Ed. note: Law Shucks focuses on life in, and after, Biglaw, including by tracking layoffs, bonuses, and laterals. Above the Law is pleased to bring you this weekly column, which analyzes news at the world’s top law firms.
Most executives will agree that cutting expenses is the far easier way to increase profits. Growing revenue is far more difficult.
According to Citi’s Midyear Law Firm Review, law firms have picked the low-hanging fruit and will have to figure out how to increase productivity if they want to return to profit growth on pace with previous years’.
The key trends to keep an eye on: firms with strong BRIC presences are poised to cash in on a growth opportunity; clients are demanding firms support lower-cost strategies (e.g., firms handing off routine work to smaller/lower-cost firms, and interfacing with outsourcing providers); value-based billing (alternative fee structures or just lower cost); increased lateral hiring (hmm, someone should track those); and value-added services, like knowledge management, CLE and after-action reviews.
Those are the outward-facing trends.
There’s potentially troubling news on the "taking care of our own house" front (speaking of which, anyone know a lawyer who’s good with a broom?), which we detail after the jump, as well as some of the highlights and lowlights of the past few weeks in Biglaw.
On the home front, expense-cutting isn’t over yet:
Most firms reduced equity partner head count in the first half of 2010, so it’s clear that this is a focal point. We believe it will continue to be a priority throughout 2010.
Associates continue to walk on the razor’s edge as well. Expect firms to continue aggressively to review performance for those smaller few they actually do hire. Non-partnership tracks will likely expand – and the firm that figures out how to do it successfully will leap ahead of the competition.
Even more so than associate layoffs, partner layoffs (or mere conversion to non-equity status) are kept on the down low. Although it seems to have tapered off lately, we are still getting reports of stealth layoffs – even Ms. Lingo the housekeeper was an apparent stealth layoff.
And again, it’s important to bear in mind the difference between stealth layoffs and covert layoffs.
Those who have survived this long, whether associates or partners, are more likely getting the spoonfuls of sugar to make the severance go down.
Of course, the news hasn’t all been bad. The legal sector added 1,000 jobs in August, even though overall numbers are well below the prior year. September, of course, traditionally saw a bump in employment as firms did the bulk of their onboarding of new associates in September and October. Now, they’re bringing on fewer people, and the start dates are spread across a much wider swath of the year.
Recruiting season is in full swing, as firms finish up OCI and start callbacks in earnest.
That whole process is ripe for overhaul, but change is hard to find.
The outlook is also pretty rosy for aspiring lawyers with technical backgrounds. Sure, the market is saturated with liberal arts graduates, but firms are so desperate for science graduates that they’re hiring them into technical-adviser programs and then paying for the folks to go to law school and hiring them after graduation. The Recorder reports the programs exist at Ropes & Gray, Morrison & Foerster, Wilson Sonsini, and other firms.
Those liberal arts students may not know exactly how their technology works, but they know how to work with it – and pity the firm that doesn’t provide all the right tools. The American Lawyer’s Associate Tech Survey 2010 showed a correlation between firms’ technology spending and associate satisfaction.
One of the most compelling arguments firms have made for their constant growth is that having diversified practice areas will tend to reduce volatility in earnings. Traditional "wisdom," since disproved, was that practices like corporate and litigation were countercyclical to each other. When things got bad enough, everyone suffered.
It’s difficult to tell how these trends in discrete practice areas will affect firms’ overall results, but here’s a sampling of what’s going on:
- Energy M&A is hot, and it’s apparently not inuring solely to the benefit of the traditional Texas firms. Simpson Thacher, Sullivan & Cromwell, Fried Frank, and Kirkland & Ellis have all had recent big-ticket mandates in the field;
- So is European dealmaking, according to Legal Week, which points to Allen & Overy, Linklaters, and Latham & Watkins seeing an uptick in financing work to support LBOs;
- New bankruptcy engagements are down, although Lehman is the gift that keeps on giving – fees are approaching $1 billion, the bulk of which has gone to Weil Gotshal ($212.3 million), and Milbank Tweed ($61.1 million). Gibson Dunn, Latham & Watkins, Dechert, and many others have also wet their beaks;
- Honest-services fraud cases are on the decline, much to the delight of the executives who run many of Biglaw’s clients; and
- Patent litigation remains strong, although there’s a possibility the latest big one is a deliberate attempt to submarine the system (see the comments).
Speaking of IP litigation – the $100 million Google spent defending Viacom’s infringement claims may just be the tip on the iceberg. Viacom is set to appeal.