The one-stop source for managing partners, executive directors, and law firm administrators to gain insight into their real estate and office space needs.
"The proposal: Abandon the lockstep compensation approach toward associate pay in favor of a system that aligns pay with the performance of the individual associate and the firm, and significantly shifts the bulk of total compensation to this variable component. A performance-based pay structure would go a long way toward helping firms keep top legal talent, and it would serve firms better financially. "
The idea has been around for awile , but has seen little acceptance by the top firms. The current upheaval could be the best opportunity for it to get serious consideration.
Do you work at a law firm and still have a job this week?
"Six prominent firms sent packing more than 700 attorneys and legal staffers, in what may well become known as Black Thursday in the legal industry. DLA Piper; Holland & Knight; Goodwin Procter; Bryan Cave; Epstein Becker & Green; and Dechert all confirmed layoffs on Thursday (2/12/09), adding to what has become a brutal contraction of legal jobs. Faegre & Benson also confirmed on Thursday that it initiated layoffs on Wednesday, while Cozen O'Connor confirmed that it let go of staffers on Tuesday."
Want a feel good piece to start the week off? Don't read this one then The Fire This Time: Thoughts on The Coming Law Firm Hiring Crisis. In it, Arik Press in The American Lawyer wrote today about the paradigm shift in hiring and retention in the big firm market.
"If present trends continue in the big firm market, we are heading toward -- you pick the cliche -- a paradigm-shifting, blood-in-the-suites, terror-on-the-campus hiring and retention crisis. The "economic reset" that General Electric's Jeffrey Immelt has tagged seems likely to force changes in the way firms recruit, pay and/or retain their lawyers. The market for labor has changed and, for now at least, there's no normal to which it can return."
And that is just how it starts. Press points to several key issues:
Demand for legal services is flat or down. Since some areas of law are seeing healthy workloads and growth, that means that some practice areas are seeing dismal workloads.
Haggling between business generators and other equity partners are likely to grow, as firms identify who is bringing in business and who is not.
Law firms depend on attrition (up to 25% of assoicates annually) as part of their historical structure. With few people leaving on their own, the layoffs we are seeing are the firms' way of making that happen.
What to expect (if the economy does not jump start soon):
Amanda Royal in The Recorder writes, as reprinted in Law.com:
Almost 800 associates and legal staff nationwide returned home jobless Thursday after eight firms conducted mass layoffs, citing an unprecedented downturn in demand. And the bloodletting is likely to continue.
"There will be more," said consultant Peter Zeughauser. "Materially more. I'm aware of some big ones coming up."
"[T]he recession will last through 2010. Law firms will use this period to substantially restructure, and beginning in 2011, things will start growing again. While there's a lot of detail and nuance around the form this restructuring will take, it can be described in simple terms. A typical law firm bill in January 2011 will generate the same dollars for partner work as it does today, but it will generate half the revenue for associate work. Consider a bill in July 2008 for $1,000,000, representing $450,000 of partner contribution, $500,000 of associate contribution and $50,000 of "other"; in January 2011, the bill for an essentially identical project will be $800,000, reflecting $450,000 of partner contribution, $250,000 of associate contribution and $100,000 of "other."
Whether this is accounted for as hourly billing or "value billing" is not particularly strategic, except that to measure differently will, of course, incentivise firms to be more thoughtful about how to structure work.
Where will those dollars go? Four places.
1. Clients will just flat-out spend less, drive harder bargains and get more for their money.
2. Some work will go to outsourcers, whether onshore or off.
3. More work will go to contract lawyers or proto-associates not on any kind of partnership track.
4. Some associate time will get replaced by technology.
Messy legal battles involving investor claims is likely to break new legal ground involving jurisdiction disputes, insurance, bankruptcy and international finance." Unraveling the complex scheme will produce legal actions or many varieties and impacting many areas of law.
A primary issue will be attempts by the bankruptcy court to reclaim improper payouts to early investors, a process known as "clawback." [See "Madoff investors may be on the hook for 'clawback' suits."] But the issues do not stop there. An interesting nuance is the fate of funds sent out of the United States. Many Madoff investors were funds and investors based in Europe.
"'Will that result in a tug of war between aggrieved European investors and aggrieved U.S. investors?,' asked Howard Kleinhandler, a partner at Wachtel & Masyr in New York."
Other potential areas of controversy include suits and allegations involving:
Funds sent out of the United States
Difference in state laws regarding how far back the clawwbacks may go
Defining a "fraudulent conveyance" of payments by Madoff to early investors
Potential liquidations of offshore feeder funds if they can't repay investor claims
Recovery from a federal program designed to repay victims of failed brokerages
Negligence of feeder funds worldwide for failure to uncover Madoff's alleged fraud
From The National Law Journal - "Third-year students at law schools across the country are about to graduate and enter a brave new legal world of layoffs, pay freezes, and reduced bonuses. So how do these soon-to-be-lawyers feel? Says one: 'Frankly, if you're not nervous, you haven't been paying attention.'"
By Greg Farrell in New York Image via Wikipedia Published: January 19 2009 23:44 | Last updated: January 19 2009 23:44
Bank of America is expected to make several thousand employees in its capital markets businesses redundant, starting this week, according to executives familiar with the matter.
The cuts, most of which are expected to be in New York, come three weeks after BofA acquired Merrill Lynch. They reflect the consolidation of the bank’s sales and trading businesses under the control of Tom Montag, who joined Merrill last year from Goldman Sachs."
"You're likely to get caught if you run a few inches outside the baseline, because regulators are set up to catch that," wrote Sloan. "But run so far that you're playing on a whole different ball field? You can get away with that if you're enough of a financiopath, and your luck holds."
Image via WikipediaOver the last couple decades, high leverage--the practice of having each equity partner supported by three or more associates or income partners--was accepted as a basic tenet of profitability. But is the pyramid an unstable structure? Our report includes a chart ranking the Am Law 100 by leverage.
Though more subtle than mass layoffs in the financial and manufacturing industries, the layoff ax hit some attorneys this year at law firms in South Florida as members of support staffs such as paralegals and legal assistants lost their jobs in greater numbers. The cutbacks, analysts warn, are not likely to abate in the new year.
Anyone who thinks law firm layoffs are over should think again, said Bill Brennan, a principal with legal consulting firm Altman Weil. Some law firms have only delayed the inevitable by holding off cuts until the new year. It may seem more charitable, but it ultimately doesn’t help the people on their way out, he said.
“There actually may be a negative impact on the job-seekers who will lose their positions in the first quarter of 2009 because any jobs that may have been available at the end of 2008 will have been taken,” he said. “The unfortunate few lawyers who may get pink slips in the first quarter of 2009 will probably find it very difficult to find new employment. It’s a pretty sad situation.”
The National Law Journal's 31st annual survey of the nation's largest law firms found that hiring slowed significantly in 2008.
"At this time last year, we reported that overall growth had picked up to levels not seen since 2001. These days, of course, are a different story. The current economic crisis is hitting law firms hard — seven large law firms announced layoffs this year, and the demise of two major firms on the list, Heller Ehrman and Thelen, will affect approximately 1,200 attorneys. It's not all bad news, at least for some law firms: DLA Piper maintained its spot at the top of the chart and K&L Gates, through a series of successful mergers and lateral hires, has climbed into the top 10 firms."
Image via WikipediaA recently released report by Paris-based Euler Hermes, the world's largest credit insurer, concludes that Europe and the U.S. will experience a significant increase in business failures in 2009.
Image via WikipediaLarry Bodine Law Marketing Blog: "Failed law firms, like Thelen and Heller Erhman, have three things in common: * 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.
NYTimes.com: "Federal authorities have been tracking what they describe as a brazen swindle of some of New York’s savviest investors by one of New York’s more accomplished lawyers. Mr. Dreier has been charged with multiple frauds in the United States and a related crime in Canada, and is being held without bail in Manhattan.
In court last week, prosecutors said their count so far put the money missing at $380 million, most of it lost by hedge funds and other investors who had bought promissory notes that were flat-out fictions.
In recent days, Dreier L.L.P., the Park Avenue law firm that Mr. Dreier founded, has been plunged into chaos. At least $35 million in escrow that was to have been held by the firm seems to be missing, the authorities say, and nearly all of its 250 lawyers are now looking for work."
Image via WikipediaHildebrandt International : In 2004, Hildebrandt conducted a study of 80 US law firm failures that occurred between 1998 to 2004.
"Looking back on that study – and extending it forward to the firms that have dissolved since 2004 – we believe that the conclusions we reached in our earlier study remain valid and offer helpful guidance for today’s law firm leaders.
In our experience, 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."
Image via WikipediaNews Detail: "In a recent White Paper titled, “Are the Myths of Space Utilization Costing You More Than You Know,” Jones Lang LaSalle, the leading integrated financial and professional services firm specializing in real estate, reveals that there is oftentimes a significant difference between how much vacancy corporate real estate executives think they have within their portfolios and the actual amount, and how this disparity is costing companies millions.
For its occupancy study, Jones Lang LaSalle examined the portfolios of eight major companies representing a cross-section of industries – technology, consumer products, professional services and financial – as well as its own real estate portfolio. The combined measurement was nearly 42 million gross square feet of corporate office space across the globe in 583 buildings.
Jones Lang LaSalle found that by dividing vacant seats by the total number of seats yielded one of the most significant findings: a 26 percent average actual vacancy rate – 13 percent in reported vacancies and another 13 percent in shadow vacancy (office areas reserved for reasons including new hires). This is in marked contrast to the typical estimations of all vacancy at seven to 10 percent."
Image via WikipediaThe West Peer Monitor Index, a measure of legal market conditions, found large law firms had the lowest productivity in the third quarter.
Overall, law firm productivity was down by 4.5 percent overall and 6.5 percent at the 100 largest firms. The report attributes the low productivity level to large firms having too many associates with too little to do.
“In spite of the various reports of layoffs and firm contractions, the factor that looms largest is the swelling of unproductive associates in firms,” the report reads. “This is especially true with the large firm segment, which is experiencing the lowest productivity in the industry.”
Layoffs have become increasingly common at major firms, but staff reductions have lagged behind the falloff in demand for legal services, further pushing down productivity. Still, the legal industry is definitely in downsizing mode.
Associate hiring declined by 6 percent from a year before, and law firms are offering equity partnerships to half as many attorneys as they did the previous year, according to the index. Lateral growth was about the same as in 2007.
On demand for services, billable hours dropped 2.5 percent in the third quarter following a 2 percent decline in the second quarter, according to the index. The drop in billable hours during the third quarter was especially steep in July and August at 5 percent, but demand rebounded in September to bring up the quarterly average.
About 75 percent of corporate general counsel nationwide indicated that their law departments are facing budget cuts next year, according to a survey by legal industry consultant Altman Weil.
Most of the cuts will be targeted at outside law firms, Newtown Square, Pa.-based Altman Weil said. The average cut will be 11.5 percent.
The survey said 15.6 percent reported that budgets would increase by a smaller percentage in 2009 than in prior years.
Altman Weil conducted the survey of the top lawyers at companies in November and it included responses from 115 attorneys working as general counsel for their firms.
Survey participants said outside counsel costs and the unpredictable nature of legal spending were the top two concerns about 2009.
See article at: http://www.bizjournals.com/sacramento/stories/2008/12/08/daily24.html
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