Avalanche alert

“[F]irms still have too many lawyers,” says the Chicago Tribune in the course of a rather grim 2009 forecast for American law firms. That might not be a problem for too much longer, because we’re about due for another round of bloodletting. But the next stage of the inexorable rationalization of the private bar won’t involve more of the associate and staff layoffs that marked the latter days of 2008 (though we’ll still see plenty of those). We’re now in Phase Two; partners are on the move, voluntarily and otherwise.

In the latter category, the latest news comes from the UK, where Addleshaw Goddard just told 19 partners they were no longer welcome, while Ashurst decided that 10 of their partners would be a better fit elsewhere. This is a whole different order of impact than associate and staff layoffs. There’s a difference between cutting fat and cutting bone, and in a law firm, partnership is bone marrow. It forms the underlying substructure on which everything else is built. “Partnership” carries a lot of emotional and psychological weight, and a firm can’t revoke that designation without expecting some emotional and psychological backlash.

But that looks like the lesser of the problems on the horizon. With the new year comes the end of the old year’s collections and distributions, so a lot of firms’ balance sheets are coming into focus. That means Lateral Season is upon us, and this year, the harvest looks to be exceptional.

Now that 2008 firm financials are becoming clearer, legal recruiters and consultants say lateral partner moves are bound to heat up, just as they always do at the start of a new fiscal year. But this time around, they say the added pressures of a tanking economy and firm layoffs will flood the market with even more partners looking for new homes, or for quick escape routes off sinking ships.

“This is the month to watch,” legal consultant and recruiter Colin Beebe says. “In January and February, you’re going to see a lot of partners calling and asking, ‘How do I get taken?'”

It’s not hard to sketch out the next few steps. Firms lower down the standard “profitability” (I use that term advisedly with law firms) scale will be vulnerable to raids by higher-ranking firms; in a recession, acutely so. In some firms, a few key partners — well-known in the industry, well-respected by clients and colleagues — will accept the invitation to climb several notches on the PEP ladder. It doesn’t have to be a mass defection; just enough key people in key positions whose withdrawal, like certain critically placed rocks on a hillside, can lead to a few more, and then some more, and then an avalanche.

We’ve seen it happen before, and I think we’re about to see a lot more of it. The first few months of 2009 could well be marked by a series of firm implosions, as the strong get stronger by poaching from the weak. This is inherently neither a good thing nor a bad thing — companies and organizations fall and rise regularly in normal marketplaces — but it will be a surprising and affecting turn of events for lawyers. It will be an uncomfortable reminder, as Prof. William Henderson told the Tribune, that “[y]ou have pretty weak glue holding these bigger enterprises together.”

And that’s what will interest me the most — looking for the firms that, in the natural order of things, might have fallen, but didn’t, because their glue was stronger.

I actually don’t think it will be the less “profitable” firms that are most vulnerable to poaching; it will be those that  failed to strengthen, or actively weakened, the internal bonds of unity, purpose and vision — “vision” here signifying something more meaningful than profit generation. Firms that worked staff sick, rode associates too hard and undervalued partners are in particular  trouble. Those that expelled partners solely for reasons of profitability should be declared off-limits to visitors due to the danger of imminent collapse.

The survivors will be those that have sufficient strength and cohesion to hold together when others shake apart. They’ll be the ones that, months or even years ago, sensed the emerging ethic of the time, that the day of the me-first organization is over. There’s no time left now to build that ethic into a firm; either it’s there or it’s not, and the consequences will flow accordingly.

I listened to a man deliver a pretty good speech yesterday. Here’s what he had to say about character and collegiality in the face of adversity:

[O]ur time of standing pat, of protecting narrow interests and putting off unpleasant decisions — that time has surely passed. … [A]t this moment — a moment that will define a generation — it is precisely [the spirit of service] that must inhabit us all. It is the kindness to take in a stranger when the levees break, the selflessness of workers who would rather cut their hours than see a friend lose their job, which sees us through our darkest hours.

How many partners in your firm would willingly — enthusiastically — assent to a drop in profits per partner in order to keep fellow partners in the fold? The answer to that question might just determine how well, if at all, your firm weathers the coming months.

The new leverage

Bad news on the economic front continues to pile up — you don’t need the links from me — and the legal profession is finding its ride increasingly bumpy as a result. Wachovia’s legal specialty group reports that partners in large law firms are bringing in less revenue for the first time since approximately the Industrial Revolution. But it also points out an overlooked fact: despite all the talk about associate layoffs, it’s staff that’re really taking the hit at firms, down 18% in September alone. That suggests a couple of things: that some firms really are taking steps to retrain or otherwise hold onto their associates (and there’s good reason to do so, says Bruce MacEwen), but also that these firms aren’t looking as far down the road as maybe they should.

Looking down that road are the good people at The American Lawyer and Legal OnRamp who, with the assistance of consultant Rees Morrison, recently conducted a survey of in-house counsel members of Legal OnRamp. The survey (disclosure: I made small contributions during the design process) asked in-house lawyers about their relationships with outside counsel and their predictions about how those relationships and in-house practices will evolve over the next five years. Topics of inquiry included client satisfaction surveys, value billing, outsourcing, commoditization, automation, consolidation, and social networking.

The thrust of the results is that in-house lawyers aren’t especially happy with outside counsel in terms of service, partnering and communication — nothing new there — but are surprisingly tentative about predicting major change in how they go about acquiring services from these law firms. Very surprising, actually, as Michael Grodhaus says in reference to another study “in which 32% of 600 corporate executives predicted significant changes in law firm billing practices over the next two years. … So in the face of what is likely to be the worst financial crisis in this country since the 1981-82 recession — two-thirds of these corporate executives expect to continue to be billed by the hour for legal services just as they have always been? Where are their shareholders?”

The AmLaw/OnRamp survey results are here, the analysis by Rees and AmLaw’s Aric Press  is here, and Paul Lippe’s analysis at Legal OnRamp is here (members-only on that last one). All insightful stuff, and worth your time. For me, though, the takeaway is found in Aric’s introductory AmLaw editorial, summing up the big-picture view of the changes underway in the legal services marketplace. He identifies, correctly I think, four trends driving change — client pushback, talent upheaval, technological disruption and the Legal Services Act — and forecasts both fundamental change (farther down the line) and disaggregation of legal services (probably a lot sooner) to come. He closes with this concise but powerful state-of-the-nation on change in the legal marketplace (emphasis added): Continue Reading

Smart investing vs. law firm layoffs

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. Continue Reading

The perils of squandering talent

Malcolm Gladwell has written a new book about the factors that most influence the likelihood that you’ll achieve (traditionally defined) career success. Outliers: The Story of Success posits that much of what affects our success is out of our control, and that arbitrary or even trivial factors play a disproportionate role in what we end up doing and how well we do it. As part of the book promotion tour, he spoke with the Globe & Mail the other day and made an observation that I think resonates deeply with the legal profession.

Giving an example of arbitrary success factors, Gladwell noted that a huge percentage of professional hockey players have birthdays early in the year. That’s because the standard cutoff date for hockey programs is January 1, so when all-star teams and other squads are recruited, the players who seem most talented are invariably picked — but in fact, they only seem more talented because they’re older and more physically capable. But then these players get special attention, more coaching, more opportunities, and by the time they hit their teens, they actually are more talented. The same applies in school — Jan. 1 cutoffs mean kids born later in the year are younger and therefore farther back on the learning curve. His point is that arbitrary dividing lines can have huge unintended consequences.

Then the interviewer asked Gladwell, at the end of their conversation, why anyone should care enough about this to actually do anything about it. His reply made me sit up straight:

Because we squander talent. Even in a country like Canada, where hockey is a priority, an obsession, we’re squandering a huge amount of hockey talent without realizing it. We could have twice as many star players if we just changed the institutional rules around finding talent. To me, that’s such a powerful lesson. Because it just says, look, in a simple area like hockey, in a country that cares more about it than almost anything else, if you’re still squandering 50 per cent of your ability, how much more are we squandering everywhere else?

I’d go further and say that squandering talent actually has two components: failing to realize the potential universe of talent at your disposal, and then failing to maximize the talent that you do choose. When you apply that analysis to talent identification, intake and management in the law, you come to realize just how arbitrary and undisciplined we’ve been. Look at it in these terms: Continue Reading

Whatever happened to the talent war?

Funny, isn’t it, that you don’t hear many people using the phrase “$160,000 first-year associate salaries” these days? Along with its close relative, “$140 per barrel oil,” it’s a numeric mantra that enjoyed its heyday way back in that comparatively sunny era we call six months ago. Nowadays, though, no one seems to be talking much about what the next big lawyer salary bump will be. If you were decrying the mad escalation of compensation for rookie lawyers back then, you’re probably finding first-year salary deflation to be a small silver lining in the otherwise very dark clouds hanging over our heads.

Most of the talk thus far about the impact of the recession on lawyers and law firms has centered on clients: cutting back on legal work, clamping down hard on costs, and generally passing on their own fear and uncertainty to the lawyers who serve them. We’ve seen the first impact wave strike: associate layoffs at many large US and UK firms and the collapse of two California law firm stalwarts. Now comes what might just be the start of the second wave, news that global giant Eversheds has taken the remarkable step of suspending partner payouts for six months. All of it arises from the economy’s sudden jarring halt in the face of the credit market landslide and associated global recession.

But you know, the sun came up again this morning, and lawyers and law firms still need to think not just about today, but also about next year. Before the meltdown, the talent war was a hot topic in the profession, and the importance of matching the right lawyers to the right legal employers hasn’t disappeared. Things obviously have changed for both the buyers and sellers of legal talent; how much they change, and for better or for worse, depends on how much courage everyone brings to the table. Continue Reading

An overlooked recruitment opportunity

At a certain point, a market’s inability to correct an imbalance becomes a competitive advantage for others within that market. In that spirit, allow me to illustrate an imbalance that innovative law practitioners can exploit right now.

We’ve all heard and said a great deal about how law firms need to better address the treatment of their new lawyers and associates. The volume of that conversation has grown sufficiently loud to capture at least a few firms’ attention, suggesting that we’re building towards a critical mass. Consider this update on Ford & Harrison’s successful decision to drop billable requirements for associates, as well as Denton Wilde Sapte’s move to give associates more control over their own business development plans and even Curtis-Mallet’s decision to start a recruting page on Facebook.

All well and good — nice to see a few firms coming to appreciate the importance of adapting their traditional practices to make best use of the incoming lawyer talent wave. Now, let’s see; we’re working on the associates, the partners always look after themselves … is there anyone we’re missing? Any significant group within the law firm that’s still being overlooked?

Employee survey reveals support staff dissatisfied, says The Lawyer in reporting the results of its first employee engagement survey. The poll “shows a chasm between lawyers and business services staff, with the latter feeling undervalued, underpaid and out of the loop. An overwhelming ­majority of business support staff -– 64 per cent -– did not feel that non-fee-earning roles are valued at their firm.” Read the article for the depressing details, including one recruiter’s characterization of how lawyers view support staff: “lackeys to ­support the real business of generating fees.”

I’ve argued before that most law firms come up very short in this regard. Lawyers are notorious for their habit of treating employees without law degrees as separate and lesser entities within the firm structure, less worthy of respect and collegiality. We’ve done articles in the magazine on sensitive topics within law firms, including advancement of women and associate dissatisfaction. But the only time we’ve ever been turned down flat by every potential interviewee was when we tried to do an article on legal secretaries’ views of their workplace. Not even the offer of anonymity could overcome the intimidation factor.

So what can you, the innovative legal professional, take from all this? Valuable members of your rivals’ firms are disaffected and alienated, seeking workplaces where they’re fully integrated into the firm’s business and culture. Build or reinforce those elements in your own operation, developing a deserved reputation for proper treatment and engagement of non-lawyer professional staff. When that reputation starts circulating in your legal community’s support staff grapevine (and there is one, believe me), you’ll have a major lead over your competitors in the pursuit of these underrated and underappreciated employees.

Firms work hard to rank highly in surveys of associate satisfaction, as well they might. There may never be similar surveys of support staff, but all the better for you: recruiting the best of these professionals in stealth mode means your lead will go unnoticed, and unchallenged, that much longer.

The questionable future of partners and associates

The evidence is growing that neither “partner” nor “associate” is going to be a meaningful term in law firms of the future. Both of these hallowed pillars of law firms’ talent structure are starting to be used more as means to an end rather than as ends in themselves.

In terms of partners, consider this article from The Lawyer about firms trying to expand overseas but having difficulty persuading lawyers to transfer to the new offices (especially in Dubai). One tactic firms are employing is to offer lawyers who accept the foreign posting the opportunity to make partner much more quickly than they normally would. Think about that one for a moment.

Partnership, which was once considered the ultimate law firm goal, is being reduced to an incentive the firm dangles in order to get what it really wants — boots on the ground in fast-growing locations worldwide. It’s been a while since admittance to partnership actually was a genuine endorsement of a lawyer’s skills and professionalism through invitation to an exclusive, tight-knit community with common goals. But it’s still surprising to see the fast track to partnership deployed as just another behavioural incentive — especially since partnership really doesn’t turn so many associates’ cranks nowadays.

To get a sense of how firms view those associates, take a look at how the chair of Simpson Thacher responded to a rumour that his firm was culling 30 associates through poor midyear reviews, an attrition tactic not unknown to large firms: “This is something that was made up by that rag in the U.K., it’s just complete nonsense” — the rag in question being The Lawyer, not a newspaper normally associated with Fleet Street standards. Continue Reading

Associates and the bad table

The opening words to a sporty 60-second video montage at Cadwalader’s US student recruitment site are: “Make no mistake about it. A career at Cadwalader is not for the faint of heart.” So it would seem, following news that the firm cut 96 lawyers on Thursday, an astounding purge that surpasses Sonnenschein Nath & Rosenthal‘s recent 37-lawyer, 100-staff cut, and comes several months after Cadwalader’s January move to drop 35 lawyers.

The most recent pink slips were handed out largely in the firm’s formerly high-flying capital markets and global finance groups, which have been brought low by the real estate finance and securitization market’s struggles, and were given almost entirely to associates.There’s no small amount of schadenfruede about Cadawalader’s position to be found in the blawgosphere at the moment, much of it based on this February 2007 article in the New York Law Journal, with the built-for-irony title: “Does the future belong to Cadwalader?”

But “layoffs” (read: you’re fired, but it’s not your fault) are likely to become more frequent at the largest firms (DLA Piper announced a few in London this morning) for the totally understandable reason that the really hot parts of the economy that powered these firms over the last few years have gone really cold.

What’s funny, though, is that during these hot streaks, when associates were so hard to find and cost so much, I quite clearly remember many law firms ruing their decisions to chop associates the last time an overheated economy tanked. All those associates we fired, they said, shaking their heads, if we’d held on to them, would be able to help us now. Perfectly right, of course — and yet, now that the short-term pain of lower profits looms again, the long-term gain of associate investment apparently becomes hard to remember.

Coincidentally, today also saw the release of the American Lawyer‘s midlevel associate survey, which paints a bleak but familiar picture of associates’ waning interest in partnership or indeed any long-term law firm goals. Interestingly, though, the fear of layoffs hasn’t much to do with this, nor do issues of salary or even “work-life balance” (a term I intend to put “in quotes” until it goes away). What’s driving associates away from firms is that the work stinks. Continue Reading

The other talent war

Boston-based Goodwin Procter seems to be one of the more innovative and forward-looking firms out there (how many law firms have not one, but two people blogging on knowledge management?). They solidified that reputation earlier this week by announcing the appointment of a director of professional development and training for professional staff (HT to Legal Blog Watch). Jamie Krulewitz’s job, evidently the first of its type, is to oversee the professional development and training of the firm’s administrative and secretarial staff.

This is self-evidently a good move, because everyone in law firms needs training and development, not just the lawyers (and many firms don’t even provide lawyer T&D). Goodwin Procter recognizes that if it wants its lawyers to operate at their very best, it needs to ensure they can count on equally top-notch staff support. This is consistent with the firm’s refreshing approach to its website personnel listings which, again unlike many others, groups lawyers and non-lawyers together as both “professionals” and “people.”

What’s interesting, though, is to consider that the firm went to the trouble of a press release and announcement for a “simple” staff hire. Firms hire non-lawyer professionals all the time without any public notice, and I’m sure Goodwin Procter normally is no exception. Probably this was simply a matter of endorsing the new person and boosting her morale by giving her a high-profile welcome, consistent with what appears to be the firm’s staff-positive culture.

But try this exercise: read the announcement again, this time not as a press release, but as if it were a recruitment piece for non-lawyer professional staff: Continue Reading

Hacking the legal marketplace

I missed this story when it first came out in May, so I’m now belatedly noting a new talent recruitment company called Bohire. Its business model is simple: every time you successfully suggest a person who lands a job with a company, the company will pay you a reward in the hundreds or the thousands of dollars. The more important and high-paying the job, the greater the reward you earn. Companies already look to their own people for recommendations of lateral hires; Bohire has basically turned that personal reference system into a Web 2.0 application.

Read this report and that one for more details, including the fact that some of Bohire’s clients are law firms: one of the big national outfits here in Canada, along with some smaller Toronto boutiques. At the moment, these firms are using Bohire to recruit legal assistants and law clerks. But if these hires work out — and so far, they seem to be — how much longer do you figure it’ll be before the firm starts hiring lawyers this way? And how do you think that will go over with legal recruiters, many of whom currently charge 20% or 30% or more of the position’s annual salary for a successful placement?

I wrote earlier this week about a “process revolution” underway in the delivery of legal services, but it’s more widespread than that: it’s affecting the whole law industry. Legal publishers are under siege by bloggers; legal research providers are being challenged by cheap or free case law sites; legal recruiters are having to cope with Bohire and its soon-to-come competitors. One of these days, the open-source movement is going to get around to the legal software industry, and that’s going to do to established software makers approximately what Google is doing to Microsoft.

And really, I used the wrong word. It’s not a revolution; it’s a hackfest. The legal industry is being hacked, just like the recording industry before it and the movie industry right about now. If you’ve ever visited Lifehacker, you know what I mean by hacks: shortcuts, productivity tricks, efficiency and convenience improvements that straighten and smooth out unnecessary obstacles. Third parties are hacking their way into the law’s traditional seller-buyer relationships to set up new efficiency shortcuts, perspective windows and alternative resources. Crowdsourced legal recruitment is just the latest example.

The traditional constructs of the legal industry — many of the products and services offered by and to lawyers —  are being deconstructed and rebuilt along 21st-century lines. Pay close attention to any tremors in the ground on which you’re standing.