Blawg Review #235

On this 80th Anniversary of the Stock Market Crash of 1929, I am pleased to host Blawg Review and dedicate Blawg Review #235 to The Great Recession.

How has our current crisis changed the practice of law and affected our careers as attorneys? Fortunately for me, there was no shortage of reading material on the subject this past week.

The news from large law firms continues to be mostly bad; though there was at least one flicker of hope reported on Above the Law this week. So do any lawyers have job security in this economy? Maybe only lawyers who have their own business.

Lawyers who don't want to build a practice may look to government as an alternative employer. But those hoping to get a position in the White House Counsel's office may have to wait a while longer.

What if you like private practice and your firm isn't giving you the support you need to successfully find clients? Maybe the time is ripe to hire a coach. Or if you decide that launching your own firm is the way to go (or your only option), the Wisconsin Law Journal highlights 10 Terrific Law Practice Management Blogs that teach you what you never learned in law school.

If you do launch your own practice, perhaps a reality TV show can help to market the firm. But then again, prior attempts at this have failed.

There are classic mistakes to avoid in trying to sell your legal services. There are also a lot of obstacles that can get in your way of success when you are building a practice (particularly for associates at large firms.)

Small Firm Advantages

Smaller firms can benefit from current conditions in the marketplace for legal services. IMHO, large law firms are simply accelerating their own demise by creating an army of cheaper competition with all the layoffs that have taken place.

To the extent that large firms can continue to be competitive in these difficult times, they need to find ways to deliver value. Don Frederico, a large firm veteran and President-Elect of the Boston Bar Association, suggests that the message of the Great Recession is not simply that lawyers need to get out there more (e.g. with social media). He suggests that lawyers ask themselves the following questions:

1. Am I providing maximum value to my clients?
2. Am I prepared to share in the risks of bad outcomes (and will my clients share in the rewards of success)?
3. How do my clients define "success" in the matters for which they engage me?
4. Do I understand my clients' business?
5. How can I enhance the level of service I provide to my clients?
6. Am I doing enough to hone my skills and stay current in my field?
7. Am I, or is my firm, meeting my clients' expectations in the areas of diversity, community service and pro bono? Am I demanding these commitments of myself, regardless of my clients' expectations, simply because they are the right things to do?
8. Are my marketing efforts only trumpeting my abilities and experience, or are they also providing valuable information to my clients and contacts?

If you are Still Gainfully Employed, Don't Go it Alone

If you do manage to be one of the lucky ones who gets to keep your job, don’t make the mistake of going it alone. Ask for help when you need it. No one will doubt your competence if you do. In fact as Bruce MacEwen suggests, even leaders at law firms should be seeking help from their key advisers.

Social Media is a Good Area to Seek Out Help

The rules of social media use are still being developed but one thing is clear: social media will pay an increasing role in marketing professional services as we exit the Great Recession.

What if you are not that familiar with social media or how to use it effectively? Learn. Find someone to help you. The desire to keep learning and growing is what separates a star lawyer from a superstar.

Should bosses be friending their subordinates? An emphatic no from some employment lawyers. But what happens in law firms when associates are friends and one becomes a partner? (Not a big risk in these economic times where the chances of making partner at a large law firm are not much greater than the chance of being struck by lightning twice.)

Speaking of social media policies, how should a law firm police the behavior of employees who may be wasting time on social media. Blocking doesn’t seem quite right because there are legitimate business uses of social media.

If you are looking to develop a social media policy for a company or for your law firm,
the Association of Corporate Counsel has a great paper on the subject-Social Networking for Companies: Leading Practices in Leveraging Social Media for Business, Creating Social Networking Policies and Using Social Media in Hiring (though I believe you need to be a member of the Martindale Hubbell Connected Social Media Policy Group in order to view this)

If you have any doubt about the importance of participating in the use of social media, watch the Youtube video shared by Jim Calloway (via Gerry Riskin).

Susan Cartier Liebel makes a compelling case that use of social media is not optional for lawyers.

[A]ll things being equal, people will do business with those they know like and trust. And as much as those would like to dismiss the power of followers and online referrals and connecting on Facebook they do so at their own peril.

But at least one PI lawyer thinks that using Twitter raises the specter that clients will see that you are doing non-business things during work hours (i.e. clients will question your commitment to their case or to the practice of law more generally.)

Are Law Schools Responding to the Changed Marketplace?

What about law schools? Are schools modifying their course offerings to address changes in the job market? Stephanie West Allen suggests that there is a growing interest in courses dealing with behavioral economics and social psychology at top law schools. She links to some of her prior posts where she cites her concerns that these fields can lead the legal system in the wrong direction (pushing us away from taking personal responsibility for our bad acts).

Certainly many of us would like to figure out why no one is taking personal responsibility for the crazy financial engineering and risky financial products that lead us into the Great Recession. But then again, behavioral economics teach us that government can influence our behavior in a positive way by directing our default choices.

More generally, are law schools modifying their course offerings to address changes in the job market? Shouldn’t curriculum be modified based on what is needed in the marketplace? Yes says one commentator and no says another.

How Should Law Firms be Reacting to the Great Recession?

Law firms should take note of:

[T]he rise of merit compensation, multisourcing, non-lawyer stakeholders and the demands made on leadership generally and practice group management specifically; the decline of mergers, hourly billings, big real estate holdings, compensation generally, and fixed levels of staffing.

In other words, transition is the keyword. Your competitors are leaving no stone unturned in their search for an edge in a difficult market--neither should you.

There is evidence to support some of these trends. Take for example research on alternative billing.

In terms of compensation, firms need to focus on the short term to prevent the flight of valued partners. Reducing associate compensation should also be a part of the equation. But should lockstep really go?

Cost Control is Driving In-House Decision Making in the Great Recession

According to a study done by the consulting firm Hildebrandt, “…more work is being brought in-house, alternative fee arrangements are in high demand and spending is shrinking. The rate of increase for inside and outside legal spend and compensation slowed in 2008.”

This past week at the Annual Meeting of the Association of Corporate Counsel, the ACC released a study showing that for the first time in three years, controlling the costs spent on outside counsel is a top priority for in-house legal chiefs (compliance is now second). Also noted in the study is that the “use of alternative fee structures rose to 61 percent of in-house counsel and fixed fees about 38 percent. Project retainers (15.4 percent) and contingency fees (10.5 percent)”.

Meanwhile at the ALI-ABA ACLEA 2009 Summit, panelists predicted a number of important trends on the way: law firms will start acting like clients and will demand law schools teach more of what law firms need; Altman Weil’s Ward Bower predicted “deferral of law school graduates is a losing proposition for the graduates and the firms. The industry is more likely to see reduced starting salaries combined with apprentice programs moving forward. While firms will still have to write off time in that model, it will be a more affordable investment than paying the higher salaries”. He also said that “globalization of clients will continue to force even small firms to deal with matters abroad or represent foreign clients in the United States. Large and quick law firms will have the competitive advantage, he said, but smaller firms can compete with the use of technology”.

Also, U.K.'s Legal Services Act of 2007, which when it takes effect will allow law firms to raise capital like a public company will impact even U.S. law firms (particularly as we come out of the recession and firms have money to spend.)

Can Outsourcing to India be Part of the Cost Control?

If you want to leverage your time with resources from India, how do you know that the vendor you choose is keeping your data secure? Matthew Sullivan has some answers.

And get beyond the headlines when you see articles discussing the potential problems with outsourcing. Law.com’s use of the headline “Legal Pitfalls of Outsourcing May Outweigh Benefits, Says New Survey" doesn’t tell the story contained in a recent study by Kroll, Inc. on corporate fraud. LegalEase Solutions writes “The survey never intimates that the risks outweigh rewards. The survey simply says do your due diligence. Just like you would do in any other business capacity.”

Where Did it All Start?

There are numerous pundits ready to weigh in on the causes off the current economic downturn. Was it sub-prime lending? Credit default swaps? Or simply the fact that borrowing money was cheap and easy?

Will better regulation of the financial markets prevent this in the future since trying to educate consumers doesn't work in a complex economy?

“[The]..classical ideal of face-to-face, issue-by-issue negotiations that underlies contract law is simply inapt for the modern economy. Acting as if we can simply give people better educations and then send them out on their own in a world of basic contract law ignores the change that mass consumerism wrought on the notion of contracting. … Pushing the education angle inadvertently pushes us back in the direction of this outmoded way of thinking about contracting.”

The Dark Side of the Great Recession

Thankfully we don’t read about lawyer suicides every day; but the story of Mark Levy, an associate who was let go from Kilpatrick Stockton, is particularly chilling.

And are law firms suing their clients with increasing frequency during these hard times? It is hard to see how much good can come from this though $2,000,000 will buy a lot of legal pads for your office.

Where is it All Heading?

Change is coming to a law firm near you. If things haven't changed already, they will. The marketplace for legal services is fundamentally different then it was two years ago. So how will we all survive the Great Recession? As the Rabbi at my temple said in September on the Jewish New Year: Gam Zeh Y'avor (this too shall pass).


Blawg Review has information about next week's host, and instructions how to get your blawg posts reviewed in upcoming issues. Next week’s host is the New York Personal Injury Law Blog.

Is Biglaw Creating an Army of Competition?

I was reading the latest layoff announcement (this time Foley and Lardner) and a thought suddenly occurred to me. Given the enormous downward pressure on legal fees and the predictions that corporate counsel will reduce outside legal spending in 2010, maybe these layoffs are only going to accelerate the decline of Biglaw. After all, a high percentage of lawyers leaving large firms will end up at smaller firms where they have lower billing rates.

Pushing more legal talent out the door will increase the supply of talented lawyers who are willing to work for considerably less than their old billing rates.

So in essence, Biglaw is creating an army of hungry lawyers who will be pitching themselves as a much cheaper alternative (i.e. Biglaw training at small law prices). The sell will be more effective for former partners, counsel and senior associates; but there are plenty of those who have been shown the door so watch out Biglaw!

Free Webinar on Legal Process Outsourcing

I've written in the past about the importance of learning about legal process outsourcing. Lawyers need to understand the changing dynamics of delivering legal services in a world economy.

I just learned about a free webinar on the the subject. For more info, click here.

On the Commoditization of Legal Services

A great overview of the subject.

Large Firms Beginning to See Value in LPO?

When legal work began to be outsourced to India, it was presumed that corporate counsel would be the most willing to employ the strategy to control legal expenses. Small firms were presumed to also be interested because LPO provides a ready and scalable workforce that is not on the regular payroll (i.e. small firms would be interested because it gives them a way to staff up temporarily for larger matters).

But one LPO asserts that large firms are beginning to use LPO as a way to pitch business to corporate counsel. By offering corporate clients high quality services at better rates, a few large firms now see LPO as a way to differentiate themselves from the competition.

A Hint About My Next Moves

My most recent article in MLW gives a preview of what I will be doing next. More to follow.

Great Days Ahead for SmallLaw?

Sometimes you're the windshield
Sometimes you're the bug

...Dire Straits

What a difference five years can make in the legal profession. Beginning in the 1990's, many pundits were predicting the demise of mid-sized law firms (too small to really serve international clients, yet too big to maintain the efficient and cost effective delivery of legal services).

Then large firms continued to raise their rates every year and associate salaries grew dramatically. And now that many businesses are cash strapped and looking for ways to reduce costs, Biglaw is not sitting so pretty. Corporate counsel are rejecting ever increasing billing rates and looking for ways to control legal spending.

Partners who do not need an international footprint to serve their clients are beginning to understand this as well. So we are now seeing a small (but noticeable) reverse migration from Biglaw to SmallLaw. While this doesn't mean the death of BigLaw, it does mean that the legal profession will continue to be in a state of flux in the next few years. In some cases, BigLaw will continue to be the "windshield". But make not mistake about it, SmallLaw should no longer be seen as the "bug".

Off the Beaten Track at a Trade Show

LegalTech New York is history. As I have already indicated, the show was a nice antidote to our economic malaise. It was a reminder for me that getting out of the office to learn something new is a good way to recharge. It was also fun to talk with professionals who are trying to figure out ways that legal services can be delivered faster, better and cheaper.

I'm still following up with the contacts I made and I am still processing the mountain of information that was presented to me. I am also trying to meet my commitment to blog about some of the sessions I attended. So here goes:

Most of the conference seemed to focus on using technology to manage large amounts of corporate data and to streamline discovery. I attended one session on data privacy issues that was eye opening (many EU countries are much stricter about keeping personal data secure). There was also a lot of buzz about the social networking site Twitter. In addition, I attended a number of very good sessions on how lawyers and law firms can use social networking more effectively (i.e. use tools like blogging, Twitter, Facebook, LinkedIn, etc. more effectively.)

But the best session I attended at the conference was a workshop on Legal Process Outsourcing (LPO) sponsored by the ClutchGroup. The panel featured two representatives from the ClutchGroup, two law firm attorneys who have used outside vendors to manage large document projects, corporate counsel from a large public company and a former GC who has a lot of experience in reigning in legal expenses.

For the most part, LPO was really a peripheral topic at the conference. LPO relies heavily on technology and there will continue to be technological developments that improve the effectiveness of LPO. But LPO itself is not technology.

Nonetheless, I'm glad I stumbled on the session because in many ways, LPO itself offers a more radical departure from the traditional practice of law than many of the solutions offered by technology vendors who were at the show.

My take away from this panel was that LPO is not going to replace domestic lawyering any time soon; rather it simply provides lawyers with a way to further leverage their time with a large supply of cheap well educated labor. But in order for it to work well, it is critical that LPO vendors provide outstanding project managers to serve as the link between the lawyers in the U.S. and the lawyers in India.

It was also interesting to hear what Lynee Gore of the ClutchGroup had to say about LPO jobs in India. According to Gore, because only a small percentage of Indian law school graduates have the opportunity to work in a private law firm, LPO jobs are considered very desirable. This is in sharp contrast to the way many American law school graduates feel about doing work as a contract lawyer.

Terror in Mumbai

It is ironic that that just as I was blogging about the coming wave of legal process outsourcing in India, Mumbai was hit with a horrible wave of terror. These attacks are a painful reminder that wherever opportunity exists, it is accompanied by risk.

Of course in business, we usually think about more mundane risks (will the marketplace buy my service, will I be able to finance my expansion, etc.) The threat of terrorism is not usually high on the list of things to factor in when considering doing business with India. Will that now change?

Undoubtedly, business in India has been disrupted by the events of last week. But I deliberately waited a few days before commenting on the attacks because I wanted to see how the ordeal would unfold. While I'm sure that all over India, there is a heightened sense of vulnerability that did not exist prior to November 26th, I'm confident that LPO will continue to grow and thrive. Maybe companies will be revisiting issues like data security and the physical security of employees; but November 26th does not fundamentally alter the strong economic forces that are fueling this trend.

A Passage to India

If the frequency of media reports is any indication, then outsourcing legal work to India is starting to reach a tipping point. The latest article appeared in today's Wall Street Journal. Last week, I did a post on the growth of patent outsourcing.

The ABA just addressed the issue this past summer with an ethics opinion that seems to open the door for an increase in work being sent to India (and other less expensive jurisdictions). And clearly the market conditions are ripe for cutting legal expenses at corporations.

I must confess that when I first learned about this idea several years ago, I found it somewhat upsetting to think that good white collar jobs were no longer safe from the fate that has befallen manufacturing jobs in this country. As I have gotten used to the concept and now realize that it is simply another manifestation of globalization, I am starting to see how the trend may actually be a big help to smaller law firms that want to keep a low overhead but still have an ability to handle document intensive work. While it is quaint to think that the law is a profession that is immune from global forces, that is unrealistic. Firms that understand this and learn how to take advantage of the opportunities presented by outsourcing, will only thrive.

Patent Services Outsourcing to India Hits $46 Million

This is only the latest in a long series of articles that I have seen in the NLJ over the past several years. Clearly this presents a threat to U.S. law firms and patent lawyers. But it also represents a tremendous opportunity.

The Rich Get Richer

Biglaw profits continue to outpace the rest of the legal profession. That's my take on the just released AmLaw100.

Legal and Accounting Malpractice--Growth Areas?

According to the NLJ, lawyers and accountants are increasingly being sued by bankruptcy trustees for malpractice (in connection with misrepresenting a bankrupt company's true financial position.) In Boston, we are still waiting for a wave of bankruptcy and litigation to replace the heavy deal flow that was fueling law firm profits for the past several years. It hasn't happened yet, though bankruptcy practice is on the rise in New York. Could this signal a new wave of litigation?

What's Up For 2008?

Consulting firm Hildebrandt International has teamed up with Citi Private Bank to provide interesting predictions about the legal profession in 2008. You can download the report for free by clicking here. Basically, the message is that the legal profession continues to be very profitable; but 2008 may be a slower year of growth.

The authors compare 2008 to 2001 and note some differences. While corporate transactional work slowed in 2001, that slowdown was offset by a modest increase in litigation and bankruptcy along with regulatory work generated by Sarbanes-Oxley. But litigation and bankruptcy have remained slow practice areas in 2007 and are likely to be slow in 2008.

They observe that firms have thinned the ranks of equity partners, largely by increasing the numbers of income partners. The authors argue that firms might be better off in the long run by trimming the income partner ranks as things slow down (i.e. avoid resorting to deequitisation.) They recommend that firms move away from lock step compensation systems, increase geographic diversity and continue to control costs. It's a good read and not too depressing. Hopefully their predictions will come true!

Make Sure to Read Past the Headlines

Thirty years ago, long before the internet had arrived, I remember seeing a tip sheet on how to read a newspaper if you are short on time. One of the tips was that you can learn a lot just by skimming the headlines. To this day, I rely on this technique to decide which articles I will actually read. In many ways, the emergence of electronic media and the number of publications I now have at my fingertips has made this essential.

But headlines can be very misleading and one of today's headlines in Law.Com is a good case in point. If you are an observer of the legal marketplace like me, a headline like "Clifford Chance Lays Off Six Structured Finance Associates" is sure to get your attention. But don't be fooled by the headline. The sky is not falling. Large law firms are still busy. Corporate laterals are still in demand. Want to find out more? Read the whole article!

Are Brighter Days Ahead for Litigators?

The American Lawyer is reporting signs of a slow down in corporate work. The sub-prime mortgage crisis is having a direct impact on securitization work and private equity deals are starting to slow down as well. These deals, which are largely the domain of large firms, require armies of associates who at least until this summer, were burning the midnight oil on a regular basis.

At the same time, the SEC is hard at work investigating some of the shadier mortgage lending practices that lead to the spike in foreclosures. Could these mean better times for litigators? Amercian Lawyer seems to think so.

More on the Have's and Have Not's

A few weeks ago, I posted on the great divide in the legal profession. It seems that what is going on in the law is simply a microcosm of the economy at large (where demand for highly skilled service professionals and low wage service workers remains high, but the middle is losing out.)

While it is hard to say what the longterm impact will be on law firms, one thing remains clear: competition for the top talent is only increasing. In turn, partner movement is unlikely to abate any time soon as firms increase salaries to lure away superstars.

Law Firm Politics?? They're GRRRRREAT!

Okay. I know what you are thinking: this guy is nuts and law firm politics really stink. Au contraire!!!!

I firmly believe now, after plenty of my own well-earned battle scars, that avoiding politics is just another way of playing politics--only in a really ineffectual and doomed-to-failure way. There is no getting around "playing the game". The point is to understand how human beings actually interact socially and how to get one's mind around one's own comfortable approach towards engaging.

Anyway, I can't help incorporating just a little philosophy to boot. Brilliant political theorist Hannah Arendt had tons to say on the upside potential of playing politics in a creative, wholesome way. Click here for the full monty.

Have a political day!!!

Swarm Theory

Just read a mind-blowing article from David Bilinsky of Thoughtful Legal Management. He is a fellow new blogger (he just got off the ground last month). Already he has some "buzz."

I say "buzz" because one of his last entries concerns bees (yes, the "buzzing" kind) and the implications such "hive-mind" problem solving may have for humankind.

The idea is that humans can perhaps better breakdown very complex tasks by giving a broader range of individuals a very few (but well-chosen) tasks, and letting a sort of "ground-up" management style lead to great solutions. Sounds weird, but I like it.

Click here to see a fuller exposition on the concept.

In the meantime, keep bzzzy during these last few days of the "dog days of Summer"!!!!

Lawyers On Call?

Deborah Epstein Henry, president and founder of Flextime Lawyers, proposes a model for making job sharing work in the legal field. If doctors can be "on call", she argues, then why can't lawyers? With job sharing, one lawyer might work Monday to Wednesday and the second from Wednesday to Friday. Work that needed to be done on weekends would be negotiated between the two job sharers. Clients would be told that they can call either attorney. Clients would not pay for any time that the attorneys spend updating each other before "signing out"; but team briefings that occur in the ordinary course of a litigation, for example, could be billed to the client.

The demand for these types of working arrangements is clearly already there on the associate side of the table. Law firms just need to catch up to other fields (and corporate law departments.)

Mergers Increase Profitability--But For Whom?

A recent study by consulting firm Altman Weil concludes that large firm merger mania is increasing profits at AmLaw 100/200 firms. At the same time, advancing to partnership has become more difficult at most major firms. If the number of equity partners at large firms is growing more slowly than the overall growth in headcount, then increased profitability may have as much to do with the pie being split amongst fewer partners as it has to do with the "success" of these mergers.

If I were conducting the study, I would take into account any changes in the partnership ranks at merging firms vs. non-merging firms. My understanding is that when firms merge, part of the deal often involves deequitizing some of the less profitable partners. Therefore, if you don't control for this factor, I think it is hard to conclude that merging is for the greater good. It may very well be the case; but this study doesn't prove it.

For Gen X, Time is the New Currency

Penelope Trunk, author of the Brazen Careerist, talks about the importance of "time" vs. "money" for Generation Xers. Baby Boomers were willing to work long hours to achieve financial success. Gen X, according to Trunk (and to many other career gurus,) is much more concerned about having time in their lives for relationships.

Unfortunately, for the most part, large law firms have not yet figured out how to capitalize on this. Whoever does, though, will have access to a huge pool of great talent.

WSJ Reports on Rise of Alternative Billing Arrangements

An article in today's WSJ [subscription required] shows a rise in the use of alternative billing arrangements by large corporations. So I guess I was prescient when I posted on the subject yesterday. The article reports a demonstrated increase in law firms charging either flat fees or value added fees based on the results achieved for the client. While this is not particularly new, apparently there are better software solutions available to manage these billing arrangements. There are also more firms and corporations who have had experience with these arrangements in the last few years.

Bottom line: start thinking more about alternative billing arrangements but don't delete your time and billing system.

Have You Padded Your Bills Today?

WSJ Law blog reports that according to a study by Stanford Law School, more than 50% of lawyers surveyed reported padding their bills. This may include charging for unnecessary work or recording more time than was actually devoted to a task.

But isn't this true in any business that bills for time? Maybe the bigger issue is whether a lawyer charges an appropriate amount for the work he or she has performed for a client (somewhat independent of the amount of time spent.) Doesn't the free market take care of this problem?

For years, there has been talk of value billing in the legal industry. This would remove the over-billing issue from table. Personally, I think everyone would be a lot happier if most legal services were performed on a flat fee basis (with benchmarks for adding fees when matters get more complicated than expected.) But we are part of a conservative profession that doesn't like change. So maybe in another decade or so, it will catch on.

The Wonderful World of NALP

I am waiting for my flight out of lovely Denver back to my hometown of San Francisco. I have at least another hour until my flight boards and my thoughts turn toward introspection. This week I and my colleagues at our recruiting firm (BCG Attorney Search) met here in the Mile-High City to attend the yearly NALP convention to swap stories and chat with our clients—law firm recruiting coordinators. It was a fun time, replete with an exciting giveaway (we gave away a Mini-Cooper to one of our clients), surprise snow storms (good thing our Boston recruiter was along to help drive!), and way too much rich food and, ahem, conviviality.

Well. My report back from speaking with scores of law firm insiders is that things are humming along at a consistent, brisk pace—one we have become accustomed to over the last few years. Firms are hungry for great talent, eager to discover how they can better attract that talent, and enthusiastic for the future in the near term (remember Uncle Friedman’s injunction: there is no long term!). At any rate, the good news is no “new” news. This is a wonderful time to spread one’s legal wings, find a new platform, and make a move up, or sideways.

As I am often want to remind my candidates, this does not mean it is a good time to just strum along and go with the flow. Rather, US attorneys are being given the gift of relative freedom and openness in the market to explore, grow their practices, and add new skills. In my view, this is given to us for a purposes, and there is little “karmic waste” out there. What does that mean? It means that the chance to grow is an opportunity we must grasp firmly in order to weather whatever storms come along down the path tomorrow.

On the other hand, it is also a good time to reflect, ponder and analyze professional and personal goals and strengths. If you haven’t done so yet this year, then take time out to make hay while the sun shines, and do yourself the favor of paying attention to number one: you! (Click on this link: http://bcgsearch.com/crc/buildlegalcareer.html for some thoughts on how to jump-start the creative process!).

"Sitzkrieg"--Why Lawyers Will Weather the Impending "Recession"

Immediately following the declaration of war against Hitler’s Germany in 1939, the uneasy populations of the allied nations went about their daily business; their lives as yet unchanged. In a gallows-humor attempt to explain this sudden onset, of, well, nothing particularly unusual, some cheeky Brit came up with the term “sitzkrieg”—the “sitting war” in contrast to Hitler’s “blitzkrieg”—“lightening war” against Poland. Of course, the “phony” war turned all too real soon thereafter, and lasted six years.

I couldn’t help think of the sitzkrieg as I sit here next to my three warm cats contemplating what many call inevitable, the first American economic recession of the 21st Century. It pains me even to mention such a possibility as I am: a) an incurable optimist; b) a shameless and blithe capitalist; and c) not an economist by any stretch of the imagination.

However, one can’t help but hear the voices that proclaim the impending doom of, not an economic implosion, but of a gradual slow-down of the steady growth we have been enjoying.

Of course, this will undoubtedly raise the issue of what impact the legal markets will face. It is nearly an aphorism that transactional work flowers during economic booms, and then wanes while litigation waxes during economic down-turns. It is certainly the case that the lateral litigation market has been lackluster after years of sustained growth. Thus, I will rush to be the first, perhaps, to proclaim the beginning of the end of this last long brush with bullish corporate practices. We no longer believe so innocently (as we did before 2001) that things that go up need never come down.

However, I don’t for one minute believe that this will be catastrophic for any solid corporate practice. It may merely result in allowing natural attrition to take its course. Further, it will only intensify the already tedious and long-drawn-out process that most lateral hiring is these days. Yet again, this is all the more to the good because I can assure you there has been little or NO frivolous or poorly-thought-out hiring going on, even in corporate circles. I do not see any widespread shrinkage in corporate groups looming on the horizon.

The result is that, as a profession, lawyers are going to ride out any impending “recession” that comes in the next 18 months, it one comes at all. The trick that I think most trained and traditional economic pundits are missing, is that the global economy has so much pent-up and ending demand for resources, that economic blips are being smoothed-out almost immediately. I liken this to the SF housing market. Whenever prices fall even by $5,000, as many more family can qualify to buy. What we end up with is, basically, is a stagnation or flattening of economic indicators. I don’t think that we can realistically call every loss of a point of annualized growth a “recession”. We perhaps need to go back to the well for a more descriptive neologism.

I’ll settle for an unending sitzkrieg.

Wake Up! PPEP Matters!

I have to write this blog entry to get some of the angst out of my system. There is something very disturbing in "the force" going on, and I want to warn those complascent few to whom this piece is directed.

To cut to the chase, there is a certain class of high-caliber firm with (relatively) low PPEP that is lulling its associates into a false sense of security. That's a dangerous place to be. Okay, I'll back up.

Let's see if you can identify this firm or firms in your market: old, prestigious, PPEP below 900K, known for its brainiacs, fewer (sometimes far fewer) than 1000 lawyers, limited international presence. Okay. Do you have this firm in mind? Let me tell you what some associates in these firms are telling me. Number one, they are blithely unaware or unconcerned about trends in the market and smugly minimalist about firm 'platform'. They don't care about PPEP and figure they are making plenty of money anyway. They see the firm has having an historically consistent partnership track, regardless of proven potential to bring in business, and figure there are plenty of mediocre partners there so why won't they fit in when the time comes? These associates did well academically and have not had to change firms before. In short, if this were 1950, they would be fine.

Guess what? It is not 1950 and things have changed. Bottom line: if you want to stay standing still, you have to be running. If these associates are not interested in joining the global "megalomaniac" trends (not my word) of continual growth and continual expansion, are not interested in being psycho-marketeers and are not interestd in being high-octane megalomaniacs themselves, it is even MORE incumbant upon them to start working TODAY on building their books of business. That's because either their current firm is going to eventually phase them out (because it will have changed business models) or these associates will have to self-select out because the firm they know is going to jump on the global bandwagon.

Better minds than mine have been saying for a good few years now that the future of law firms (10-20 years) is a "global 20" that are "all things to all men." Basically, there is emerging a super-class of firms to stand in dominant positions for global work in the future--and all the good work in the near future is going to be global work and all the good "domestic" work will be done by these firms as well.

Your nice, white-shoe firm with half-a-dozen domestic markets and a marquee foreign outpost is either going to jump onto or rejoin the mega-merger mania, or it is going to subside into a regional (what we used to and sometimes do still call 'national') player. Basically, these firms will drift into a second or third tier within the first tier of firms. Are you feeling this yet?

Anyway, the advice to network, write, speak, and get noticed, and that consistently, applies to ALL attorneys wherever they are. It's just that maybe those not in the circumstances described above already knew that (and just aren't doing it). Those guys in the ivory-shoe tower just didn't think this applied to them. So now they know.

The New $100,000

I remember, and not so very many years ago, when the associates' committee I served on had to convince our firm to bring first year salaries up to $100,000 to be in parity with the market. Our firm wasn't a market leader, but we definitely tried to keep up. Of course, by the time you read this post, two or three other firms will have already followed Simpson Thatcher's lead in bringing first year salaries up to $160,000, and perhaps beyond it.

I am not a number-cruncher so I don't have any gee-whiz statistics to wow you with. Nor do I think $160K is going to bring the legal community to its knees. Neither is it really that remarkable. Simpson's move is just one more step in the direction of an important trend.

Of course law firms need to keep attracting strong talent, of course rates are continuing their march toward the infinite. Frankly, the big boys can afford $160K, and more. But there is a catch. No, it is not just "more hours." Associates and partners alike are already putting in "more hours." What this really signifies is that the "class" distinctions between lawyers are widening, and there will be no reversal of that trend.

Higher salaries are an easy call for an economist. Market conflation means that fewer firms are market leaders on an increasingly shrinking planet. When attorneys from Atlanta can represent Norwegian interests in Costa Rican factories for products distributed in Africa, under Singapore law, you know that you are working in a global market. This means that fewer firms competing for a large, and increasingly sophisticated pie of high-quality work.

So what?

Well. This means that competition for the best talent will only continue to spiral. But more importantly, there will be less and less room for error. Associates at premier firms are already walking across a tight rope. That won't change--although the wire is getting higher and higher. The real, rubber-hits-the-road change, is that the safety net for those who falter is getting smaller, and farther away. Why? The largest firms are not only international powerhouses, of course, but they are grabbing up the premier domestic work. The market of "safety-net" firms has, and will continue to shrink. Bottom line: blink and you will be out of the promised land, your salary will shrink by a third, perhaps more, and the doors to ground-breaking work will be increasingly closed to you. You'll be on the outside, looking in, and the glass is getting thicker.

Enjoy the money. No pressure.

Explaining the Absence of Minority Partners

No one disputes the facts: i.e. that very few minorities have achieved partnership at the top law firms in the country. But the explanation for this reality is hotly disputed. A law professor at UCLA has ignited passions with a study that concludes that hiring practices are to blame (i.e. that in an effort to open up door for more minorities, law firms relax their academic standards when making offers to minority candidates.)

According to an article in today's NY Times (free subscription required), many dispute his findings and attribute the lack of minority partners to a lack of mentoring and a system of assigning work which leaves minority associates at a disadvantage. Others point to the fact that top minority lawyers are being recruited heavily by corporations for in-house counsel positions. Whatever the explanation is, it is clear that recruiting minorities out of law school is by itself insufficient to create long term diversity at a firm. Firms need to invest in cultivating minority talent long after the recruiting process is over.

Surviving Merger Mania

Even if you work for a firm that is steadfast in its resolve to avoid a merger, "mergers happen". So how do you prepare yourself for (and protect yourself from ) some of the ways that a merger can adversely affect your career? A New York recruiter suggests that your focus should be on building relationships and making your mark through high profile work.

Kill all the "Super Lawyers"

An ethics panel of the high court in New Jersey has ruled that "SuperLawyers" and "Best Lawyers in America" designations violate the ethical rules in New Jersey. Could this ruling be coming to a jurisdiction near you?

Trends in Partner Compensation

Yesterday, I participated in a teleconference hosted by Hildebrandt. Here are the main points raised by the speaker:

1. A high percentage of firms currently have open compensation systems (i.e. where attorneys know what their partners earn) but the trend is to move away from these systems.
2. Money alone is an ineffective motivator (unless it is a lot of money.) Internal fairness is more important.
3. A good practice is to conduct pre-compensation interviews with each partner and focus on the future (i.e. the goals for the coming year for that partner.) It is best to have two partners in the room to conduct the interview.
4. It is common now for partner income to fluctuate (up and down). This reflects a maturing market for legal services and the need to keep the "keepers" happy.
5. Practice groups are playing a bigger role now in law firm management.
6. The most successful firms use subjective rather than formulaic (or objective) systems to set comp.
7. Seniority is becoming less of a factor in setting partner comp.
8. What is keeping the client at the firm remains the number one factor in setting partner comp.
9. Firms are starting to move away from lock step systems (even at the associate level.)
10. Comp differentials from highest to lowest paid partner are increasing (5:1 or 6:1 is not uncommon.)
11. Good practice is to limit the number of salary steps so that partners do not overly compare their comp with other partners.
12. Hildebrandt advocates using a prospective comp system with a bonus pool at the end of the year of 4-15% to fix any "mistakes" that might have been made during the year.

Open vs. Closed Pay Systems

Is there a trend towards closed pay systems (i.e. where partners do not know what other partners earn?) Seems like a good idea to me. This is particularly true in larger firms where you may not know a lot of your partners. Of course, then you have to trust that your compensation committee operates fairly and according to clear guidelines.

Partner Moves on the Rise

According to the American Lawyer, the rate of partner defections is increasing at the top firms in the country. There are lots of theories on how to slow down departures but unlike other professionals, lawyers cannot be bound by non-competes. Money remains a large lure.

The CEO of Greenberg Traurig (one of the firms that has grown rapidly in the past 5 years) offers his own thoughts on how to keep partners happy. He believes that partners should not be allowed to become isolated. On the other hand, he does not advocate running a firm like a democracy. He believes that a closed compensation system avoids intrafirm competition. Other firms try the democratic approach. Here in Boston, for example, Goulston & Storrs adheres to a democratic model of decision making to maintain partner buy in. My guess is that different models are attractive to different kinds of people. There is no "one size fits all" for law firm management/partner retention.

Billings and Originations are Leading Factors

Altman Weil has released the results of its 2006 survey of compensation systems. Billings and originations remain the top two most important factors in determining compensation, particularly at large firms. Also worth noting is that almost 85% of firms with 100 or more lawyers now have 2 tiers of partnership (up from about 65% in 2003). At most firms, good citizenship gets relatively little weight. Strange way to run a business!

Boot Camp v. Summer Camp?

One firm in DC continues to shy away from the traditional "wining and dining" that summer associates experience at most large firms. Howrey Simon just launched its sixth Boot camp. For two weeks, summer associates work on a mock case. Sounds like a good option for would be litigators.

Only 30% of GC's Like Their Outside Counsel

Sounds like a great marketing opportunity (or perhaps a wakeup call to anyone with corporate clients.)

Do Latest Salary Hikes =More Billable Hours

Not according to my colleague Carey Bertolet in the New York office of BCG. Sure there will be less tolerance for associates who are underperforming; but this hike is really an incremental raise.

I part ways with Carey wrt the last big raises in 2000. I believe these raises did change billing expectations (at least in departments that had the work.) But those raises were more dramatic (more than 30% in some cases.)

Generation X Not Looking for Partnership

More on the subject of associates leaving large law firms in droves.

Outsourcing to India Continues

The due dilligence in a corporate acquisition is being outsourced to India where associates earn less than 20% of their large firm counterparts in the United States. When this trend picks up steam (and clearly it will at some point), associates at large U.S. firms will be doing a lot less due dilligence work in the early years of corporate practice. While I doubt law school graduates will miss this right of passage, it is hard to imagine that this won't put downward pressure on hiring.

Are Salary Increases Justified?

72% of associates say yes according to an unscientific poll.

Justified or not, aren't the salary increases just the free market at work? Or is it that law firms are too risk averse to hold the line? Noone wants to miss out on recruiting the best talent.

But associates consistently say that salary is not the most important factor in recruitment. So why have all of the top firms followed suit?

Mismanaged Law Firms

David Maister concludes that law firms are different than other professional services firms. Lack of trust between partners, skeptical reactions to new initiatives and professional detachment all combine to make managing a law firm very difficult.

Are Salary Hikes Necessary?

Several consultants seem to think so. They argue that the dramatic growth in law firm size has increased the demand for top talent. So has the dramatic increase in law firm profitability (in 1986 only 2 law firms had gross revenues in excess of $100 million; in 2005, 184 law firm exceeded that figure.)

Will $10,000 of pretax income cause a law student to choose one firm over the other? Perhaps. But surveys consistently show that today's law school graduate are much more concerned about quality of life.

A Growing Generation Gap in Law Firms?

Today's junior associates want more time for family, friends and outside interests. Is this creating a generation gap between the Millenials and senior partners?

Partner Ranks Grow?

The number of attorneys who advanced to partnership at top U.S. law firms advanced modestly in 2006. But the key number, which most firms do not disclose, is how many attorneys became equity partners. Clearly, the brass ring remains very difficult to obtain.

Women Not Opting Out?

A Harvard economist arues that highly educated women (including law school graduates) are not opting out of the work force.

Associate Billing Rates--Not Much of a Spread?

According to a recent survey by Altman Weil, associate billing rates do not very that much by size of firm. I have not looked at their methodology so I can't comment on the accuracy of these numbers. But I was a little surprised.

Maybe the differential gets larger if you look at senior associates at large firms vs. senior associates at small firms. But Altman Weil didn't run this analysis.

Radio Broadcast on Salary Increases

BCG's Carey Bertolet, my colleague in NY, is a featured guest in a discussion of the latest salary increases. What are the implications of this trend? What about the majority of law school graduates who will not have the credentials to join a large law firm?

Law Firm GC's

Given the size of revenues of law firms on the AmLaw 100 and AmLaw 200, isn't it amazing that many firms are just starting to create a full-time GC slot?

Do Starting Salaries Matter?

Starting salaries for attorneys have jumped 250% in the past 20 years and the latest round of salary wars shows that no major law firm wants to be left in the dust. But do higher starting salaries really have that much impact on entry level recruiting? I wonder. In the meantime, you can be sure that no major firm is taking a chance.

Lack of Clear Partnership Criteria

Many law firms could reduce turnover by communicating clearer criteria about what it takes to become a partner. That is the advice of several management consulting firms who specialize in law firm management.

Merging is Not For Everyone

Pundits of the legal industry continue to talk about the demise of mid-sized firms. While law firm mergers are continuing at a steady pace, there are still firms who remain committed to limiting growth. The Boston Business Journal reports on a number of Boston firms who are content to stay independent.

What About Starting Salaries at Smaller Firms?

The legal press likes to report salary wars at large firms. But since most of the bar doesn't work at a large firm, it is interesting to note what smaller firms are paying. Altman Weil has some numbers to report. While larger firms are clearly able to pay substantially more to newly minted lawyers, smaller firms are not as far behind as you might think.

Lawyers and Divorce

Lawyers have the highest rate of divorce of any profession. A lawyer turned therapist offers some relationship building ideas that will preserve a marriage. The Reader's Digest version is this: there is no such think as "quality time" when it comes to relationships. Relationships require "quantity time".

Salary Raises Not Evenly Distributed

As large firms raise starting salaries to $135K across the country, many firms are opting to keep salaries lower in secondary markets; though not all.

Debt Rises Faster than Salaries

Law firms may be raising salaries all over the country; but law school debt is rising even faster according to the NLJ.

U.S. Firms Grow Overseas?

U.S. Firms have continued to increase their presence overseas. According to the American Lawyer, the growth has been quite dramatic. In reality, the number of American Lawyers practicing in the U.K., France, Germany and China is still pretty small.

2005 Bonuses are Coming in Large

The National Law Journal is reporting that 2005 was a very good year for associate compensation. Many associates at the largest firms around the country are seeing $20,000 to $60,000 in bonus pay.

Diversity is Now Hitting the Bottom Line at Law Firms

A partner and the director of professional development and diversity at Day Berry & Howard provide some tips on how to increase diversity.

Arnold & Porter Embrace Coaching

My colleague, Dan Binstock, writes about use of coaching at Arnold & Porter in D.C. Clearly, we have a national trend here. I agree with Dan. Firms that take this approach seriously will be rewarded with better associate retention and more success in the lateral hiring market place.

Coaching Continues to Thrive in Law Firms

California reports that a growing number of law firms are turning to both internal and external coaches to help lawyers learn business development skills, client relations skills and management skills.

The article leaves out a parallel trend (i.e. that some lawyers do not want their firms to know they are working with a coach and are hiring coaches directly.) Also, while the firm sometimes pays for the coach and the individual pays at other times, there are also blended models (kind of like insurance co-pays to make sure that the end user is personally invested in the activity.)

Salary Hikes Spread to Atlanta

The national trend at large firms has now spread to Atlanta where starting associate salaries are now $115K at some firms.

Associate Attrition--Bad Management or Business Necessity?

CareerJournal explores the ongoing issue of associate retention. Citing last year's NALP study which found that 37% of associates are gone after three years in practice, the article questions whether this is a sound business result for law firms (after all, associates don't really become profitable until after their third year in practice.)

No particular solutions are offered; but better management practices seems to be the recommendation. Should firms blame recruiters for causing the attrition? Not according to David Maister, the management guru cited in the article.

Predictions for 2006 and What they Mean

The Legal Times has offered some predictions for 2006: Mergers mania will continue and New York and DC will remain very important markets for firms trying to create a national footprint; salaries will continue to increase as competition for hot talent heats up; billing rates will start to flatten out as corporation try to reign in costs; firms will look for ways to control their own costs; and client relations will be more important than ever as companies consolidate the number of firms they use.

So what are the career implications? Make sure to cultivate relationships outside your firm. Developing your own clients is the only career protection you can count on.

Law Firm Leverage

The debate over leverage in law firms continues. Clearly, figuring out the appropriate associate to partner ratio is a delicate balancing act. With too few associates per partner, you do not have the capacity to handle large deals and litigation matters and your profitability suffers because you can not capture as much work. If your ratios are too high, you run the risk that associates will be underutilized when work slows down.

That is all from the firm's perspective. But from a career perspective, there is also a balance. Bigger firms tend to have access to more complex work. Working at a large firm is more likely to give you good training. But as you get more senior, the lack of room in partnership ranks can be problematic for your career. While this may not be an issue when you are a junior associate, it is certainly something to start considering by your fourth or fifth year in practice.

Finnegan Raises

More salary increases.

California Bar Passage

The WSJ reported today (sub. req.) that California continues to have one of the lowest bar passage rates in the country. In 2004, only 44% of the test takers passed. The passage rate is even lower for those licensed in other states who take do not take the multistate. (Reportedly 28%.) The article focused on the fact that the former Dean of Stanford Law School, a constitutional scholar, just failed. Moral of the story is that you better plan on studying hard if you plan to relocate to California and take the bar exam there. Sounds like she didn't!

Optimism Reigns in the AmLaw 200

Leaders of the top 200 firms are very optimistic about 2006. According to the Amercian Lawyer 89% feel this way. Litigation is expected to remain the number one practice area. Other interesting statistics are cited as well.

Like other members of the bar, I enjoy reading the results of these surveys. But query how useful are they? If you are having a bad year, does it help to know that other firms are feeling optimistic? If you are having a good year, maybe you feel more comfortable with lateral hiring knowing that other firms are experiencing the same optimism. Anyway, it makes for good cocktail chat.

Beyond the Billable Hour?

More than 10 years ago, I organized a seminar for MCLE on alternatives to hourly billing. The panelists pognositcated that value billing would slowly begin to replace hourly billing. But as In-House Counsel notes, the shift has been glacial and hourly billing still rules.

Click here for a quick history of hourly billing and some predictions about the future.

Unsustainable Growth in the U.K.?

A law firm consultant argues that fast law firm growth in the U.K. is unsustainable. He predicts that U.S. firms will continue to outcompete U.K. firms for a variety of reasons including: a preference by multinational corporations for using American legal structures, cherry picking of lucrative M&A deals in Europe by U.S. law firms, a lack of growth of U.S. style litigation in Europe, etc.

Emotional Inteligence in the Law

Dealing effectively with difficult people requires a high level of emotional intelligence. An article in the Boston Globe suggests that emotional intelligence can be learned.

If you work with other lawyers, then it probably makes sense to invest some time and energy learning these skills.

Second Tier Partnerships for Another Large Firm

Gibson Dunn has announced that it is adopting a two tier partnership. I predict that in the next ten years, law firms will follow the lead of the large accounting firms and insert several new steps between associate and partner. In many ways, it makes no sense for a large organization to have so few opportunties for advancement. But law firms are conservative by nature and change is slow in this profession.

Are We Heading Towards One Megafirm?

Ward Bower of Altman Weil doesn't see this happening any time soon.

Are podcasts the next wave of legal marketing

We have come a very long way since lawyers first embraced direct mail marketing. Websites are almost ubiquitous (or at least the absence of a website probably sends the message that a law firm is behind the times.) E-mail marketing is now being widely used by major law firms to supplement (or in some cases to replace) U.S. mail and blogs like this are becoming increasingly common.

It seems that podcasts may be the next wave. It is very logical that lawyers should turn to this medium. While lawyers are supposed to be masters of the written word, increasingly, we live in a multimedia culture where busy professionals do not have the time to read. Podcasts provide a very inexpensive way to basically create a private radio broadcast (in the same way that a blog creates a private newspaper.)

Salaries in CT on the Rise

CT law firm salaries continue to lag far behind Boston and New York. But CT firms are following the upward trend already seen in California.

Use of Temps on the Rise

Large law firms continue to increase their use of temp attorneys on large, document intensive cases. An article in the National Law Journal shows that the numbers at some firms are growing signifcantly. I clearly see the benefit to firms. Temp staffing allows for much more flexible hiring and eliminates the problem of having to carry extra staff when there is nothing for them to do.

But temp assignments may not offer much of a career opportunity for the lawyers doing the work. Certainly, I would never fault anyone for taking on a temp assignment in order to generate some needed income. On the other hand, I think it more the exception than the rule that doing this kind of temp work (i.e. large document review in litigation or corporate transactions) will lead to something bigger.

Anyone looking for a stepping stone to a better legal job would do better to identify temp opportunities through networking. There is more leg work involved, but the opportunities are likely to be higher quality.

Ward Bower of Altman Weil on Globalization

Ward Bower offers some interesting observations about the impact of gloablization on the legal industry. He sees increased competition for the best legal talent and observes that over 100 U.S. law firms now have an office in London.

Survey on Median Billing Rates by Practice Area

Altman Weil has just published the results of a national survey of median billing rates by area of legal specialty. No big surprises here but it is still interesting to see the numbers.

Get rid of law school altogether?

A law professor at Emory believes that our existing system of legal education is in some great need of reform.

Law School: Make It Optional?
Why is a Mercedes education necessary for a lawyer seeking a Corolla legal practice?

Sounds a little extreme though he does raise some thought provoking questions about the ABA standards for legal education (i.e. does a "one size fits all" approach make sense for educating lawyers.)

Am Law Survey of Mid-level Associates

Midlevel Associates Survey: Communication Breakdown?
The American Lawyer

Nearly 6,000 associates took part in The American Lawyer magazine's 2005 Midlevel Associates Survey, offering, among other things, a glimpse of what upper management and youngish associates think of each other. Sometimes it's not pretty. Are midlevels a bunch of "slackers," or is slavish devotion to a firm simply no longer worth it? Is anyone even listening? Plus: See midlevels' attitudes by locale as well as the best places to work.

For several years now, the American Lawyer has been surveying mid-level associates about their experiences in the largest law firms in the United States. But the AmLaw survey is just one of many information sources to consider when evaluating a law firm. For starters, if you look at the sample size from some of these firm, the number of respondants can be quite low. If you are going to look at these surveys, you should probably look back over a few years to see if there are trends. If a firm is consistently ranking high year after year, then that probably means something. But a survey is only one of many ways to evaluate what it might be like to work at a firm.

Salary Hikes on the West Coast

Could the salary wars be starting again? In Silicon Valley that seems to be the case. My prediction: within 6 months, Boston firms will follow suit.