2009/2010 Trends and Implications

by Marcus Ollig

As we wrap up 2009 and dive into 2010, I wanted to share the history and trends we’re seeing that we hope bode well for the year. The information below is gleaned from the usual sources in the legal profession press, from our own internal trending over the past few years and from you, our clients and friends. First of all, thank you for continuing to trust us with your most important searches. We appreciate your trust and your business. I also want to thank you for always being so generous in sharing your insights and knowledge.

In both the recruiting and legal professions, 2009 was a difficult year with different, often competing pressures facing corporate legal departments and law firms. Corporate legal departments seemed to have more demands than ever – demands they were being asked to fulfill with fewer resources. Law firms saw their corporate and real estate work dry up and many did not see the usual corresponding uptick in litigation. Overall legal employment was down 5.8%, shedding almost 41,000 jobs over the past 12 months according to the U.S. Department of Labor Statistics. It seemed like there was a daily barrage of negative headlines – more lay-offs, summer associate hiring programs eliminated or reduced and the deferral of incoming associates (sometimes indefinitely). Beyond the headlines there were quiet cuts of staff and associates. Service partners were no longer valued in the same way. Many were asked to leave. Bah. Hum. Bug.

So where is the silver lining? Search and staffing firms are often considered an informal leading indicator of hiring trends. As friends, you know we’re a relatively small search firm with a laser focus on the legal profession. We thought our reach was too narrow to be the type of bellwether that a large, multidisciplined general services staffing company would be. Yet we seemed to run ahead of the trends. After a stellar start in 2007, we were down late in the year right in advance of what we later learned was the start of this recession. By the second half of 2009 our business started to make significant gains led by our exploding lateral partner practice (definitely a trend) and, late in the year, by a significant increase in the momentum of contract attorney and lateral associate placements. Generally, decreases in contract employment lead into recession and increases in temporary or contract employment lead out of recession. We hope that is true this time.

Other positive trends: According to The Kiplinger Letter and other sources, the Federal Stimulus is priming the economic pump and starting to create jobs, which should increase in the second half of 2010. Inventories need replenishing, exports are up and interest rates remain low. Even the commercial real estate slide could mean positive things for lawyers as the 35% slide in values over the past two years starts to create demand from investors here and abroad (see below). We share the view that this will be a slow recovery, meaning traditionally counter cyclical practices like bankruptcy and, to some extent, even litigation will continue to grow as other activity picks up. So, 2010 here we come!

As the economy continues to improve, are you ready or are you still in recession mode?

Listening to our clients and based on conversations with law firm leaders, we have some observations, predictions and lessons to share for 2010.


PREDICTIONS:

• This year will be better than 2009. Overall, our clients report more work with even corporate practices seeing signs of life while litigation is picking up substantially. Several surveys I have read point to the same uptick in litigation in 2010 vs. 2009. Real estate will take more time to recover, but even some practitioners in this realm are seeing the signs of a comeback. Additionally, there are practices that thrive in a downturn, including bankruptcy that should continue to have momentum in the early stages of this recovery.
  
  
• A lot of money remains on the sidelines, but some capital is returning to the game. Eager investors are waiting for the bottom in the real estate market (especially commercial real estate) and there are others who will be looking to buy or invest in growing companies. Not just U.S. investors and private equity firms will be looking to invest in U.S. companies and commercial real estate. China and Canada will invest a lot of capital. China due to its amazing growth over the past 10 years, has literally several trillion dollars to invest. The United States will be one beneficiary of this investment. The strong Canadian dollar has investors there looking south.
  
  
• Work will continue to shift to midsized firms and firms in the middle of the country. Legal work can be done anywhere. Lower cost structures and high quality practices allow these firms to pick off work from cash-strapped companies.
  
  
• Money-center firms will continue to consolidate: many firms are still positioned to be the go-to money center law firm for their clients. The question remains: How many firms like that does the market really need? There is continued pressure for these firms to consolidate.
  
  
• Partners will continue to look for better opportunities. Decisions of the past 18 months have left a sour taste in many senior attorneys’ mouths. Other negative factors include continued bill rate pressure, increased administrative duties, concerns about firm management or direction, pay and even culture. We represented several people in career transitions looking to change culture over the past year.
  
  
• Ironically, partners will move both up- and down-market depending on their practice.
  
  
• Associates (the ones you want to keep) are getting agitated in many cases as many firms have slashed benefits, pay and TLC while increasing workload. The specter of being laid off does not translate to more loyal associates, especially as the economy improves and high-performing associates are in demand again. I had two senior law firm leaders tell me they thought lateral associate hiring would explode next year as firms do not have the funnel of talent they normally have and are heading into 2010 running so lean.
  
  
• Pay will be slightly down. According to NALP, median pay for attorneys increased 150% from 1994 to 2008! In 2009 it dropped according to preliminary data, as 20% of the AMLAW 200 officially cut associate pay. Many more are going to compensation models tied to performance versus a lockstep system.
  
  
• Litigation will be up over 2009 levels according to clients who are already seeing significant increases. Surveys by BTI and others predict the same.

IMPLICATIONS & LESSONS:
While it can be argued that the economy is already growing, we believe the second half of the year should be significantly better than the first half. So, how can we change our focus toward increased growth?

• What are you doing to keep your best people at the partnership level? Partners are moving at an incredible rate. We see this continuing in 2010 based on conversations we have around the country. Why? This is because there are law firms that don’t treat their partners as owners, have closed compensation systems, and many partners have a negative view of management. Other factors include the fit of an individual’s practice, a perceived tin ear (management) to annually raising the rates for clients, being asked to sacrifice without decision-making ability or without even being heard. In short, do you have real partners or highly compensated employees?
  
  
• Keep an eye on the associates you wish to keep in 2010. The pace of hiring is picking up and we see more of that in 2010. For associates, pay is generally flat or down. The partnership track has often been lengthened, while the workload has picked up tremendously. Maybe first year associates are not worth $160,000 in the middle of the country. Maybe the competition for first year talent was too fierce, but your fully engaged associates make money for your law firm, can help keep clients happy and the best ones represent your future leadership. What are you doing to keep these associates beyond a bonus? What will make them want to stay and invest their future with your firm? What benefits, career development opportunities, work-life flexibility and career advancement opportunities are you talking with them about? Do you mentor and train? What will make them choose to stay instead of look at greener pastures once the economy recovers?

Let us know if we can help.
We have seen a lot of excellent ideas in our work with legal departments and law firms around the country. Many of those ideas may be appropriate for your firm/culture.

• Cost structure/reward systems: It is times like these that offer the best insights into the way you distribute profits and incent partners. It is also a good time to change your model to reflect your values and business strategy. We can certainly help you with that. If not us, there are several excellent consultancies that can.
  
  
• How nimble are you? What costs in your firm are fixed costs vs. variable costs? Do you track if the summer associate program is profitable, for example? Is there work that can be accomplished at a high level with a flexible (contract) workforce that can be ramped up or down depending on market demand? How easily can you switch to countercyclical practice areas or are you already strong in those areas? How many of your attorneys recognize they need to generate client relationships and maintain those?
  
  
• Planning: Do you have a vision for your firm or for your practice? Do you encourage and mentor attorneys in the area of business planning? I interview partners every day. Without exception, those who write business plans have the largest books of business – by far. We have a brief outline of components necessary for a simple business plan below.

I hope these musings prove helpful or at least thought provoking. Thank you for your continued support and best wishes for a successful, growth-filled 2010!