NEW YORK: You know things are bad when even lawyers are getting laid off.
In downturns of years past, law firms exploited corporate failures and bitter, protracted lawsuits to keep busy and keep billing. But in this still-unfolding crisis, the embittered and the bankrupt have been relatively slow to appear, at least in court.
American law firms in turn are feeling the strain. Thelen and Heller Ehrman, two firms whose deep San Francisco roots extend back decades, have collapsed outright, in part because of the business slowdown. Each firm left several hundred lawyers out in the cold. Many others, including Sonnenschein Nath & Rosenthal and Katten Muchin Rosenman, two Chicago firms ranked among the nation's 100 most profitable by American Lawyer magazine, and an international giant, Clifford Chance, have jettisoned dozens of associates.
Still others, like Powell Goldstein, a firm based in Atlanta with more than 200 lawyers, are merging with larger rivals in deals that may be bids for stability. Over all, the Bureau of Labor Statistics reported Friday, the legal services industry lost more than 1,000 jobs in October.
This is not how it is supposed to work; businesses are supposed to need lawyers in good times and bad alike.
A few big companies are in severe trouble or well beyond, including the collapsed Lehman Brothers and Circuit City, and the number of corporate bankruptcies is beginning to rise, according to the American Bankruptcy Institute. The group reported there were 18,456 bankruptcies in the first half of this year, compared with 12,985 during the same period last year. But because the financial crisis damaged Wall Street first, corporate collapses in many other sectors - automobiles, airlines and the like - have not happened, at least not yet.
A wave of big-company litigation - lawsuits that pit armies of associates against each other - has also not materialized. A recent survey by one big firm, Fulbright & Jaworski, found fewer large companies reporting new lawsuits against them this year. Although executives may desperately want to sue one another over recent losses, they may not know, or want to know, how big those losses are. In any event, cash is precious in this downturn, and litigation is both costly and risky.
"You have to wait and see if you have any damages and, if so, what they are," said Ward Bower, a principal at Altman Weil in Newtown Square, Pennsylvania, a consultant to law firms. "That tends to cause a lag."
The number of lawyers affected at big firms is tiny when measured against the thousands of jobs disappearing at brokerage firms and banks. But in the rarefied world of corporate law, layoffs are unusual. It is striking to have just 20 associates sent packing, as a spokesman confirmed had happened at Clifford Chance, a firm that has 3,900 lawyers worldwide.
Lawyers at firms that have taken such drastic steps say the problem is simply that they have too many people with the wrong kinds of expertise at the wrong time.
Sonnenschein, for example, cut about 24 of its 700 lawyers last month, mostly people who worked on real estate deals or related transactions, said Linda Butler, a spokeswoman for the firm. The layoffs were the second round for Sonnenschein, which cut more than 30 earlier in the year.
McKee Nelson, a New York firm, announced last week that it had laid off 17 corporate and finance associates, reducing its complement of lawyers to 174. In a statement, the firm cited the "devastation that befell the credit markets." Bell Boyd & Lloyd, a Chicago-based firm with about 260 lawyers, cut loose 10 associates, also blaming "unprecedented market conditions."
Beyond the current crisis, corporate clients are trying to rein in spending on law firms. Now that firms are increasingly desperate for business, some corporate general counsels say, the firms are more willing to accept less profitable payment arrangements that do not reward the firms for simply assigning more lawyers to spend more time on a project.
A survey of about 600 corporate executives by Acritas, a London-based research firm, found that 32 percent expected billing practices to change over the next two years.
"Rather than having hourly rates, we are increasingly negotiating flat fees or fixed fees or success fees," which include a premium based on predetermined conditions, said Ivan Fong, chief legal officer and secretary at Cardinal Health in Dublin, Ohio, and chairman of the Association of Corporate Counsel. Some law firms have resisted those changes, he continued, but may find they have to accept clients' wishes.
"It's a pretty significant change," Fong said, and it is occurring as companies use internal lawyers for more work, to control costs and take advantage of the broader expertise of their own legal staffs.
Lawyer departures, whether voluntary or through layoffs, pose special risks to firms. Layoffs scare off law school recruits, who crave security and wealth.
"Students are also very much aware that 'if they did that last year, it can happen to us again,"' said Mark Weber, assistant dean for career services at Harvard Law School. He said that this year offers of employment have become harder to come by and firms are hiring fewer interns for next summer.
Lawyers' voluntary departures create the perception that a firm's condition is deteriorating. If enough lawyers leave, perception becomes reality.
Thelen, founded in San Francisco in 1924, suffered several defections over the past year. Those departures, combined with the credit squeeze, led the partners to decide to dissolve last month, said Douglas Davidson, managing partner of the New York office.
"Our commercial litigation practice did not get as active as it might have in the past when the economy slowed," so there was not enough other work to offset the decline in corporate business, Davidson said. "The depth of the economic downturn here is, of course, something that we haven't seen for maybe 60 years, and so we were more seriously impacted."
While there are plenty of lawsuits filed by investors against companies, an anticipated explosion of litigation by corporations against one another has been held up, just like any other corporate spending, said Stephen Younger, a partner at Patterson Belknap Webb & Tyler in New York.
"Clients often don't want to invest in discretionary litigation in a downturn," Younger said. Responding to government investigations has been keeping lawyers busy but does not generate continuing work for armies of associates, as a big lawsuit would, he said. "There are tons of government investigations going on now."
The slowdown also has made it much harder for lawyers looking for work to find positions, said Robin Miller, a principal at Corrao, Miller, Rush & Wiesenthal Legal Search Consultants in New York.
"It's a bad market," Miller said. While the litigation departments at some firms are busier, activity is less widespread than anticipated, she said. As for bankruptcies, she said most of the activity is concentrated in financial services, so it is not providing work for lawyers who serve other industries.
"The last time we saw anything like this, this bad, was in the early '90s," Miller said. "But it's starting to feel even worse."
1 comment:
Even lawyers are getting laid off
By Jonathan D. Glater
12 November 2008
NEW YORK: You know things are bad when even lawyers are getting laid off.
In downturns of years past, law firms exploited corporate failures and bitter, protracted lawsuits to keep busy and keep billing. But in this still-unfolding crisis, the embittered and the bankrupt have been relatively slow to appear, at least in court.
American law firms in turn are feeling the strain. Thelen and Heller Ehrman, two firms whose deep San Francisco roots extend back decades, have collapsed outright, in part because of the business slowdown. Each firm left several hundred lawyers out in the cold. Many others, including Sonnenschein Nath & Rosenthal and Katten Muchin Rosenman, two Chicago firms ranked among the nation's 100 most profitable by American Lawyer magazine, and an international giant, Clifford Chance, have jettisoned dozens of associates.
Still others, like Powell Goldstein, a firm based in Atlanta with more than 200 lawyers, are merging with larger rivals in deals that may be bids for stability. Over all, the Bureau of Labor Statistics reported Friday, the legal services industry lost more than 1,000 jobs in October.
This is not how it is supposed to work; businesses are supposed to need lawyers in good times and bad alike.
A few big companies are in severe trouble or well beyond, including the collapsed Lehman Brothers and Circuit City, and the number of corporate bankruptcies is beginning to rise, according to the American Bankruptcy Institute. The group reported there were 18,456 bankruptcies in the first half of this year, compared with 12,985 during the same period last year. But because the financial crisis damaged Wall Street first, corporate collapses in many other sectors - automobiles, airlines and the like - have not happened, at least not yet.
A wave of big-company litigation - lawsuits that pit armies of associates against each other - has also not materialized. A recent survey by one big firm, Fulbright & Jaworski, found fewer large companies reporting new lawsuits against them this year. Although executives may desperately want to sue one another over recent losses, they may not know, or want to know, how big those losses are. In any event, cash is precious in this downturn, and litigation is both costly and risky.
"You have to wait and see if you have any damages and, if so, what they are," said Ward Bower, a principal at Altman Weil in Newtown Square, Pennsylvania, a consultant to law firms. "That tends to cause a lag."
The number of lawyers affected at big firms is tiny when measured against the thousands of jobs disappearing at brokerage firms and banks. But in the rarefied world of corporate law, layoffs are unusual. It is striking to have just 20 associates sent packing, as a spokesman confirmed had happened at Clifford Chance, a firm that has 3,900 lawyers worldwide.
Lawyers at firms that have taken such drastic steps say the problem is simply that they have too many people with the wrong kinds of expertise at the wrong time.
Sonnenschein, for example, cut about 24 of its 700 lawyers last month, mostly people who worked on real estate deals or related transactions, said Linda Butler, a spokeswoman for the firm. The layoffs were the second round for Sonnenschein, which cut more than 30 earlier in the year.
McKee Nelson, a New York firm, announced last week that it had laid off 17 corporate and finance associates, reducing its complement of lawyers to 174. In a statement, the firm cited the "devastation that befell the credit markets." Bell Boyd & Lloyd, a Chicago-based firm with about 260 lawyers, cut loose 10 associates, also blaming "unprecedented market conditions."
Beyond the current crisis, corporate clients are trying to rein in spending on law firms. Now that firms are increasingly desperate for business, some corporate general counsels say, the firms are more willing to accept less profitable payment arrangements that do not reward the firms for simply assigning more lawyers to spend more time on a project.
A survey of about 600 corporate executives by Acritas, a London-based research firm, found that 32 percent expected billing practices to change over the next two years.
"Rather than having hourly rates, we are increasingly negotiating flat fees or fixed fees or success fees," which include a premium based on predetermined conditions, said Ivan Fong, chief legal officer and secretary at Cardinal Health in Dublin, Ohio, and chairman of the Association of Corporate Counsel. Some law firms have resisted those changes, he continued, but may find they have to accept clients' wishes.
"It's a pretty significant change," Fong said, and it is occurring as companies use internal lawyers for more work, to control costs and take advantage of the broader expertise of their own legal staffs.
Lawyer departures, whether voluntary or through layoffs, pose special risks to firms. Layoffs scare off law school recruits, who crave security and wealth.
"Students are also very much aware that 'if they did that last year, it can happen to us again,"' said Mark Weber, assistant dean for career services at Harvard Law School. He said that this year offers of employment have become harder to come by and firms are hiring fewer interns for next summer.
Lawyers' voluntary departures create the perception that a firm's condition is deteriorating. If enough lawyers leave, perception becomes reality.
Thelen, founded in San Francisco in 1924, suffered several defections over the past year. Those departures, combined with the credit squeeze, led the partners to decide to dissolve last month, said Douglas Davidson, managing partner of the New York office.
"Our commercial litigation practice did not get as active as it might have in the past when the economy slowed," so there was not enough other work to offset the decline in corporate business, Davidson said. "The depth of the economic downturn here is, of course, something that we haven't seen for maybe 60 years, and so we were more seriously impacted."
While there are plenty of lawsuits filed by investors against companies, an anticipated explosion of litigation by corporations against one another has been held up, just like any other corporate spending, said Stephen Younger, a partner at Patterson Belknap Webb & Tyler in New York.
"Clients often don't want to invest in discretionary litigation in a downturn," Younger said. Responding to government investigations has been keeping lawyers busy but does not generate continuing work for armies of associates, as a big lawsuit would, he said. "There are tons of government investigations going on now."
The slowdown also has made it much harder for lawyers looking for work to find positions, said Robin Miller, a principal at Corrao, Miller, Rush & Wiesenthal Legal Search Consultants in New York.
"It's a bad market," Miller said. While the litigation departments at some firms are busier, activity is less widespread than anticipated, she said. As for bankruptcies, she said most of the activity is concentrated in financial services, so it is not providing work for lawyers who serve other industries.
"The last time we saw anything like this, this bad, was in the early '90s," Miller said. "But it's starting to feel even worse."
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