A Hot Practice Area for the Economic Downturn

On a meeting with our BCG Attorney Search recruiters earlier this week we discussed the candidates who were getting the most interviews. Without a doubt the “hot” market right now is for associates is labor and employment. I also had dinner earlier this week with the recruiting director of a large national law firm here in Atlanta. He said that labor and employment is so out of control in terms of its business it is incredible.

The great thing about the legal market is that the work moves around. When one practice area is experiencing issues another starts to get better. This is what is happening with labor and employment.

When people get laid off some file lawsuits against their employer. This is making labor and employment firms busier and busier. In addition, when companies andlaw firms prepare for large scale layoffs they hire labor and employment attorneys to assess the situation. Given the dire predictions for the 2009 calendar year and the increasing layoff in the market, I think this is going to be a great year for labor and employment attorneys.

What does this mean for you?

If you are in general commercial litigation do your best to get some labor and employment cases under your belt asap–this will make you more marketable. If you are a law student you should press for jobs in this field.

Labor and employment is going gangbusters. This is great news for labor and employment attorneys because you are now very, very marketable.

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Analysis of Law Firm Failures - Early Warning Signs

There has been a great amount of discussion lately about the implosions of Heller and Thelen, and the effect that the economy had on these firm failures. As many firms are courting lateral partners (it’s a brisk lateral partner market!), these partners are analyzing the stability of potential firms.

A new study from Hildebrandt International should provide an interesting base for such an analysis. In a recently-released white paper entitled The Anatomy of Law Firm Failures, Hildebrandt discusses a study of firm failures between 1998 and 2004. Hildebrandt concludes that “failed firms typically exhibit one or more major fundamental flaws, and the flaws usually fall into three primary categories:

Below average financial performance - often including excessive financial leverage, significant deferred obligations, low productivity, and poor realization;
Internal dynamics - primarily involving leadership issues, partners with incompatible goals, differences over compensation philosophy, and lack of succession planning; and
External dynamics - primarily involving competitive pressures related to the firm’s historical client base, access to new clients and desirable work, and inability to recruit key talent.”

Hildebrandt states that certain triggering events brought these flaws to light.

“Four types of triggering events were the most common: (i) overexpansion that weakened the firm over an extended period of time, (ii) the unexpected rapid or gradual defection of significant partners to one or more other firms, (iii) a breakdown in merger efforts for a firm that was already in serious financial distress and barely surviving, or (iv) the impending expiration/renewal of the firm’s primary office lease.”

Lateral partners, especially those contemplating their first lateral move, should consider these fundamental flaws and triggering events when formulating their diligence questions for a potential suitor!

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Separating the Message from the Messenger

When times are good, law firms are less inclined to use performance reviews to terminate associates; but that was then and this is now. At BCG offices across the country, we are receiving a growing number of phone calls from associates who have been let go for performance reasons.

In prior economic downturns, I have witnessed the devastating effect that these terminations can have on a lawyer. Whether someone is a partner or an associate, being told that you don’t have what it takesto succeed at a firm is a terrible blow to the ego.

In some instances, these terminations are truly unfair and may be serving as a smoke screen for law firms who do not want to send the message that they have hit hard financial times. But in most cases, there is something to be learned from the dismissal.

The takeaway, if you are in this unfortunate position, is to listen carefully to the review. There may be something you can learn that will be helpful to you in your next position. It is hard to listen objectively when you believe you are being treated unfairly. But there may be some truths that can help you be more successful in your next job.

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Creative Ways to Increase Employee Departures

As we deal with a challenging economy, both law firms and companies are
not experiencing the expected annual departures from their ranks. Each
year, a law firm can count on a percentage of associates heading to
greener pastures. But, as there have been fewer opportunities for
associates this year, many have chosen to hunker down and ride out the economic storm at
their current firm. Unfortunately, that doesn’t really mesh well with
law firms’ business models. Imagine if no one left your firm and the
firm continued to bring in sizable summer classes? That would be a lot
of people on line in the lawyers’ dining room (a nod to my old firm and
its lovely cafeteria.)

The obvious way of forcing attrition is
layoffs. Many firms have utilized this method lately. But other law
firms and companies have become much more creative. For example:

1. Announce to your company’s employees that, at
some indefinite time in the next year, 53,000 of them will be without a
job. Citigroup announced this plan on November 17th, and a flood of
resumes hit the street.

2. Announce to your firm’s non-equity
partners that they must contribute a sum of money (rumored to be
$150,000) to the firm and become equity partners who generate business. DLA Piper announced this yesterday to a decidedly mixed response.

3. Announce to your firm’s associates that, not only are their bonuses for 2008 lower than they would like, but that they should not expect bonuses
for 2009. Cravath announced this tonight, and we’ll expect to see
resumes trickling out of Cravath in the next few months as management
no doubt hopes.

All of these are creative ways to cut headcount. I expect that we will see more creativity in the upcoming months!

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Bonuses Going Down at Skadden

Bob Sheehan, the executive partner of Skadden, sent an email to every associate and partner in the firm today discussing his plans to pay bonuses similar to 1997 levels without the addition of a special bonus:

“We will pay the year-end discretionary bonus at the same levels by class seniority which associates received in 2007 and 2006. However, we do not think it is appropriate to repeat the “special” supplemental bonus that was instituted last year. That bonus reflected a strong and growing economy that contributed to a record level of profitability.”

I have a feeling we are going to be seeing a lot more of this as other firms follow suit. Things are getting very scary in the legal market for many attorneys and the level of people being asked to leave firms for economic reasons is the highest I have ever seen. I am surprised many firms are paying bonuses at all.

I know of a small firm that several years ago wanted to pay Christmas bonuses but had no money. They decided to fire an associate they did not like and then paid every associate in the firm a $2000 bonus representing the fired attorney’s annual salary divided by the number of lawyers in the firm. Let’s hope this does not happen at many firms this Christmas!

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Vetting Partner Candidates

The Wall Street Journal posted an article this week about the increased strictness with which corporations are vetting their new hires. While focusing on corporate environments, in particular, the messages set forth in this article are of particular importance in the law firm sector as law firms move away from their traditional “law firm business models” and toward a more “corporate business model.”
Simply put, we are seeing more and more firms adopting a strictly business, bottom-line approach to things. This includes hiring.

To that end, the message we are seeing is that a candidate’s materials (particularly candidates at the executive or partner level) are being looked at much more closely. There is no leeway in resumes for inaccuracies, inadvertent omissions, vagueness, or mistakes. Likewise, in business plans, there is no leeway for promises in lieuof proof of actual business and potential future business.

This is incredibly important for partner candidates who may rely, to their detriment, on old business plans or non-updated resumes during their job search. As firms direct a more focused eye on partner candidates’ materials to set candidates apart, it goes without saying that the most important weapon a partner can have in his or her arsenal right now is a stellar resume and business plan. Any partner that is aware of this fact and takes a few extra days before beginning their search to get their resume, deal sheet and business plan in top form will rise above the pack. For some this is par for the course, for others it’s not, and it warrants repeating.

The National Law Journal seconded The Wall Street Journal article referenced above with some careful words of their own on November 17th. The short message to a long story: The lateral vetting process has become tougher in the down economy as firms want to ensure that they are picking up attorneys at the top of the scale.

Be aware of this fact and respond accordingly. The rules of the game are changing at every level. It’s important to understand the nature of the field you are playing on in 2008 and going into 2009.

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Income Partners to Get a Piece of the Pie?

The National Law Journal reports today that DLA Piper may be asking non-equity partners to make a capital contribution to the firm. In return says Frank Burch, DLA Joint Chief Executive Officer, they will get a limited stake in the firm’s profits.

Traditionally, non-equity partners are paid a salary and don’t get to share in the profits. This move, which is yet another sign that things are changing quickly in the legal profession, is an effort to reduce the firm’s reliance on bank financing. Keeping debt low through larger capital contributions is nothing new. There are a number of AmLaw firms that already manage themselves with this philosophy. What is new here is trying to spread the burden to a lower tier of partner. While DLA says the move is preemptive (i.e. they still enjoy relatively favorable interest terms in the credit markets) I suspect other firms will follow if credit remains tight for the next year.

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Math for Lateral Partners

The lateral partner market is a flurry of activity right now. We are currently working with a number of lateral partner candidates. The most frequent concern among partners conducting a search? How to value their book of business in strange economic times. My colleague, Dan Binstock, just wrote a fabulous article on this very issue. In We Were Told You’d Bring Billables, Dan addresses the most effective way to value your book so that you are representing yourself in an honest, accurate and marketable way.

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Thank you Hewlett Packard

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The State of the Economy

The ABA is surveying the legal community about the state of the legal profession and the state of hiring. They have asked us to help publicize the survey. Results will appear in the January issue of the ABA Journal. Click here to participate.

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