Both the Wall Street Journal and New York Times have feature pieces on the plight of BigLaw.
The Journal article connects the current legal marketplace, particularly the trend toward a “grow or die” mentality and how it went horribly wrong at Heller Ehrman. The combination of deteriorating economic conditions and a push to running the firm more like a business are blamed for its demise. Pundits think Heller, Thacher Proffitt and Thelen are more likely to be the beginning of a trend than isolated incidents.
Many law firms are susceptible to the phenomenon that led to Heller’s collapse. Their main assets are their senior lawyers. Job hopping used to be relatively rare among such lawyers. But lawyers with big books of business now commonly shop themselves to more profitable firms that can offer larger compensation packages.
“Law firms are not the kind of companies that do well in adversity,” says Jonathan Landers, a partner at Milberg LLP, who has represented banks in law-firm dissolutions. “Their best assets are their most mobile assets. When bad things happen, people get nervous and they start to look around.”
The economic downturn has prompted lawyers to jump to firms perceived to be more financially stable. If enough partners head for the exit, a firm can crater in a hurry.
“The marketplace is so intensively competitive that when firms encounter financial difficulty, the best and brightest lawyers immediately say, ‘I don’t want to take a risk with my clients and my compensation,’ and they jump quickly to a less risky platform,” says Mr. Brennan, the consultant. “Within weeks a firm can go from having financial difficulty to having a run on the bank.”
The Times focuses on the steps firms are taking to right the ships: layoffs, salary freezes, and reduced bonuses. David Lat has been getting tips that are a bit more enlightened than the public comments on his site.
“There is this sense that firms didn’t act prudently during the boom and now they are getting religion, and that it’s better late than never,” Mr. Lat said. “Many associates we have spoken to think the freeze probably saved jobs.”
That’s a sentiment we can agree with, and is a nice turnaround from the sophomoric shouts of “NY to 190!” we heard a year ago.
Read the two pieces. Together they provide an interesting counterpoint on what firms can do prospectively and how the smallest missteps can lead to disaster. Personally, it just confirmed my view that the current BigLaw model is a pretty fragile house of cards.
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I have been saying it all along, there is more death to come – mark my words, some of the big firm mergers are ripe for dissolution and partner flights. CWT is having significant issues, word is Mayer Brown too.
I have been saying it all along, there is more death to come – mark my words, some of the big firm mergers are ripe for dissolution and partner flights. CWT is having significant issues, word is Mayer Brown too.