California Bar Journal Article “Will A Bad Economy Force More Changes In The Profession?”

Thanks to Adrianos Facchetti over at the California Defamation Law Blog for sending me this interesting article from the California Bar Journal.  Staff Writer Diane Curtis asked the question which many law bloggers are discussing.  How will the current economic crisis affect the business of law?

Here are some interesting tidbits from the article:

• According to the Bureau of Labor and Statistics, the number of legal jobs declined for the sixth consecutive month in November, moving from 1,180,700 in May 2007 to 1,163,500 in November 2008.  The drop between October and November was the sharpest monthly drop since the decline began in June.
• But the economy isn’t the only reason for the change that’s going to hit law firms, Keane added.  Clients are balking at paying a gigantic bill for the partner-rate work of a first year associate, and unhappy associates who are asked to continually increase their billable hours are making their unhappiness known. 
• The pyramid structure of associate-to-partner leverage – hiring more and more associates for every partner – can be a real problem in an economic downturn because associates’ salaries get bid up to the point where the firm can’t pay them, he said.  Helm also said Munger Tolles is careful in how partners draw down money.  They’re made to wait until the end of the year to get a very large part of their compensation.
• “When identify is based on some false totem – per-partner profit – value to clients and the quality of legal services don’t matter, and that’s unfortunate.” He said that if firms are constantly distributing income, then what happens is they’re totally dependent on lines of credit when business gets slow. 
• At the same time, associates ignore billable hours at their peril, especially in the current economy, according to legal recruiters.  “I think If I were giving any advice to associates – and I get calls from a lot of associates – it would be to keep your hours high,” said Seth Davis, managing partner of the San Francisco office of Laurence Simons International, a legal recruiting firm. “It’s the ones who are not reaching their numbers who are going to be laid off first.”  Fanning of Major, Lindsey & Africa concurred. “There are two ways to attack decreased profitability:  Increase worker productivity and cut expenses…If I were an associate billing 1,500 hours, I’d be very nervous.”

Comments

[Law firm management; associate; partner]

Is it really the associate's fault that he/she only billed 1,500 hours? Possibly, but the more likely scenario is that the law firm does not have enough work to truly keep that associate busy with billable work. I have spoken to many associates at major firms who have resorted to practice area jumping (i.e. leaving M&A work to do bankruptcy work) in order to come close to billing a full day worth of work.

Firms have also asked associates to do non-billable things, such as draft articles for the firm website, do pro bono work, etc. Does that mean that the associate is not adding value to the firm?

The problem appears to be that firm's have been so stuck in their ways that they are not equipped to adapt when the economy slows. The partners refuse to make less money even though the work is not there to support their salaries and bonuses. Something has to give, and maybe it should not always be the associate. In fact, it may be time for a partner to ask what he/she can do to help "save" the firm. For in the end, isn't the partner supposed to look out for the firm first, and all those that come with it?

~B

[Eric Pursh]

I'd imagine that firms will also seek other cost-reducing measures, such as project-specific staffing, virtual office applications, virtual employees, and pay-as-you-go web-based applications for discovery.

Right now we're seeing firms in general make cutbacks in the biggest expense they have - personnel. My guess is that once that levels off, the major focus will be internal operating cost reduction.

But I wonder which ones will figure out that attracting more clients might be a good route to take...

[GAL]

Very interesting Eric. It is amazing to me that lawyers have not stumbled across the virtual model earlier than this. The biggest decision every law firm makes is whether or not to add that next attorney. They won't do it until everyone is so completely overwhelmed with work for a long enough period of time to justify that long-term commitment. As work ebbs and flows, the firm cannot adjust to the variable workload. Virtual workers solve this problem completely. You only tap into them when you need them. There are no long-term commitments. In fact, there is virtually no overhead at all to a virtual lawyer, law clerk, or paralegal. We've been using virtual law clerks, paralegals, and lawyers for four years now and can't imagine any other business model.

I have to admit that I laughed when I read your last sentence about attracting more clients. It never ceases to amaze me how many firms have almost no idea how to go out and "get work." My guess is that lawyers are so committed to sitting at their desks and generating hours that they simply don't have the skills necessary to go out and make things happen.

[MC]

The current climate with a sour economy and associate attorneys being cut loose will inevitably create an army of lawyers providing their services from homes, solo offices, or small firms. Using the billable hour model to drive these attorneys out on their own will simply accelerate the demise of the larger law firm focused on the hourly billing model. It will be interesting to see just how swiftly the model falls apart.

[GAL]

The comment above which notes, "Is it really the associate's fault that he/she only billed 1,500 hours?" is really a good one. While I'm sure there are some associates who may qualify as slackers, I would really doubt that a vast majority of associates make it through the doors of these huge firms as a result of being lazy. The ones who can't get to that hourly level are ones who won't play the hourly game. They won't bill "make work" which is of no value to the client. They are conscientious about billing honestly and ethically. For many lawyers who are willing to play the game and only concerned about their hourly billing totals, they will have a tougher time getting their in this down economy. That means either they won't hit their mark or they will be passing on worthless or bogus hours to the client. From my point of view, that's good news. It will simply push clients to demand changes and encourage them to consider alternative billing arrangements and law firms. Do you really need to go to the biggest firm on the block in order to get quality legal representation?