practice, couldn't say enough good things about the supportive environment her firm – and particularly her department – has created for associate business development. Ballard Spahr brought in a training coordinator for third- through fifth-year associates after she finished her fifth year, so most of Mizrachi's training has come from individual partners. She said the head of her group is always suggesting opportunities for associates to write articles, go to events and attend conferences. The firm encourages the attorneys to find a niche and become an expert, she said. Younger associates are often concerned with making billable hours and doing work assigned by partners, so they don't always think about business development, Mizrachi said. It's a great incentive, she said, when partners are there encouraging younger attorneys to make a name for themselves. Not all associates are as lucky as Braunfeld and Mizrachi. One associate at a large Philadelphia firm said partners are often guarded in terms of giving associates access to clients and don't even allow them to do simple tasks such as making a phone call to get interrogatory responses. That makes business development a big challenge, the associate said, because young attorneys can't even get their names out there. Partners are quick to share how they built their books of business but won't work to put associates in touch with clients, the associate said. For older partners, there were no business development programs 30 years ago, so, the associate said, it's often assumed younger attorneys will just find their way, too. This associate has found a way around guarded partners by getting out into the community and offering to make presentations to specific client groups about what the associate and the firm can offer. That, of course, requires firm permission, but it isn't risking taking away work from partners and provides the potential to bring in new matters. The associate has also made a point to refer work whenever possible, even if that person might not want it, because it gets the associate's name out there as open to referrals. If this associate is given the task of, for example, sending out a letter to a client, the associate will find a reason to make a call. Even if it is to ask about the format a client would prefer to receive the letter, the associate said it opens the chance to have a more personal conversation. It was in response to associate requests that Schnader Harrison Segal & Lewis created a formal business development program. Kathleen Keane, director of legal administration, professional development and recruitment, said the firm is in the process of trying out different programs and getting feedback. The program is split between different associate levels, with certain groups getting different types of training. There is no business development training offered to first- and second-year associates, Keane said. At first, the associates told the firm they felt like they were getting too many training sessions at once, so now the firm spreads them out over the course of the year, she said. There is also a two-day retreat for fifth- and sixth-year associates that serves as the capstone of the yearly training, Schnader Harrison's director of associate recruitment and development, Colleen France, said. The firm has had partner-led panels to talk about how they became rainmakers, and it has also brought in outside vendors to teach things like networking, public speaking and listening skills. The program is not meant to serve as the sole method of associate business development. Keane said she hopes the associates are out there networking. The firm has traditionally focused on ensuring its associates were good lawyers, which is why there wasn't a business development program until recently, she said. The goal of the program is to make associates comfortable with getting out there themselves and meeting people, she said. Frank D'Amore of Attorney Career Catalysts said associates he has spoken with generally don't get as much out of firm partners telling war stories on panels. He said associates really want outside vendor training that helps lay out guidelines for business development. Scott Sigman of Bochetto & Lentz, chairman of the Philadelphia Bar Association's Young Lawyers Division, said there was definitely a need in the legal community for business development training so the YLD created several courses to that effect. In the current economy, Sigman said he is seeing firms cut back on many marketing-related expenses such as bar dues, external programs or Martindale-Hubbell profiles. He said associates are looking to bring in their own business in order to supplement their income as well as open themselves up to lateral opportunities. With consolidation in the marketplace, Sigman said he thinks younger attorneys are looking to build a book of business to secure a position in the larger firm or to be able to survive on their own. Steven Kruza of Kruza Legal Search said firms are definitely building up business development programs but with varying success. He said associates generally get the most out of developing relationships with partners who will have a vested interest in mentoring the associates, under a formal program or not. Associates do feel firms are making the effort to improve the programs, but Kruza said it's often difficult for associates to devote much time given strict billable hour requirements. Senior associates at larger firms are having a difficult time bringing in business, he said, because they aren't getting the big-ticket items with high rates that larger firms are looking for. It's a similar problem with firms that are acting more like corporations and limiting the types of work they do, Kruza said. Young attorneys are limited in the types of clients they can bring in, he said. General Advice One mistake Braunfeld said many associates make is to sell someone else instead of themselves. It's often about selling what the partner can do instead of the associate selling her own skills. While an associate might not be able to carry out a matter to its completion, clients want to talk to decision makers. Associates need to learn that if they are bringing in work, they should make sure the work gets done well even if they have to rely on others to help, he said. They don't even have to bring in the work, but take an ownership interest in ensuring the work gets done right, he said. According to D'Amore, associates often make two main mistakes – thinking they have to bring in Microsoft as a client or thinking they don't have to network at all if they don't plan on staying on the partner track. Even the largest firms represent smaller clients, including many emerging businesses, so knowing Bill Gates isn't a prerequisite to building a book of business, D'Amore said. In the same vein, young attorneys don't have to know the general counsel or chief executive officer of a company to succeed. D'Amore said it's important for younger attorneys to connect with their counterparts within the client's organization. They could one day be the leaders of that company or move to another potential client, he said. Law school classmates can also form another strong referral network, he said. "You don't have to shoot for the moon, you can shoot for the level where you are," he said. For those who don't plan on becoming partner, D'Amore said networking is still important because it could lead to that next job, whether it be in-house or in a different field altogether. Ryan Blazure, an attorney with Cardoni & Associates in Kingston, Pa., is the chairman-elect of the Pennsylvania Bar Association's Young Lawyers Division. He said he has been able to bring in work for his firm through the organizations he has joined. Joining a statewide organization can often lead to an associate becoming the go-to person in his particular geographic area, he said. The bottom line is, Blazure said, networking and business development need to start the second a future attorney decides she wants to go to law school. BigLaw
Firm Denies Layoffs, Posted By Nate Raymond On Monday, Above the Law posted a leaked e-mail to Paul Hastings associates from Shinyung Oh, a commercial litigation lawyer who was fired April 30, six days after a miscarriage and a few months after a poor performance review. The legal blog touted the e-mail as proof of layoffs, and in a follow-up post said the firm had canned at least 22 associates. But Paul Hastings spokeswoman Eileen King told The Am Law Daily that while some associates have been let go, they were part of typical annual performance reviews. While she declines to say how many had been let go, King says the numbers were in line with last year's cuts. "There is always resulting turnover [after performance reviews], but we have not done any layoffs," King says. "It's really normal attrition based on performance evaluations, and the numbers show year over year that we're up in associates. We're a healthy firm in terms of head count and real revenue perspective, and the numbers really say the story in my mind." King would not comment on specific firings such as Oh, who spoke with The Wall Street Journal's Law Blog on Thursday. Oh said she sent the e-mail because she didn't want associates being laid off for economic reasons to feel like they were being judged for their performance. "I want them to feel like they're not completely alone and not to worry about their own performance when it's the firm doing something for economic reasons" and because of a "desire to increase partner profits," Oh said. Oh claimed she hadn't been told her performance was lacking until a week before her last review. Yet according to her 2006 performance review, obtained by the WSJ, she was four hours over targets and was generally described as exceeding or meeting expectations. Oh has been able to speak out about the firings because she turned down a severance agreement for three months base pay which would have restricted her from speaking about the firm publicly. King says the firm's revenue and head count situation is healthy. Associate head count, she adds, is up "considerably" for the year, and the firm expects to welcome a larger summer associate class than in 2007. Revenue increased 19.9 percent in 2007, to $813.5 million. Profits per partner were up 19.6 percent, to $1.92 million. http://amlawdaily.typepad.com/amlawdaily/2008/05/paul-hastings-n.html April Is the Cruelest Month: Legal Sector Lost Jobs Again By Nate Raymond The decline marked two consecutive months of losses for the industry and made up part of the 20,000 jobs lost in the overall market last month. But as in the general job market, losses slowed in April. The month before, the legal service industry lost 2,600 jobs. Layoffs at large firms, along with tightening throughout the market generally, contributed to the lost jobs last month. Among the largest firms to shrink their payrolls was Sutherland Asbill & Brennan, which asked about 15 associates to leave March 31. Other firms have slowed their hiring, making it harder for lawyers and non-lawyers to find new jobs in the sector. In total, 1.17 million people, or less than 1 percent of the overall U.S. job market, call themselves legal service employees, including lawyers, paralegals, librarians, and secretaries. Overall, the legal services sector has lost 8,900 jobs since a year ago and 3,300 in the last six months, according to the Labor Department. The statistics are seasonally adjusted. When not adjusted, the department reports 9,700 jobs cut during the last 12 months. This April, the statistics show, marked a two-and-a-half year low in employment in the legal service industry. The last time so few people were employed in legal services was during a lull ending in December 2005. Skadden Posts Huge Capital Gains By Marisa McQuilken It's the highest-grossing firm in New York, and for that matter, in the United States. Could Skadden, Arps, Slate, Meagher & Flom be on the verge of becoming D.C.'s top revenue earner, too? On this year's D.C. 20, Legal Times' annual list of the top-grossing Washington law offices, Skadden climbed to No. 3, powered by a 19.7 percent jump in revenue. It edged ahead of D.C. mainstay Arnold & Porter (No. 4), and is now challenging Hogan & Hartson (No. 1) and Wilmer Cutler Pickering Hale and Dorr (No. 2) for the top spot. And it's already far ahead of many of its local rivals in D.C. profits per partner ($2.28 million) and revenue per lawyer ($1.16 million). Perhaps the reason Skadden is in a position to reach No. 1 is because it acts like a quintessential Washington firm. It has 299 lawyers in the District, and they're handling some of the highest-end work available. It has a superstar rainmaker: Robert Bennett, go-to guy for the scandal plagued and perhaps the king of the D.C. legal-rati. And its roster boasts scores of government recruits with deep ties to federal agencies. "In no sense would anyone say that Washington was a stepchild," says head of the D.C. office Michael Rogan. He adds that while Skadden is headquartered in New York, the firm functions under a "one firm" mentality, making Washington an equally important part of the family. In other words, D.C. lawyers get a piece of the New York client pie, and vice versa. "We kind of view our offices and our relationships as different floors in the same building," Washington antitrust partner C. Benjamin Crisman Jr. says. The firm, which opened in Washington in 1976, has also strongly resisted adding multiple tiers to its partnership or adding large lateral practice groups. That's a key difference with several other firms on the D.C. 20. Skadden is still single-tiered, it's highly leveraged, and 50 of the 72 Washington partners started out as associates. "It's culture. We all grew up together. We all support each other," says Washington litigation partner Andrew Sandler. Mining Clients A good example of Skadden's "one-firm" mentality is its work on the massive bid by BHP Billiton to purchase fellow mineral mining company Rio Tinto. If BHP's bid is successful, the transaction could reach $380 billion, and will stand as one of the biggest deals ever. Skadden D.C. partners are heading up much of the work for BHP, though Skadden's New York, London, and Sydney offices are also in play. The firm's antitrust, mergers and acquisitions, and tax practices have the biggest chunk of work, though smaller bites are going to practices like environmental. Crisman, who leads the antitrust team, says that New York partner and mass torts star Sheila Birnbaum connected him with BHP. She first represented the company about a decade ago, and Skadden has since become its primary U.S. counsel. Birnbaum introduced Crisman to BHP in 2000 when its general counsel needed help developing a worldwide antitrust compliance policy. Around the same time, Birnbaum and New York corporate partner Peter Atkins introduced BHP to D.C. M&A partner Ronald Barusch. Today, Barusch leads the Washington M&A team working on the Rio Tinto bid. BHP and Rio Tinto both have headquarters in London and Australia, and substantial operations in the United States. That makes the tax implications of the deal extra complex. It's the job of D.C. partner Paul Oosterhuis, head of Skadden's international tax practice, to help structure the deal in a way that minimizes the tax disadvantages in all three countries involved. "We're often on calls at six in the morning, or six at night," he says, referring to the time differences between the locations. Insider Access Oosterhuis describes the 54-lawyer tax practice as being divided into four groups: One chunk serves as a support system for M&A work handled in D.C.; another supports transactional work generated by the energy practice; another component focuses on helping U.S.- and foreign-based multinational clients with tax planning; and finally, there's the tax controversy group. That level of organization, says tax controversy partner Fred Goldberg Jr., "encourages us to work together and share." For many of the deals handled by the tax group, Goldberg acts as a liaison to the agencies. He has plenty of experience inside government: He was commissioner of the Internal Revenue Service from 1989 to 1992 and assistant secretary for tax policy at the Treasury Department in 1992. The insider ties helped Goldberg serve as a bridge last year when Skadden's tax lawyers in New York and D.C. handled Fortress Investment Group's initial public offering. In structuring the IPO, Skadden lawyers managed to avoid nearly all corporate tax on Fortress. When that raised concerns at the IRS, Goldberg was there to open the lines of communication. Goldberg, of course, isn't the only Skadden partner with a lot of pull inside the government. Robert Bennett is Skadden's Washington frontman, and may just be the best-known lawyer in the 1,900-attorney firm. "Having Bob being known as Mr. Skadden, Arps ... it's a tremendous advantage to us," says office head Rogan. Bennett co-heads the 110-lawyer litigation department in D.C. and thinks of the group as a boutique nested within the larger firm. He came to Skadden in 1990 along with fellow D.C. litigation chief Carl Rauh, and he says the culture of their smaller firm came with them. Bennett acknowledges that Rauh does "an awful lot of the managing.... I'm more the outside guy, and he's more the inside guy." Bennett is clearly no stranger to the spotlight. He recently helped Sen. John McCain (R-Ariz.) handle the fallout from allegations of improper relations with a lobbyist. And he represents the CIA's ex-clandestine service director Jose Rodriguez in congressional and Justice Department probes surrounding the destruction of interrogation tapes of terror suspects. Though he's the best-known D.C. litigator, Bennett isn't the only star in the group. Andrew Sandler leads the firm's consumer financial services enforcement and litigation practice. His practice caught fire in the latter part of 2007 when the subprime mortgage market collapsed. He first began counseling financial institutions on fair lending back in the mid-1990s, and today, says the lawyers in his group represent clients in more than 30 different investigations and 10 class actions related to the subprime meltdown. Colleen Mahoney heads up Skadden's securities enforcement and compliance practice. She has a long history at the Securities and Exchange Commission, where she was deputy director of the Enforcement Division from 1994 to 1998, before serving as the commission's acting general counsel for a short time. She came to Skadden a decade ago. Lately, Mahoney's group has had a lot of overlap with Sandler's practice, since the SEC is behind many of the subprime investigations. She explains that her practice is "sort of a snapshot, or sort of a mirror image, of what the hot topics at the SEC are." Aside from the subprime work, her group is presently focused on stock option accounting issues, insider trading investigations, representing hedge funds, and Foreign Corrupt Practices Act work. Litigation is the biggest practice group in Washington, but the office also houses the lion's share of Skadden's energy lawyers. The firmwide practice is based in the D.C. office, where about 50 of its 60 lawyers reside. Partner Martin Klepper describes the group as "one practice, split into two parts." He belongs to the energy and infrastructure projects side; the other half of the practice has an energy regulatory focus. On the infrastructure side, Klepper says one of the biggest ongoing projects is for the state of New Jersey, where Skadden lawyers have been working with the state government to structure a deal that would transfer all major toll roads to a private nonprofit corporation. Energy regulatory partner John Estes III says his representation of client Energy Transfer Partners in a Federal Energy Regulatory Commission investigation, and numerous related civil actions, is one of the largest ongoing matters for his part of the practice. Estes came to Skadden in 1988 from the FERC, where he was an appellate litigator. Frequently, though, both sides of the energy practice team up. The partners say both groups are involved in work for utilities that are interested in building U.S. nuclear energy facilities — though they won't reveal their client list. Leverage and Laterals Skadden's stability in D.C. also has a lot to do with its partnership structure. Of the seven single-tier partnerships on the D.C. 20, Skadden's 4.15:1 leverage is near the top of the list. Only Sidley Austin has a higher ratio of nonpartners to partners. While Skadden's leadership doesn't dole out the coveted golden handshake to just anyone, once a partner is in the club, he or she is likely to be there for good. After all, when you're making more than $2 million a year, why go anywhere else? Rogan joined Skadden as an associate in 1980 after five years at the SEC. He has spent his entire private practice career at Skadden, and the same is true for much of the Washington partnership. Two of the three lead D.C. partners on the BHP Billiton deal, for instance, are also lifers. Crisman became the fifth lawyer in Washington, when he joined as an associate in 1978. And Barusch started as an associate in Skadden's Boston office in 1978, and moved to Washington in 1981. Though a few retired during the past year, and one went in-house, Skadden only lost one partner in 2007 to another firm. Media and intellectual property partner Kenneth Kaufman departed for Manatt, Phelps & Phillips. For his specific practice area, he says there was just more opportunity at Manatt. "At Skadden, we certainly worked on a number of very interesting matters in this area, but I was probably the only partner with a significant background in entertainment law," he says. The office also has brought on a couple recent laterals. Antitrust partner Steven Sunshine just completed his first year at the firm, after joining from Cadwalader, Wickersham & Taft, where he was head of the antitrust group. Sunshine has been busy representing diamond cartel De Beers against several class actions in New Jersey federal court — work he brought over from Cadwalader. And last Thursday, the office announced that Greg Luce, previously co-chair of Jones Day's health care practice, has joined Skadden to lead the health care enforcement and litigation practice. Clearly, though, 2008 may not be the best year ever for Skadden. BHP Billiton aside, its transactional practices are getting battered like everyone else's. "The pipeline, I would say, isn't as full as it's been," says Rogan. "Whether the second half of the year, we keep pace with the first half, we'll have to see." If not, No. 1 in D.C. may still be a few years away. Banks Getting Tougher on BigLaw Loans By Leigh Jones Law firms needing extra capital from banks to weather the rough economy are finding that the times — and the terms — have changed. Many law firms are seeing a slowdown in work and a lengthening in their client payment cycles. At the same time, banks that provide lending to law firms to help cover their revenue gaps and fund bigger projects are implementing more onerous requirements for doling out credit.The upshot is that, just as law firms need more money, they're having a harder time getting it. While Dan DiPietro, client head of the law firm group at Citi Private Bank, doesn't expect interest rates to climb, he does see a change in the terms, or covenants, under which law firms borrow. "We're looking at the number of partners who leave in a given year," he said. "We're looking at cash flow coverage and asset coverage ratios." Perhaps taking a cue from the demise of San Francisco's Brobeck, Phleger & Harrison, which had $90 million in bank debt when it collapsed in 2002, law firms generally reduced their borrowing in recent years, according to the latest data provided by Citi. In 2000, firm liability was 19.8% of net income compared with 14.1% in 2006. Despite the overall decline, the average borrowing for Citi's clients so far this year has ballooned, DiPietro said. Borrowing was up 32% in January, compared with the same month in 2007, he said. In February, borrowing rose 26% and, in March, it climbed 22%, compared with the same months in 2007. A slowdown in client work — and in the time that many of them are taking to pay their legal bills — is exacerbating the revenue shortfall that law firms routinely experience at the beginning of the year, DiPietro said. In addition, many firms are feeling the full weight of the salary increases implemented last year for associates, including $160,000 for first-years. "We are being much better about practicing fiscal hygiene," said Stephen Colgate, executive director of DLA Piper, the nation's largest law firm. "We're being more careful to make sure our bills get out the door." The 3,623-attorney firm in the past seven years has doubled its partner capital contribution amount to avoid acquiring debt for expansion, Colgate said. He added that law firms seeking financing these days to cover expenses may well find stricter terms, although he is not "losing any sleep" over DLA Piper's financial picture. But many law firms "are very nervous right now" about their financial situation, said law firm consultant Richard Gary, principal of Gary Advisors in Tiburon, Calif. "All you have to do right now is look at what law firms are doing in terms of layoffs, summer hiring freezes and extension of first-year start dates by several months," he said.
Survey: Women in Large
Firms Advance At Same Rate By Gina Passarella The nation's largest law firms are in a bit of a holding pattern when it comes to the advancement of women within the firms, according to the president of the National Association of Women Lawyers (NAWL) in regard to the group's second annual survey. The numbers of women in equity partnership and management have stayed about the same since last year, while the pay disparity between male and female attorneys has increased at certain levels. "While in some respects there is some progress, there are some very distinct areas where, in our view, firms need to be careful," NAWL President Holly English of Post Polak Goodsell MacNeill & Strauchler said. Similar to last year's inaugural survey, 16 percent of equity partners at large law firms are women and 15 percent - down 1 percent - of governance committees are made up of female attorneys. Of the 112 firms that responded to the survey, 15 percent have no women on their governance committees. In a three percentage-point increase, 8 percent of managing partners at the largest firms are women. As women move up in positions within a firm, their pay disparity increases as well, according to the survey. Male of counsels earn about $20,000 more than females, male non-equity partners earn about $27,000 more than females and male equity partners earn nearly $90,000 more than their female counterparts. According to the 2006 survey, male equity partners earned about $81,000 more than female equity partners. At firms with higher billable-hour requirements, the difference grows even more. Male equity partners at those firms earn $140,000 more than female equity partners, the survey showed. While English said she understands that some of these disparities have reasonable explanations, she said it would behoove firms to pay attention to their policies when such wide disparities can be seen at the macro level. One explanation for the larger disparity at the highest levels, the survey results indicated, could be that there are just fewer senior women at these law firms. English said there is a bright spot among the survey results when it comes to the younger female attorneys. For the smaller number of women attorneys who graduated before 1980, 9 percent have become equity partners, the survey showed. In looking at female attorneys who graduated between 1980 and 1995, that number increases to 20 percent. English said the percentage increases to nearly 25 percent for attorneys even younger. Within the next few years, English said she expects to see some improvement as more firms have women's initiatives, general counsel are pushing for diversity, and women are taking advantage of mentoring and networking programs available to them. NY Firm Axing Around 50 Associates By Anthony Lin Thacher Proffitt & Wood yesterday informed around 50 associates that their futures at the firm were uncertain because of the collapse of the market for mortgage-backed securities, an area where the firm had had a leading practice. The firm's warning, first reported yesterday on legal gossip blog Above the Law, impacted 24 non-first-year associates who were told they were almost certain to be laid off in January unless the credit market substantially improved. Additionally, the firm offered 29 first-years the option of taking four month's severance and leaving the firm. The firm's chairman, Paul D. Tvetenstrand, had previously said the firm would not have associate layoffs, but he said yesterday that the outlook on the market had grown worse in recent weeks. Whereas the 350-lawyer firm had earlier projected the market would bounce back in a quarter or so, he said the feeling was now that the mortgage-backed securities market in particular would remain moribund for at least six months, if not longer. He said the warning and buyout offers were to give associates time to prepare. "It would be unfair to these associates to have them sitting on their hands" during that time, he said. Mr. Tvetenstrand said among the factors Thacher Proffitt had looked at was the health of its major clients among Wall Street investment banks. Several major banks have slashed structured finance departments and some have said they are pulling out of the area altogether. Mr. Tvetenstrand said some areas of structured finance aside from securitization of residential mortgages remained strong and that overall health of the firm remained strong. Thacher Proffitt's layoff warning follows Clifford Chance's termination earlier this month of a six-lawyer structured finance group of associates, and structured finance boutique McKee Nelson extending similar buyout offers to associates.
Thousand-Lawyer Firm By Niraj Chokshi Earlier this month, MoFo announced that the position is being filled by Pat Cavaney, a non-lawyer and former vice president of business operations for Hewlett-Packard Co.'s worldwide services group. Like other firms, San Francisco-based MoFo is hoping to capitalize on real-world business experience to run its operations, says Wetmore. The move is an example of two related trends among large law firms, says Ron Beard, a Laguna Hills-based law firm consultant with Zeughauser Group. Firms are increasing the number of C-level positions, he says, and then filling those and other management jobs with non-lawyers. Among other things, Cavaney will be taking on some of the previous responsibilities of the three firmwide managing partners for operations, Larren Nashelsky, Pamela Reed and Anna Erickson White. White said they'll focus more on practice management as opposed to operations management, and also will return more to their own practices. The 1,000-lawyer firm hasn't had a COO or executive director for about 15 years, according to Wetmore. BigLaw Firm, Partner Settle Suit Over Shrinking Pay By Anthony Lin Winston & Strawn has settled on the eve of trial a lawsuit
brought against it by a New York partner who claimed the firm broke
a deal to exempt him from "decompression," a firm policy sharply
reducing partners' pay after age 65. Down With Associate Pay! Seriously . . . By Thomas Sager The appalling increase in
starting salaries for first-year associates at major big-city firms
- now up to $160,000 - makes in-house general counsel want to shout
out the window like the frustrated anchorman in the movie Network:
"I'm mad as hell, and I'm not going to take it anymore!" More NY Firms Announce Extra Bonuses New York Lawyer Shearman & Sterling and Fried, Frank, Harris, Shriver & Jacobson both said this week their special bonuses will range from $10,000 to $50,000, while class-year bonuses will range from $35,000 to $65,000. Meanwhile, Clifford Chance became the first London firm to announce it will give New York associates a one-time bonus of $10,000 to $50,000 and a year-end bonus of $30,000 to $65,000. Last week, Cravath, Swaine & Moore was the first firm to announce its bonus plan, saying it would pay associates the two bonuses totaling $45,000 for first-years and going up to $110,000 for senior associates. Two Firms
Chart Different Courses By Nathan Carlile and
Kellie Schmitt Two firms are making news with how to handle soaring associate salaries. Nixon Peabody determined that when the recruiting gets tough, the laggers give raises. Last week, the Boston-based firm announced that it had bumped pay for associates in its D.C. office. First-years will now be making the market standard of $160,000. "When New York firms raise, that doesn’t have an impact on us," says Laurin Mills, managing partner of Nixon Peabody’s D.C. office. "It’s the firms in Washington, our competitors, that put the pressure on us to make a move." The firm stood at $145,000 for first-years before the raise. But that move is costly, especially for a firm like Nixon Peabody, which has profits per partner of only $585,000, according to this year’s American Lawyer 100. The firm’s revenue per lawyer is $650,000. Industry consultants frequently warn that any firm with profits per partner at $1 million or less struggles with the $160,000 starting pay grade — which is where McDermott Will & Emery comes in. Already paying associates in every office $160,000, McDermott plans to create a new tier of attorneys — basically permanent contract associates — to handle remedial tasks at discount billing rates. This year the firm’s profits per partner in the AmLaw 100 were $1.4 million. The firm says the contract associates will be expected to bill between 30 and 40 hours a week and be paid roughly 25 percent less than first-year associates. They will get mundane jobs like document review. Which in turn could free associates on track for partnership to work on more interesting matters. McDermott is planning to start with a pilot group of about 15 lawyers sometime in the next year.
By the Staff of Legal Times Lawyers at McKee Nelson may no longer be the richest guys in town (as Legal Times dubbed them not long ago). The high-end tax and capital markets shop has taken a big hit in recent months, and you can blame the troubled structured finance market — and more specifically, mortgage-backed securitizations. As a result of slow workflow, the firm is scrambling to move associates into other practice areas — primarily litigation and tax — says name partner William Nelson. So far, Nelson says, six associates of the roughly 50 associates in its securities and structured finance practice have moved. The firm has also offered associates other options, such as working for London-based Ashurst, with whom it has an alliance, for a year or two; taking a sabbatical; or helping with recruiting. "We wanted to be realistic with our people and let them know we don’t know where this is going," says Nelson. Industry watchers say the credit swoon is slowing practices across Washington — not to mention New York. But for McKee Nelson, where 90 of the firm’s roughly 110 lawyers (split about evenly between offices in New York and Washington) are involved in structured finance, the impact is especially hard. The firm is counting on its litigation practice picking up some of the slack. Litigation is an area that McKee Nelson had previously shied away from, for fear of possible client conflicts. That changed in February, when star litigator Jeffrey Smith joined the New York office from King & Spalding. That practice group might offer refuge for some associates who need to move out of securitization. "Everyone who’s here will have a job," says Nelson. "But some of them may decide they want to take us up on other options." So far Washington recruiters say they aren’t seeing McKee Nelson résumés flying out of the firm. But New York recruiters are hearing from McKee Nelson associates looking for a lifeline — an indication that the firm’s more profitable office is on shaky financial footing. "It’s hard to put these lawyers in another firm because it’s not a hot practice area," says Dan Binstock, a recruiter with BCG Attorney Search. "They first need to retool themselves into more general corporate associates." Nelson says that the firm’s other practices are doing better — which is a relative term, considering all structured finance practices are experiencing a slowdown — and notes that it recently lured Alice Yurke to its New York office from Morrison & Foerster. Yurke focuses on structured hedge fund transactions. Nelson says he has not told partners that profits will be down this year. He says a strong seven-month opening to the fiscal year has been followed by what figures to be a very soft five-month close. He adds that the firm’s "rainy-day fund" may well be tapped. "I think it’s fair to say we’re glad we have some money put aside," says Nelson. Need a Lawyer? Get Ready to Shell out Some Dough News Journal Online.com The hourly rates of the country's top lawyers are increasingly coming with something new -- a comma. A few lawyers crossed into $1,000-per-hour billing before this year, but recent moves to the four-figure mark in New York, which sets trends for legal markets around the country, are seen as a significant turning point. In the Volusia-Flagler market prices are a lot lower than those in the Big Apple, but fees have moved steadily higher here, too. "Fees in DeLand are probably between $150 on the low end and $350 on the high end," said Harlan "Butch" Paul, who frequently is asked to be an expert witness on legal fees. "In Daytona Beach, you may find some attorneys who are more in the $400 range." As of Sept. 1, New York's Simpson Thacher & Bartlett LLP raised its top rate to more than $1,000 from $950. At big law firms, billable rates have climbed steadily. Since 2000 they have risen 6 percent to 7 percent annually, according the law-firm group of Citi Private Bank, a unit of Citigroup Inc. Hourly rates also have climbed in Florida during that period, according to a Florida Bar survey. In 2000, just 27 percent of those surveyed billed at $200 an hour or more; by 2006, 60 percent of the state's lawyers were charging that much. But the $1,000-mark has been something special, even in New York. "We have viewed $1,000 an hour as a possible vomit point for clients," a partner at a New York firm said. "Frankly, it's a little hard to think about anyone who doesn't save lives being worth this much money," said David Boies, one of the nation's best-known trial lawyers, in Armonk, N.Y. Even so, a select group began billing at that rate before this year. Stephen Susman, a founding partner of a Houston firm who has tried big-ticket cases around the country, crossed the line earlier. So did Benjamin Civiletti, U.S. Attorney General under President Carter and now a senior partner at Washington, D.C-based Venable LLP. Yet, many attorneys are still reluctant to charge $1,000 an hour. "There is a perception issue between $1,050 and $950," says Hugh Ray, a partner at Andrews Kurth LLP in Houston. "At some point, you look bad if you go too high." Noah McKinnon, an Ormond Beach lawyer, said guidelines issued by The Florida Bar and the American Bar Association govern attorneys' fees. "Most attorneys' fees are established as a result of a number of criteria," McKinnon said. They include such things as how long the lawyer has been in practice, his field of expertise, the venue of the legal action and the ability of a client to pay. "Larger firms generally tend to charge higher fees because their overhead is higher," McKinnon said. "Park Avenue in New York is much more expensive than New York Avenue in DeLand." At Butch Paul's firm in DeLand, fees can vary depending on which lawyers are working on a case, he said. "In a firm like ours, we may have more than one attorney working on a case," Paul said. "We may have an associate doing some of the work and a partner doing some" at a lower rate. Business Writer Joe Crews contributed to this Wall Street Journal report Simpson
Thacher, First to Hike First-Year Pay to $160,000, By the Staff of Legal Times Simpson also made headlines earlier this year by raising first-year associate salaries to $160,000, endearing itself to partners across Washington. Benjamin Civiletti, a former U.S. attorney general under President Jimmy Carter and a senior partner at Venable, is thought to be the District’s only $1,000-per-hour man. If that’s not the case, please send Keeping Score your time sheets, and we’ll get word out on the District’s grand inquisitors.
Quitting in Droves By Katheryn Hayes Tucker "We see a ton of lawyers who would have a strong interest in the right in-house opportunity," said Melba Hughes, founder and owner of Hughes Consultants, an Atlanta-based executive search firm that specializes in legal jobs. "With the increased billable hours and bill rates, and demand for client development, law firm lawyers are continuing to consider their options," she said. "They see a very different picture when they look at in-house counsel." Firm lawyers often want to let go of living life in six-minute intervals. "The number one thing you hear from lawyers is they're tired of billing their time," Hughes said. Since corporations tend to pay less than law firms, attorneys appear to want something more than money -- being part of a team, association with a product or service, better hours or more flexibility -- and maybe stock to boot if it's a public company. A big part of the in-house allure is identifying with one organization, as opposed to working for multiple clients. "The opportunity to help business people meet their objectives is attractive," said Hughes. "It's the psychological value of getting in on the deal at the front end as opposed to after the decision has been made." The law firm culture does not necessarily fit everyone. "I think there's a perception that the culture in corporations is different than the culture in a law firm," said Hughes. "The business of a law firm is to practice law, as opposed to the business of a corporation, which is to produce something. That difference changes the culture." Of course, in-house jobs come with plenty of unique pressures of their own -- particularly with the increased reporting and compliance requirements in the era of the Sarbanes-Oxley Act. Certainly, some corporate counsel would say, "If only I knew then what I know now, I wouldn't have made the move," said Frederick J. Krebs, president of the Washington-based Association of Corporate Counsel. But, he said, "Even if you hear, 'I'm getting out, the world has changed,' you still have plenty wanting to get in." Obviously, some in-house positions are more desirable than others, said Krebs. But he hears from recruiters and GCs that they see a high number of applicants for any open position. "I'm constantly having people ask me about it, saying, 'If you hear anything, let me know,' and giving me their résumé," he added. Kent B. Alexander, senior vice president and general counsel for Emory University and Emory Healthcare, offers a case in point. He said he had an opening this year for one position in the department -- and received 136 applications. From those, he was able to select 20 highly qualified candidates to interview. "There's an exodus of people from law firms going in house," Alexander said. "It's not money. It's quality of work and life." To be sure, Emory might not be typical. "That doesn't surprise me," said Krebs of the ACC. "I think the numbers are a little juiced because it's Emory and a university atmosphere." But, Krebs added, "I still hear similar stories from corporations that are hunting, posting ads, going onto our job lines. There are plenty of applicants out there. In-house positions are perceived as being very desirable." Finding a general counsel is a different search than finding other lawyers for a corporate legal department, Krebs said. "It's a smaller pool" of qualified applicants. Corporate legal jobs that do not have the GC responsibility might have the attraction of less pressure. But then there's a down side. "The career track is not the same as law firms," said Alexander, who came from King & Spalding by way of the U.S. Attorney's Office. "The problem for the assistant GC is, where do you go from here?" Pros and cons considered, the lawyers who make the move in house often report a high degree of satisfaction. They talk about a new sense of pride in their company's product or service -- or mission, if it's a nonprofit organization. And they note they generally have more manageable hours and the freedom to go home to their families in the evening -- particularly in the age of the BlackBerry. They can be available when needed without being in the office all the time. Kristine Berry Morain, now general counsel of Boys & Girls Clubs of America, said she feels good about helping children. When asked why she left a partnership in a law firm to take a job as the sole attorney in a corporate legal department, she thinks back to the birth of her son, now 7. "I was nine months pregnant, and I was in the middle of trying a case," she says. "I had the baby in the middle of the case." She had to rush from courtroom to hospital room to deliver. A few months later, she was trying another case before the same judge. The judge looked at her with recognition and asked -- to the bewilderment of all the other lawyers on the new case -- "Ms. Morain, are you going to have a baby today?" "No, your honor. Not today," was the answer. A few years later -- after the birth of her daughter -- the hours and the travel became even more difficult. That's when she began to consider in-house jobs. "I thought, 'I can't keep traveling like this.'" Certainly the financial rewards are not as great at they would be as a partner in a law firm -- particularly at a nonprofit. "They couldn't be. It wouldn't be fiscally responsible," she said. But the other rewards more than make up the difference in her book: better hours, less travel, more family-oriented culture. Plus, there's the feeling of being part of a team rather than moving from one client to another. The Boys and Girls Clubs of America is virtually, by definition, a very family-oriented organization, Morain said, noting, "It's never come up in a review that I've spent too much time at my kid's school." Intangible benefits such as more manageable hours and quality of life are among the typical reasons why people leave law firms for in-house jobs, said George Q. Sewell, executive vice president, general counsel and corporate secretary for The Facility Group Inc. and president of the Association of Corporate Counsel Georgia chapter. "Average salaries are always going to be lower in house," Sewell said. "But there are other ways to attract and keep qualified people." Firm Boosts Associate Pay, Raises Bar on Billable Hours By Miriam Rozen GCs' New Gold Watch By Katheryn Hayes Tucker George Q. Sewell, executive vice president, general counsel and corporate secretary for The Facility Group Inc. and Georgia chapter president for the Association of Corporate Counsel, said he has noticed three strong reactions from his colleagues: “Amazement at the salaries; skepticism about whether or not the associates will have the expertise to justify those salaries; and a determination not to let the law firms train the associates at the clients’ expense.” That determination is being applied to a variety of strategies for managing costs. GCs are “negotiating flat rates and demanding cuts,” said Sewell. “There are dozens of ways people attack fees.” No GC is saying firms are raising rates to pay for associates pay hikes. Still, they’ve all taken note of reports that Atlanta’s biggest firms have raised first-year associates’ pay 30 percent since the beginning of 2006 to about $130,000. An obvious tactic is to take more work in-house. That’s what Kent B. Alexander, a former U.S. attorney and once King & Spalding partner, did when he took the GC position at Emory University in January 2000. He cut the outside counsel budget in half and relied more on Emory’s 13 attorneys, two paralegals and six administrative assistants. “We have very good attorneys, and they enjoyed handling the work themselves,” he explained. With nine schools, a major medical center, 20,000 employees and a $2.5 billion annual budget, Emory still requires the services of about 20 outside firms. “We work so closely with outside counsel and depend on their good judgment,” Alexander said. “But we have a fiduciary responsibility to make sure we’re getting a good value.” Emory negotiates rates and uses alternatives whenever possible. “More and more, we’re shopping around,” Alexander said. “We like to keep a friendly competition.” He said he offered a New York firm a share of future proceeds from the sale of the anti-AIDS drug Emtriva in exchange for discounted fees. The firm said no and took the flat rate. “We wound up selling the rights for $540 million,” Alexander said. “They would have come out a lot better if they’d taken the equity position. I imagine next time we make that offer, it will be better received.” Pay for new associates is less of a concern for a GC who only deals with senior partners. Relationships and expertise are more important. “The number-one thing that helps us manage our outside counsel costs is longstanding relationships,” said James H. Miller III, senior vice president and general counsel for Georgia Power, the largest operating unit of Southern Co. “Our principal law firm, Troutman Sanders, has been our law firm for a long time. They know as much or more about our company as some of our own executives do because they’ve been there longer. In a sense, they are our institutional memory.” When Georgia Power calls Troutman Sanders, first-year associate pay is rather beside the point. Some of the partners who work with Georgia Power have been involved in the company’s business for 25 or 30 years. “That brings enormous efficiencies,” said Miller, who was named Georgia Power’s first general counsel in 2004. The energy company’s legal department has only nine lawyers, including Miller. He is quick to point out the company’s areas of expertise. “I take a lot of pride telling people that the best land lawyers, the best easement and right-of-way lawyers in the state are at Georgia Power. That’s where we also get great economies,” he said. Georgia Power has an annual budget for outside counsel of about $15 million. “Our principal business model is to rely on outside law firms and manage them efficiently,” Miller said. “But the key to our philosophy is we get lawyers at Troutman Sanders who see their careers and their success in the same terms that Georgia Power Co. sees its success. The philosophy is very much aligned and in tune.” The energy company uses the services of other law firms for special expertise such as federal regulatory issues. “For example, to get lawyers intimately familiar with the details of the Atomic Energy Act, you almost have to find them in Washington,” Miller said. “We volume buy when we can. Naturally, we volume buy with our long-time partners. We keep up with rates, and we do pretty well.” Here’s the life story of a long-term partner, according to Miller. “They start representing Georgia Power. They wake up 30 years later, and they’ve raised their children, educated their families and paid their mortgages by representing Georgia Power. Their success is in tune with ours.” Not every company has Georgia Power’s legal purchasing clout. But other GCs have learned to leverage their own assets. “We’re never going to be the biggest fish in anybody’s pond,” said Kristine Berry Morain, general counsel for Atlanta-based Boys & Clubs of America. “But we’re very prestigious. Law firms all recognize that.” Morain said managing outside counsel costs is a crucial part of her job, particular as a non-profit GC. She said she relies on good communication at the start and throughout a case and making sure the same partners stay with it. “The key is no turnover on the case,” she said. She also reviews bills carefully. “I’ve gone back to them and said, ‘I’ve worked at a law firm and I don’t think it takes that many hours to do this,’” she said. “I’ll say, ‘We’re a non-profit. Come on.’” Some GCs favor using less time from more expensive partners rather than more time from young associates. “I’d rather pay for a half hour of wisdom from a partner who will just give you the answer rather than a first-year associate who will spend 10 hours on the Internet doing research and then write a lengthy memo,” said Emory’s Alexander. “I’m more in the mode of the short, authoritative answer.” But, he added, in some situations, the new associates could still be a good value. “When the partner doesn’t know the answer, and you need document reviews,” he said, “sometimes a smart young associate can find the case you need.” Some question whether those associates can be smart enough to justify their cost. “You can’t learn to be a lawyer from law school. You learn to be a lawyer from working with other lawyers,” said Kristen K. McGuffey, executive vice president and general counsel for Simmons Bedding Co. “All of a sudden, first-years are getting paid about the same as mid-level in-house lawyers. My budget hasn’t increased. I don’t use first-years a lot. It’s a better value to use partners who take a lot less time to do the work.” The Simmons GC also relies on an experienced former firm partner who works solo out of her home and charges lower rates. “We’re very careful with our money,” McGuffey said. “I’m looking for an alternative way to get the work done with less cost.” Donald E. Smart, vice president, general counsel and corporate secretary for Atlanta Life Financial Group, also cut his outside counsel costs in half when he took over his job and—for the work he continued to send out—chose an experienced partner. “I’ve watched the numbers. I’ve watched the me, too, piggy-back reaction in Atlanta and New York and Washington,” said Smart. “Interestingly, one net effect is that clients are being compelled to pay it forward longer and at a higher rate to keep training these people until they can actually justify their time and costs. Clients are being asked to make bigger financial commitments. The law firms themselves become increasingly money machines as opposed to partnerships. The enormous pressure to sustain billable hours is ratcheted up higher than it has ever been.” Consequently, Smart noted, the deal may not be as good as it looks for the well-paid first-year associates. “The ability to buy a BMW right out of the box is blunted by the fact that you will never get to drive it because you are in that office all the time,” Smart said. “Law firms are moving more to a business paradigm and away from a partnership, professional endeavor.” Firm pay raises may ultimately give GCs leverage to increase in-house budgets. “All in-house lawyers will tell you they need to add more lawyers,” said Sewell, the ACC Georgia president. “The higher rates go, the easier it will be.” About that
Huge Salary: It's a Longshot
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Despite
news of record-breaking employment figures for law school graduates
and first-year salaries of $160,000 at many top law firms, a
significant contingent of job seekers — including those with strong
credentials — are living a much different story after graduation.
they are bestowing year-end
bonuses that rival starting pay for many entry-level professional
positions. 