I’m very satisfied with the status of my investments. The reason I’m very satisfied is that I haven’t opened a single RRSP update from my bank since mid-summer. I already have a pretty good sense of how ugly things are inside that envelope, and I don’t feel up to having it confirmed just yet.
But even if I knew the first thing about investing (and I don’t), I doubt I’d be spending my days moving cash out of this fund and into that one. Noreen Rasbach at the Globe & Mail doesn’t, and cites some studies in support of that approach. What it comes down to, she says, is that the stock market gains and loses most of its value in very short bursts and at completely unpredictable intervals, so you might as well hold steady and look to the long term. Then she quotes an expert who makes an interesting point:
“What most people do is, when the market goes up, they want to get in. When the market goes down, they want to get out. And when fluctuations are large, that turns out to be a terrible strategy.” … During turbulent times like these, “part of the market discount is to provide additional rewards for staying in the market when a lot of other people just don’t have the guts to do so.”
It strikes me that this analysis applies quite nicely to law firm associate layoffs. Late last week came word that Orrick, Herrington & Sutcliffe has joined the parade by cutting 40 lawyers and 35 staff, making this a very bad autumn for lawyers in the Bay Area. The list of large firms tossing young lawyers overboard keeps growing — and the really alarming thing is that we’ve only scratched the surface. We’re still in 2008, and the recession is only just starting to settle in; the first few months of 2009 figure to be brutal.
[Let me sidebar here for a moment: if you're an associate who has recently suffered one of these layoffs from a big firm, or you know someone who is, go to Legal OnRamp, a fantastic invitation-only online community for corporate counsel and private-practice lawyers. LOR is extending invitations right now to young lawyers who find themselves in these straits; request an invite at OnRamp's front page and identify your former firm. Take it from me: this is a great community and an extremely valuable forum for networking and collaborating.]
Now, you don’t have to try very hard to unearth the cynic in me, and part of me can’t help but think that every time a law firm lays off associates, its rivals give a little smile. I can think of four reasons why.
First, every new layoff desensitizes the marketplace and makes it that much easier for other firms to follow suit with less PR damage, both now and down the road at recruitment time. Secondly, every new layoff also deepens the available talent pool and shifts the dynamics of supply and demand towards lower salaries and less “employee-friendly” working conditions. Thirdly, “layoffs due to the downturn” is great cover for cutting loose people whom you might have wanted to get rid of before, but didn’t have the political or economic means with which to do so.
But fourthly, and most importantly, law firms love to move in packs. They feel most comfortable when the great mass of other firms around them are all shuffling in the same direction, like the mastodons they are. Not a marketer or consultant has pitched an innovative or simply an unconventional idea to a partnership committee without hearing, in response, “But is anyone else doing this?” Firms like seeing other firms all cut jobs because they like seeing other firms all do the same thing, no matter what it is — from laying off associates to converting to LLPs to serving Bordeaux at client functions. There’s safety in solidarity.
Now, apply the market analyst’s theory to this law firm population. Law firms, like amateur investors, can be easily led and get easily spooked. If some firms raise starting salaries to $160,000, so do they all. If some firms hand out bonuses regardless of performance and context, so do they all. And if some firms suddenly seize upon associate dumps as the solution du jour, well, so will they all.
Doesn’t it make sense, then, that the smart law firms — the wise investors — will exercise some patience, look to the long term, and make a point of hanging on to their young talent? Think about the kind or recruitment pitch most law firms will have to make a few years from now: “Yes, it’s true we threw dozens of young associates to the wolves in the 2008-09 recession, but look at the market — everyone else was doing it, too.” Not exactly a stirring call to arms for law students, and not exactly a ringing endorsement of the firm’s ability to choose keeper-quality talent.
But now imagine the pitch that a more patient firm — one that kept and redeployed every idle associate it feasibly could, even if the firm took a profit hit — could make: “We suffered just as much as our competitors did in the recession. But unlike them, we didn’t make our most vulnerable employees pay the price through mass layoffs. We stayed the course, shared the pain, and emerged on the other side more experienced and more unified. That’s the kind of culture we have here.” That’s how a law firm can reap the “additional rewards for staying in the market when a lot of other people just didn’t have the guts to do so.”
Firms spend a lot of money, when recruiting new lawyers, trying to differentiate themselves from their rivals. But every firm now has the opportunity to own an ironclad recruiting advantage just a few years down the road, in return for a small investment of patience and creativity today. All you have to do is buck conventional law firm wisdom in a recession, which says sacrifice the pawns and protect the king.
When everyone in your market is fearful, be greedy about talent. There’s a pretty smart guy who makes a lot of money that way.