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BigLaw Storm Warning By Dan DiPietro In a trend that started last year, expense growth this year has stayed relatively high, driven largely by continued growth in lawyer head count. But revenue growth was the weakest it's been in the seven years since we began tracking quarterly results. Demand for legal services was also the weakest seen in the period from 2001 to 2008. Because law firms continued to add lawyers to their ranks despite the drop-off in demand, firms experienced a slowdown in productivity comparable to the second quarter of 2001 and lower than every other second quarter between then and now. All told, for the first two quarters of 2008, profit margin compression -- that is, expenses increasing faster than revenue -- was the greatest it's been in the last eight years. The slowdown is hitting the most profitable firms the hardest. In the first half of 2008, demand dropped off even more dramatically and expenses increased at a more rapid pace at the top firms, resulting in even greater margin compression and a steeper drop in productivity than experienced by their less profitable rivals. The practice areas that normally provide a lift in a downturn -- restructuring, bankruptcy and litigation -- have not helped cushion the drop-off in transactional work. There is a silver lining. A bad year (and the numbers suggest 2008 will be even more trying than 2001, when partner profits were down slightly) will enable firms to take steps that partners would resist in a good year -- winnowing out unproductive lawyers and applying greater discipline to expense control. At Citi Private Bank, we provide financial services to more than 650 U.S. and British law firms and over 35,000 individual lawyers. For 28 years, Citi Private Bank Law Firm Group has confidentially surveyed firms in The Am Law 100 and Second Hundred, along with a number of smaller firms. These reports, together with extensive, ongoing discussions with law firm management, provide a comprehensive overview of financial trends in the industry and insight into where it is headed. The report for the first half of 2008 uses data gathered from 165 firms -- 75 Am Law 100 firms, 55 Second Hundred firms and 35 smaller firms. Our report found that, across the industry, revenue growth was a tepid 4.8 percent, less than half the compound annual growth rate (CAGR) of 10.6 percent for the previous seven years. The slumping revenue growth was driven largely by a falloff in demand, measured by gross billable hours (which declined by 0.3 percent). That's in sharp contrast to the seven-year demand CAGR of 3.9 percent. Despite the falloff in work, leverage actually increased during the first half of 2008. Total lawyer counts rose by 5.6 percent, more than three times the rate of equity partner growth. But the controlled approach to making new equity partners was not enough to counter the lack of demand, and firms saw profits per equity partner (PPEP) drop by 9.1 percent in the first six months of 2008. There's no question that it's a dramatically different economic environment from the previous seven years, during which PPEP had a CAGR of 9.3 percent. It may seem paradoxical to see an increase in head count while demand drops, but law firms are not like corporations in this regard. Firms generally set their new associate hiring goals two years in advance. They are also much more reluctant than corporations to resort to mass layoffs, since they need to keep on enough junior associates to ensure that they won't suffer from a lack of midlevel talent when business picks up again. And when the economy goes soft, lawyers are less inclined to leave their firms. This has definitely been the case over the last six months. Although we don't track lawyer attrition on a quarterly basis, anecdotal evidence from conversations with managing partners suggests that associate attrition has dropped dramatically. This unique aspect of the legal industry is already causing short-term pain. The uptick in total lawyer counts, coupled with the decline in demand, caused productivity, or average hours billed per lawyer, to drop by 5.5 percent in the first half of 2008. The decline is comparable to the falloff in productivity that firms experienced in the first half of 2001, where their business got slammed by the burst of the high-tech bubble. This time around, the profit pie is being sliced even thinner as a result of an increase of 1.8 percent in the number of equity partners, up from 1.5 percent in the comparable period last year, although still trailing the seven-year CAGR of 2.9 percent. Firms are feeling the squeeze from both sides. At the same time that revenue growth has fallen, expenses have stayed high. In the first half of 2008, expenses grew by 10.1 percent, which is down from the 13.7 percent increase in the comparable period last year, but still above the seven-year expense CAGR of 9.5 percent. Associate compensation, which accounts for about 23 percent of firm revenue, continues to be the primary driver of expense growth. Compensation costs rose by 15.2 percent, again down from the 17 percent rise in the first half of last year, but still well ahead of the seven-year CAGR of 10.1 percent. Firms did manage to get operating expenses under control, slashing increases in occupancy charges and overhead to 6.9 percent, notably down from the almost 12 percent increase in these expenses during the comparable period last year. Tougher at the Top When firms are broken out by profitability, our data produced an interesting finding. The firms that soared in 2002 through 2007 were harder hit in the first half of 2008 than their less profitable peers. From our sample of 165 firms, we broke out 63 top-tier firms (defined as those with profits per equity partner above $650,000 in the year 2000). Over the past six years, this group has consistently produced higher growth in revenues and PPEP than other firms. That changed dramatically in the first half of 2008. Growth in PPEP for 51 of the 63 top-tier firms that reported their results to us plummeted from an 11.7 percent increase in 2007 to an 11.8 percent drop in the first six months of 2008. In contrast, their less profitable rivals experienced a 5.3 percent drop in PPEP in the first half of 2008. After reaching a seven-year peak of 7.4 percent growth in 2007, demand at top-tier firms actually dropped 1.6 percent in the first half of 2008. Again, this decline compares unfavorably with the 1.1 percent rise in gross billable hours at the other firms in our sample. Top-tier firms experienced even greater profit margin compression than their peers, with revenue growth of 4.3 percent and an increase in expenses of 10.9 percent. In contrast, the other firms we surveyed had revenue growth of 5.5 percent and a rise in expenses of 9.1 percent. Demand at top-tier firms declined in both the first and second quarters of 2008, in contrast to their less profitable competitors, for whom demand dipped in the first three months but increased in the second three months. What's going on? Simply put, top-tier firms tend to rely on certain kinds of transactional work, such as high-end private equity deals, securitization and structured finance, and also tend to have a higher percentage of clients in the financial services sector. That client base served top-tier firms well during the prior six years. But since the second half of 2007, the deal environment has languished, and top-tier firms are paying the price. These firms also have had a tougher time turning off the expense spigot. When times were flush, top-tier firms experienced higher associate attrition rates than average, due to lawyers leaving to work for clients and other opportunities in the financial industry. To make up for this, top-tier firms typically hired more new associates than average, since they expected more to leave. In fact, at top-tier firms, head count grew by 7 percent in the first half of 2008, versus 4.2 percent at their rivals. This continued head count increase, coupled with an abrupt decline in demand, resulted in productivity (measured by hours per lawyer) dropping 8 percent at top-tier firms in the first six months of 2008, versus a 2.9 percent decline at the other firms. International Firms Take a Hit Our data points to another interesting finding: International firms -- those with between 10 percent and 25 percent of their lawyers based overseas -- experienced greater profit margin compression than any other group of firms. Like top-tier firms, last year international firms outpaced their domestic counterparts across virtually every key financial benchmark. Their rather abrupt reversal of fortune suggests that the economic slowdown in the United Kingdom and Western Europe that has followed the slowdown in the United States is disproportionately affecting international firms, which typically have a heavier presence in those regions than their peers. On the other hand, global firms -- those with more than 25 percent of their lawyers based overseas -- have experienced the least profit margin compression of the group. Global firms tend to have a wider reach than their international counterparts, with more lawyers in Asia, Eastern Europe and the Middle East. The relatively stronger performance of the global firms suggests that simply having an international presence is not enough to ensure success. Rather, what matters is the extent and location of a firm's global footprint. Looking Ahead As I write this, all signs point to the second half of 2008 continuing the trends of the first half. The common wisdom is that this economic slump is more akin to the downturn of 1991 -- deeper and more complicated than the downturn of 2001, which was largely limited to the high-tech industry, coupled with the disruptive effects of 9/11. Although firms with a big technology client base suffered in 2001, growth was largely flat across the legal industry overall, with the top tier slightly down. In contrast, the numbers we are seeing now suggest a much more significant decline. Typically, inventory -- accounts receivable and time worked but not yet billed -- serves as an excellent predictor of future revenues, and higher inventory levels should suggest strong revenue momentum in the third and fourth quarters. In the first and second quarter of 2008, inventory levels rose by 8.2 percent. This should be good news, but in this case, the inventory increases are attributable in large part to slowing collections, which does not augur well for revenue growth in the second half of 2008. Early this year, in a joint advisory issued by Citi and Hildebrandt International (pdf), we projected that profits would increase by 3 percent to 5 percent. Based on the six-month results and our sense of the dynamics in the market, we now believe PPEP will be flat, or even down by as much as 10 percent, in 2008. The top-tier firms will have an even tougher year, with profits down by 5 percent to 15 percent. Our reason for providing a range is that there is an elephant in the room: How will firms, particularly the top-tier firms, handle associate bonuses this year? The rational approach would be to pare them back, but, while lawyers display rationality and dispassion in the practice of law, they have exhibited "irrational exuberance" on this issue in the past. Managing Through The Slump Tying associate bonuses to the firm's performance -- which would create a smaller bonus pool -- can help somewhat. Firms also need to manage the expectations of their partners, particularly the more junior partners who had not experienced a downturn until now. There are several other steps firms can take to stay financially healthy. First, firms should make an effort to get in front of their clients and engage in active dialogue about their business. This is especially true for firms that rely heavily on clients in the financial services sector because the nature of deals is going to change, and firms don't want to be behind the curve when that happens. Second, firms should consider sending a tough message to unproductive lawyers at every level. When demand was high, firms often let their unproductive lawyers slide. In a time of soft demand, such lawyers become a real drag on profitability. Third, firms should start their year-end collections push now. The higher the mountain of unpaid bills, the more formidable a climb it becomes. Keeping inventory low makes the collection process much more manageable. Finally, firms that haven't already done so should conduct a systematic expense review to eliminate redundant or nonessential support staff and functions. Firms that have grown by bringing in groups of lateral partners and small firms, in particular, may be surprised at the effect that inefficient staffing can have on expenses. The results of an expense review conducted now will not be felt until 2009, but it's still a good idea. There's no doubt that 2008 will be the most challenging year the legal industry has had since 2001 (and perhaps even earlier). But downturns present opportunities. The dislocation in the market and dissatisfaction among partners offers law firms the chance to gain market share by bringing in select lateral partners. However, when hiring in a soft economy, it's particularly important to vet candidates to differentiate between laterals who are looking to move because they’re not happy and those who are looking to move because their firms are not happy. At the end of the day, law firm management should take heart that the legal industry is, in fact, healthy and resilient. There are a lot of other business sectors who would love to be able to define a bad year as profits that range from flat to down by 10 percent. Dan DiPietro is client head of the Law Firm Group of the Citi Private Bank Married to It By The Snark ATLANTA - BigLaw lawyers are often described as being married to their jobs. Indeed, the journey through BigLaw employment is very similar to a long-term romantic relationship — complete with infatuation, intrigue, disappointment, failed expectations, unexpected surprises and sometimes, ugly break-ups. The Dating Game Most courtships between MegaFirms and their lawyers begin the way two overorganized, professional people look for love and companionship: using a defined list of characteristics each wants in a mate. While there is no online dating tool for such matchmaking, there is Fall Recruiting, complete with on-campus interviews (speed-dating) and candlelit callback dinners. BigLaw can list what it's looking for: top-tier law school, wit, top-tier grades, charm, sophisticated good looks, law review membership, ambition and conformability. And associate candidates can choose to apply for interviews with the BigLaw firms that offer what they seek: stability, prestige, worldliness, wealth, sophistication, country club memberships and top-tier season ticket seats. Of course, they can also meet each other through mutual friends — also known as lateral recruiting — "Lisa, I think you and BigLaw could be sooo happy together. You have the same 'old-world' tastes, love for the finer things in life, desire for global domination and resentment of small children. It's so perfect!" The infatuation period Once you have found a BigLaw that reciprocates your affections, the infatuation period sets in — also known as the summer associate phase. At this point you both have committed to giving the relationship a chance — a six-to 10-week trial period. This phase is like the first few dates of any promising relationship — you focus on the positive and are blinded by a giddy excitement fueled by fancy dinners and the luxuries of courtship. Summer Associate: "OMG — I cannot believe how much BigLaw and I have in common! We went to dinner at Taurus ('where Midtown meets Buckhead') and BigLaw paid for an amazing meal — complete with tuna tartar, filet mignon and squash soufflé — to die for. And what great taste in wine! There is just something very sexy about a law firm with good taste in wine. We talked for hours about the opportunities for our budding relationship. Ahhh . . . ." BigLaw: "Man, Summer Associate is so refreshing — she is so excited about the simplest luxuries and eager to spend long hours with me. She is sooo impressed by my office space, sophisticated practice areas and international clients. She wants me!" The Imbalanced Stage But after the courtship full of great dates to Jazz Night at the High and Willie Nelson concerts at Chastain, the BigLaw love affair transitions to the less comfortable, somewhat awkward stage where one party to the relationship seems more into the relationship than the other — the phase where BigLaw starts to test the boundaries of the relationship. This occurs during the years of associate status — the associate phase: BigLaw: "associate is so lucky to be with me. I am so much more sophisticated than she will ever be, and there are a million other associates out there dying to be with me. And I am famous — people know me. Who is she? She better step it up if she wants to continue to hang with me and my peeps." Associate: "After two years in a committed relationship with BigLaw, I just feel like he doesn't listen to me anymore. He is all about his needs, but he never asks me what I want anymore. It's just become so routine — bill, bill, bill. No more fine dining. No Paul Simon concerts. No flowers. Would he even care if I just left? What happened? I miss the good old days." Fish or Cut Bait Like many long-term relationships, at some point you must decide whether to take the plunge into marriage or give up and head your separate ways. Maybe one of those relationship saboteurs — headhunters — has lured away the associate with promises of more concerts and dinners. Or maybe BigLaw has decided associate is not worth all the luxuries lavished upon him and has cast him aside. But if the associate manages to survive into years seven and above, the "fish or cut bait" stage kicks in. The only problem with this phase is that BigLaw firms are very traditional in their approaches to relationships and marriage, and the associate is at the mercy of the firm. It is not one of these modern relationships where both parties can decide whether they want to take the next step. It is totally up to BigLaw — and he is not communicating what he is thinking. Poor associate is completely in the dark and just has to wait patiently to see if BigLaw will "pop the question." Associate has spent her best years trying to get a commitment from Big Law. She doesn't look quite as attractive to other suitors as she did two or three years ago. Now she is damaged goods. Having given her best associate years to BigLaw, she must wait to see if BigLaw will commit to the long term. What anxiety! Associate: "I don't even love him anymore, but at least I know his flaws. I am too old to 'get back out there.' I am comfortable with him. He is stable and provides a good life for me. I'll just have to show him I am worth the commitment! I will bill more hours!" Just Married! If you are lucky enough to one day get the big proposal and commitment from BigLaw to hit the married phase, you may enjoy a honeymoon phase of about one or two days when your love is rekindled, and you feel appreciated and valued. The security of the legally reassociatenized union only lasts a little while — until you realize that a Big Law marriage is almost as likely to lead to divorce as any other marriage. No matter how many years you remain a devoted spouse, nothing stops BigLaw from changing its mind about you and trading you out for a younger, sexier model. And it works both ways; you may realize that your old crotchety firm can't give you what you really need, so you leave for bigger and better things. BigLaw divorces can be just as scandalous as a celebrity divorce. They can lead to highly publicized litigation where each party is fighting over the assets. Who will get the kids — a.k.a. "clients"? Oh, the drama never stops! The Snark is an anonymous associate at a BigLaw firm based in Atlanta. Do you have dirt to dish? Do you have a column idea? Or do you just need to vent in six-minute increments? Email the Snark at snarkatlanta@yahoo.com. Blood in
the Water at the "Shark Tank": By Anthony Lin The Price of Partnership Is Going Up By Leigh Jones Becoming partner is getting pricier. A combination of factors, including the current credit market and longer client payment cycles, means that incoming partners -- whether newly minted or lateral -- are shouldering more of the responsibility for law firms' capital requirements. The upshot is that while partners have made much more in recent years, many are having to pay a higher percentage of their earnings to stay in the game. "It's more expensive to run a law firm now," said Cesar Alvarez, chief executive of Greenberg Traurig. Partner contributions industrywide are becoming a larger portion of law firms' capital as opposed to capital borrowed from banks, said Alvarez, who added that partner capital as a percentage of revenue at Greenberg Traurig has remained constant in recent years. Especially now, some law firms are feeling a pinch as some of their best clients, laboring in a dragging economy, are taking longer to pay their bills. When that happens, the revenue gap becomes longer and law firms need more capital to meet their compensation obligations to partners and highly paid associates. According to the latest data provided by Citi Private Bank, law firms have reduced their borrowing in recent years. In 2000, firm liability was 19.8 percent of net income, compared with 14.1 percent in 2006. The percentage for 2007 is expected to be in line with 2006, said Dan DiPietro, client head of the law firm group at Citi Private Bank. Law firms are inherently conservative, DiPietro said, and the 2002 collapse of San Francisco's Brobeck, Phleger & Harrison, which had some $90 million in debt, has added to their aversion to borrowing. More recently, banks have tightened the credit terms for capital loans to law firms, which has firm leaders looking to their partners to satisfy capital needs. In addition, law firms more often are requiring incoming partners to pony up a lump-sum contribution, as opposed to a hold-back from compensation, DiPietro said. "Firms feel like they want to have use of the money from day 1," he said. INDIVIDUAL LOANS UP Citi, which has relationships with about 600 law firms, has seen a "noticeable pickup" in the number of loans made to individual attorneys who need to pay their capital contribution upfront when they join a firm as a partner, DiPietro said. Individual partners, generally, are liable for the capital loans they acquire, although law firms, which often already have lending relationships with the banks that loan to partners, frequently agree to pay the bank first should the partner leave. The interest the partner pays is tax deductible. As partner capital requirements have increased, the percentage of partners paying into the capital fund has declined, since more law firms have created or boosted nonequity partnerships among their ranks. And although the increase in partner capital requirements is offset by the higher profits per partner created by fewer equity partners, the rising cost of commercial loans means that firms have a greater reason to avoid them. Losses in the subprime market have made the terms of commercial loans stricter, including those to law firms. But the credit crunch has not significantly affected individual loans to partners, said Andrew Johnman, head of Barclays Bank PLC's U.S. professional services team. Return on partner capital loans, which have higher interest rates than commercial loans, are more attractive to lenders than loans to firms, Johnman said. "I would expect that to be the last lending product to be tightened up," he said, adding that while Barclays and other banks are seeking higher margins on commercial loans, partner capital loans, generally, are excluded from the push. The reason? "They [partners] generally carry large deposit balances and have more complex financial requirements that the bank can service," he said. Having little or no long-term debt is a bragging point among law firms. For example, K&L Gates, the 1,550-attorney firm that has grown by nearly 600 lawyers and 19 offices in three years, said that one of its greatest strengths is its lack of debt. "It is a real competitive advantage in the marketplace," said Glenn Graner, chief financial officer of K&L Gates. But the money has to come from somewhere. Its partner capital contributions are about 35 percent of earnings, a percentage that the firm increased about two years ago, Graner said. He declined to provide the percentage that partners previously contributed. A DOUBLING AT DLA The nation's largest law firm, DLA Piper, in the past seven years has almost doubled its percentage of net income in partner contributions to avoid bank debt while expanding. "You want people to be vested in the firm," said Stephen Colgate, executive director of DLA Piper. "You want them to have some skin in the game." Asking partners for more money creates a "polite tension," he said. The law firm's continued growth, however, has "mitigated the pain," he said. Besides increasing the percentage that partners must contribute, many law firms are holding onto capital longer when a partner leaves. The issue of returning capital has been a point of contention between partners and their former firms. Pillsbury Winthrop's merger with Shaw Pittman in 2005 sparked disputes between the firm and several former partners. Some of those disputes ended up in court. In addition, former partners of Jenkens & Gilchrist and Hunton & Williams also have sued their former firms over capital contributions. Mayer Brown last summer changed its policy of returning capital contributions to enable the firm to retain the money for up to six months after a partner leaves, according to partners who left the firm. Also last summer, the New York Court of Appeals, the state's highest court, ruled that former law firm Fish & Neave acted properly when it amended its partnership agreement to spread out the return of partners' capital contributions over four years. DLA Piper has lengthened the time it takes in returning capital, Colgate said. "That's, generally, a trend we see." Lawyers Fleeing NY Firm Say "It's the Economy, Stupid!" By Amanda Bronstad The slump has prompted the New York-based firm to cut at least 60 associates from its payroll. Some former partners, speaking on condition of anonymity, said the departures come as firm profits are anticipated to slide substantially in 2008. Last year, Thacher Proffitt reported slightly more than $1 million in profits per partner, down about 22% from 2006, according to The American Lawyer, an affiliate of The National Law Journal. Other departing partners downplayed the significance of the firm's finances in their decisions. Most of the departing partners are not in structured finance, which, along with related areas such as real estate, made up more than half of the firm's revenues before the layoffs. Last fall, Thacher Proffitt let go 24 associates, the first major layoff among law firms in the recent economic downturn. Since then, the firm has conducted two more rounds of cuts, offering buyouts to associates, said Paul Tvetenstrand, chairman and managing partner of Thacher Proffitt. He said the recent partner departures were unrelated to the layoffs. But he acknowledged that the total number of them was "a lot, for a short period of time." "It's a tough marketplace to be in," Tvetenstrand said. "I would fully expect in 2009 to bounce back to the levels we had beforehand. But I don't know what 2008 will be." Partner departures Thacher Proffitt is one of the first law firms to lay off associates in recent months. Since then, Cadwalader, Wickersham & Taft of New York; Sonnenschein Nath & Rosenthal; Thelen Reid Brown Raysman & Steiner; and McKee Nelson of New York have laid off dozens of associates. Since then, Thacher has suffered from additional departures. Some former partners raised concerns about the firm's profit projections for 2008, which were alarmingly reduced as the year progressed. They said that partners who chose to stay at Thacher were taking a financial risk. In March, V. Gerard Comizio, a banking partner at Thacher Proffitt, joined Paul, Hastings, Janofsky & Walker's Washington office. He declined to comment. A month later, Christopher F. Graham, the former head of Thacher Proffitt's bankruptcy practice, joined McKenna Long & Aldridge's New York office. Graham also declined to comment. That same month, two other partners, Steven R. Howard and Thomas M. Majewski, who focus on mutual funds and hedge funds, joined Bingham McCutchen. Neither returned a call for comment. Robert Villani, a securitization partner who joined Clifford Chance's New York office last month, also declined to comment Legal Sector Loses Jobs for Third Straight Month By Nate Raymond The U.S. legal service sector lost 1,100 jobs in May, according to U.S. Department of Labor statistics released Friday. The decline marked three consecutive months of losses for the industry and made up part of the 49,000 jobs lost in the overall market last month. The national unemployment rate increased to 5.5 percent, the highest increase in two decades, according to The New York Times. Legal jobs were down 1.4 percent, the same decline the industry posted in April. That month, the sector lost 1,900 jobs. Layoffs at large firms, along with tightening throughout the market generally, contributed to the lost jobs last month. Among the largest firms to shrink their payrolls was Sonnenschein Nath & Rosenthal, which cut 124 lawyer and administrative positions. Hiring remains slow, making it harder for lawyers and nonlawyers to find new jobs in the sector. In total, 1.17 million people, or less than 1 percent of the overall U.S. job market, call themselves legal service employees. They include: lawyers, paralegals, librarians and secretaries. Overall, the legal services sector has lost 9,700 jobs since a year ago and 4,200 in the last six months, according to the Labor Department. The statistics are seasonally adjusted. When not adjusted, the department reports 7,500 jobs cut during the last 12 months. The last time so few people were employed in legal services was during a lull ending in December 2005. Layoffs,
Headhunters Confirm Bad Omens: By Niraj Chokshi SAN FRANCISCO - The job market got a bit colder this week when word broke that Sonnenschein Nath & Rosenthal had laid off 37 lawyers as well as dozens of staff. Those lawyers will join a job market that recruiters say is requiring more patience from laterals -- especially junior associates with out-of-favor specialties. According to California legal recruiters, firms are spending more time now filling fewer open associate positions. "A little bit more thought goes into the hiring process now, and I think consequently it's more competitive for associates," said Delia Swan, of Los Angeles' Swan Legal Search. "Where, normally, we'd see an offer in a week or two, sometimes it takes months." In some cases, firms are dragging their feet by expanding the interview process. Scott Dubin, a San Francisco recruiter, said he had a senior associate candidate interview at the Silicon Valley offices of two top California firms. She got into late stages of the process with both, but one began asking her to interview at other offices -- something Dubin said is pretty unusual. Ultimately, the other firm made an offer and she took it. "Firms are a little skittish given the economic slowdown," Dubin said. And they're in a good position to take their time. "From May of '07 to May of '08, the market has changed from a seller's market to a buyer's market, with the buyers being the firms," Dubin said. "We've even had some firms that had given us positions to work on let us know a couple weeks later, 'Never mind,'" said Valerie Fontaine of Seltzer Fontaine Beckwith in Los Angeles. The market is worst for junior associates, recruiters said. Where they have had an easier time than senior associates finding jobs in the past, now firms are hiring associates with more experience. "Right now firms are being conservative and they're making do with the summer associates and the associates they're hiring in the fall," said Fontaine. There are more midlevel to senior associate openings than junior ones, she added. But there are a couple of silver linings for California job seekers. Fontaine noted that while fewer associate positions are available locally, lawyers elsewhere may be worse off. "We've had some people who have left New York ... [and] they were surprised at how many opportunities we have here." And with tech companies doing relatively well in the current economic downturn, some recruiters said the Bay Area market today isn't as bad as it was in the early 2000s. "It's a lot shallower than the last market downturn, which was really led by Silicon Valley," Dubin said. "And this one is Silicon Valley being dragged down a little bit by the economic slowdown nationwide." In addition to Sonnenschein, a smattering of other firms have announced or confirmed lawyer layoffs this year, including Cadwalader, Wickersham & Taft; Dechert; Sutherland Asbill & Brennan; and Thelen Reid Brown Raysman & Steiner. Earlier this month, a fired San Francisco Paul, Hastings, Janofsky & Walker associate created a fury on the Internet with an e-mail claiming she was part of a clandestine layoff. The firm denied to Recorder affiliate The American Lawyer that it had conducted layoffs, with a spokeswoman saying some associates had been let go, but only as part of the firm's performance evaluation process and in numbers similar to last year. Firms that have confirmed layoffs claim that being proactive with their news may at least minimize the damage to those who are suddenly unemployed. Otherwise, "the danger ... is that you injure the people who are affected," said Gregory Markel, the head of the litigation department and a member of the management committee at Cadwalader, which laid off 35 attorneys in January. "If we were to do what we did in effect below the radar screen, in the dead of night or a few at a time, the perception would be that these individuals would be let go for performance rather than economic reasons," Sonnenschein Chairman Elliott Portnoy said Wednesday. Of course, in the Internet age, keeping it quiet might not have been much of an option. "In this period of time, I can't imagine much that any firm does stay private or undisclosed for very long," Portnoy said. Your Firm Could Be Laying Off and You Just Don't Know It By The Snark ATLANTA - We associates all are sitting on the giant BigLaw roller coaster together — one day giddy with excitement and anticipation, listening to that steady click as things (a.k.a. salaries) get ratcheted up, the next day (that would be today, if any of you are missing the point) hearing that eerie silence before the inevitable downward free fall. Throw your hands in the air and scream, fellow associates — 'cause the ride is about to get crazy. I feel your pain. I hear you saying, “What the heck happened here?” I see you checking the balances in your bank accounts again, and again. Mere months ago, we BigLaw associates were having money hurled at us by “market forces.” Now those same “market forces” are causing us to be canned, laid off, “attritionized,” downsized, smartsized … fired. Ouch. I will not speculate as to the complex market forces, economics, practice over-specialization or cluelessness that led to the current state of affairs—I am but a mere associate. I know, however, that many of you associates out there may be wondering how this change of economic forces affects you. I have no idea, of course, but I can think of some possibilities and will try to prepare you. Option 1: The Stealth Layoff BigLaw is all about appearances. Big Firms cannot appear unable to handle a little economic downturn, especially after jacking up billing rates and salaries. They must appear strong, robust, burgeoning … not hemorrhaging, shrinking or struggling. Accordingly, in times of trouble, Big Firms do not “lay off” associates. It is just a coincidence that 20-plus associates are told during their semi-annual review that their previously “exceptional” performance is now “sub-par.” With a stealth layoff, the firm doesn't necessarily fire you. Rather, they essentially let you know that they plan to can you in the next three months—but as a “professional courtesy,” they will give you a few months to find “other career alternatives.” When firms undertake a slew of stealth layoffs, word inevitably gets out, and associates who fear they are next at least have time to prepare for the ax that may be swinging their way. If you are not familiar with the stealth layoff strategy, or if you think it is only happening to associates who are “dead weight,” or not otherwise as talented as you—be forewarned. You don't want to be that first unlucky associate who walks into a review expecting more of the praise you've been hearing from partners—only to be told that “This isn't working out. Your performance is below expectations.” The stealth layoff is also effective because it motivates associates who hear about their colleagues' layoffs to jump ship of their own accord rather than endure a painful, esteem-killing meeting with the powers that be. Option 2: Classic Canning Firms needing to trim the payroll also may opt for old-fashioned firing “for cause.” It is better, they reason, to appear to be dumping lazy or incompetent associates than to gain a reputation as home to partners who can't bring in enough business to feed all the associates they were scampering to hire only a few months back. When the firm was busy, they could find uses for all associates, mediocre or not—hey, throw them on a document review in a warehouse, they can't screw that up—and they can still bill! But when times get lean, partners have their own hours' requirements to meet, and they suddenly decide to make their own edits to letters, draft their own briefs, or even review their own due diligence documents—gasp! Such actions leave no trickle-down work for associates. Here's where the “for cause” part comes in: Suddenly, as an associate, your hours decrease and you are canned for failing to meet your billable goals. Some firms do not wait for the lesser hours to kick in as a justification. They simply fire you because you are not as good as Associate #276 and there is no longer room for both of you. So your failure to proofread that draft one last time before you sent it to the client—resulting in two typos—will now lead to your demise for “lack of attention to detail.” Option 3: Smartsizing Other firms simply fess up to having too many associates in their ranks and admit to the layoffs. But nobody ever admits the true motivation: to maximize sinking profits per partner. Instead, they claim such layoffs are an effort to “more efficiently serve our clients.” Option 4: Attritionizing Given the rates of attrition at BigLaw, the fact that firings or layoffs are even necessary is amazing. Most firms run off plenty of associates each year and can tighten the budget by simply not replacing them. You may feel safe under such a scenario because you are not likely to be canned, laid off or smartsized. But oh, you are not safe. You will be “attritionized.” What is this? you ask. Well, when associates leave, someone has to take over their workload. If you are still around and the firm doesn't hire anyone to take the place of the associates that are checking out of the machine, you get to do their work—plus yours! This is fine if the work truly does slow down, but most firms err on the side of keeping the associates that stick around super busy. They do not have to trim your salary or fire you. They just load you up. Bill, bill, bill! You've been attritionized! Whoo hoo. Roller coasters are so much fun! Strap on your seatbelts, associates — I see a high-speed curve ahead! The Snark is an anonymous associate at a BigLaw firm based in Atlanta. http://www.nylawyer.com/display.php/file=/news/08/05/052208a Firm Cuts Attorneys' Pay by 12 Percent as Downturn Deepens By Jordana Mishory Attorneys at Becker & Poliakoff are being hit with a 12 percent pay cut for the foreseeable future to help the real estate-dominated firm deal with a drop in profitability and delays in collections. Becker & Poliakoff is the first major South Florida firm to turn to its lawyers to make cuts to help it deal with the economic slowdown and real estate downturn. Other firms have trimmed staff jobs, including paralegals and secretaries, and cut back on other expenses to help cope with the economic landscape. The firm has 12 offices in Florida as well as locations in New York and Prague, the Czech Republic. Its Web site lists 128 lawyers. Alan Becker, the firm's managing shareholder, informed attorneys and support staff about the pay deferment plan via podcast Wednesday. The cut took effect Thursday and affects only lawyers. No layoffs are expected. The Fort Lauderdale-based firm specializing in real estate, construction and government law brought in $60 million in revenue last year, but clients failed to pay $2.5 million, or about 4 percent of total billings, Becker said, adding that it was the firm's best revenue year ever. "Look at the economy out there," Becker said. "We have a tremendous number of real estate developer clients, and many are hanging on by their fingertips. So what am I supposed to do? Tell them I'm going to cut them off instead of trying to work with them?" During the past month, Becker said he visited many of the firm's Florida offices and explained the firm's problem with collections. He reminded the attorneys to work hard to get clients to pay their bills. Nearly 70 percent of the firm's expenses are staff-related, he said. He could not cut spending on rent or insurance, so his staff bore the brunt of the fallout from the downturn. He said he knew accounts receivable would be slow, so the only responsible thing would be to get expenditures in line with revenue. "It's simple math: If X dollars come in, you can't pay more than X dollars out," Becker said. "If you want to be conservative and cut costs, there's not a whole lot of places you can do it -- where 70 percent of your expenses is people -- except people." A managing partner speaking on condition of anonymity said Becker's math does not add up. "In order to cut all lawyers' compensation by 12 percent the problem must be bigger than a 4 percent reduction in revenue," the managing partner said. "I believe he's either off more now or afraid he'll be off more later." The managing partner also said that it is highly unusual to cut pay to associates when the firm's profitability is suffering. Becker said the pay cut would be lifted if clients begin paying again, provided the attorneys are still with the firm. He said he expects to pay the money retroactively to attorneys who stay with the firm. "I support the people who support us," Becker said. He is hopeful the firm will be able to reimburse its attorneys this year. This is not the first time the firm has deferred pay while waiting for clients to pay, and he said the firm has always been able to pay its deferrals. Neil Schiller, an associate in government law and lobbying at the firm's Fort Lauderdale office, said he is glad the firm decided to defer salaries rather than impose layoffs. "This is a family," Schiller said. "I would rather take a temporary deferral than see a family member leave permanently." Schiller said he and his colleagues are extremely busy. It's just that clients have been slow to pay their bills due to the economic downturn. Several other attorneys at the firm either declined comment or did not return a call for comment before deadline. The Becker & Poliakoff cutback strategy is uncommon. When firms hit a rough patch they typically hold back partner compensation and borrow money -- unless the problem is particularly acute. It is also rare for a firm to turn to associates to help keep the firm afloat financially. Typically that is a burden faced by partners who share in a firm's financial ups and downs. The managing partner said the downturn has led firms to be more vigilant when assessing which clients to take. He said it's important to ensure that both new clients and existing ones pay bills. To make sure accounts receivable stay in line with projections, the managing partner said his firm makes sure that bills go out promptly, there is follow-up with clients, and lawyers get appropriate retainers. Deferring salaries is not a common method to battle a down economy, the managing partner said. "Law firms generally have enough cash flow to be able to cover their salaries even in a down economy," he said. Employment lawyer Suzanne Bogdan, a partner at Fisher & Phillips in Fort Lauderdale, called Becker & Poliakoff's approach a "creative way to try to keep businesses running at a level they need to run while they give clients a little bit of time to catch up on payments." The economic environment
has led all businesses on a quest to find creative means to maintain
the optimum number of employees while cutting costs, she said. Some
businesses are having employees squeeze a 40-hour work week into
four days to cut operating costs one day a week. Others are having
people work part time in slower months. Bogdan emphasized the
importance of management keeping up morale through constant
communications. Becker attributed the larger accounts receivable
balance to the economic slowdown, which has hit condo associations
and developers hard. He conceded he was slow to notice the impact of
the downturn because revenue was growing. Before the cut was
announced, equity partners received large disbursements, and other
partners and associates received large bonuses and salary increases,
he said. Becker said his clients were fantastic during good economic
times, so he said he would prefer to help them resolve their
problems now that they're suffering. He decided to make the deferral immediate to address the firm's cash flow shortage more quickly and reasoned that giving a longer notice wouldn't have made anyone any happier about it. He decided to do a podcast because he thought e-mails or memos were too cold and he would not be able to tell people in each office personally. The news comes just weeks before the firm's annual retreat. Becker said the emphasis is on education, but he is sure the salary deferral will be a major issue and he plans to answer any questions that his employees have. "How do you avoid it?" Becker asked. Get Your Head in
the Clouds: By Gina Passarella Editor’s Note: This is the third installment in a series looking at business development issues and rainmaking methods. Ah . . . to be young again and not have these responsibilities. If only. Considering there are high-level partners out there who are concerned about not having a substantial book of business, the pressure on associates to think about business development – self imposed or not – is intense. Yet there seem to be two camps of younger attorneys who don't, or can't, focus on chasing the rain. There are those who don't do it because there is no clear path to success, and those who don't have the support of their firms to spend the time and money on networking. The general consensus is that firms can create all the programs they want, but if the partners don't buy in, then no program will help. Roger Braunfeld, currently the chief operating and chief compliance officer of an asset management company in New York, spent nearly all of his associate life looking to build business. He started out at Harvey Pennington and moved to Blank Rome in 2001 as a second-year associate so he could build a business law practice. It used to be the case, he said, that an attorney didn't have to deal with clients and would still be able to put in the hours and make partner. That's no longer the case. "It's almost like the big lie," Braunfeld said. "If you work hard and just do other people's work for the rest of your life, you'll make partner and be happy." A lesson he learned early on, however, is that those who control the firm are the ones bringing in the business. Partners are owners and if associates want to be partners, they have to act like owners and bring in the business, he said. "In any business, not just law, if you control revenue coming in, then you're in a much safer place," he said. But making rain means taking risk and many attorneys are risk-averse by nature, Braunfeld said. Lawyers at many large firms did well on the LSATs to get into law school, were at the top of their class in law school and did well in summer associate programs. They became associates at these firms, and the goals were clear. Make billable hour requirements and please the partners, and they would be all set. But the employee handbook doesn't come with a business development manual, and there are no clear guidelines for how to see a return on investment from hours spent networking. Braunfeld said legal business development is no different than sales. Attorneys have to take risks. They might fail nine times out of 10, but the 10th time is worth it, he said. Braunfeld wasn't No.1 in his law school and admitted he wouldn't be the traditional person to be hired by Blank Rome as an associate. It was his early demonstration of business development skills, however, that caught the eye of Blank Rome partner Alan L. Zeiger, who became an advocate for Braunfeld in the firm. Zeiger and partners Steven Dubow and Morey Rosenbloom became his mentors in the firm, as well as a support system that allowed Braunfeld to spend time away from billable hours taking out clients. In other firms, he said, he would have had to write five memos just to get reimbursed, which becomes a disincentive to network. Sabrina Mizrachi, a seventh-year associate in Ballard Spahr Andrews & Ingersoll's environmental litigation practice, couldn't say enough good things about the supportive environment her firm – and particularly her department – has created for associate business development. Ballard Spahr brought in a training coordinator for third- through fifth-year associates after she finished her fifth year, so most of Mizrachi's training has come from individual partners. She said the head of her group is always suggesting opportunities for associates to write articles, go to events and attend conferences. The firm encourages the attorneys to find a niche and become an expert, she said. Younger associates are often concerned with making billable hours and doing work assigned by partners, so they don't always think about business development, Mizrachi said. It's a great incentive, she said, when partners are there encouraging younger attorneys to make a name for themselves. Not all associates are as lucky as Braunfeld and Mizrachi. One associate at a large Philadelphia firm said partners are often guarded in terms of giving associates access to clients and don't even allow them to do simple tasks such as making a phone call to get interrogatory responses. That makes business development a big challenge, the associate said, because young attorneys can't even get their names out there. Partners are quick to share how they built their books of business but won't work to put associates in touch with clients, the associate said. For older partners, there were no business development programs 30 years ago, so, the associate said, it's often assumed younger attorneys will just find their way, too. This associate has found a way around guarded partners by getting out into the community and offering to make presentations to specific client groups about what the associate and the firm can offer. That, of course, requires firm permission, but it isn't risking taking away work from partners and provides the potential to bring in new matters. The associate has also made a point to refer work whenever possible, even if that person might not want it, because it gets the associate's name out there as open to referrals. If this associate is given the task of, for example, sending out a letter to a client, the associate will find a reason to make a call. Even if it is to ask about the format a client would prefer to receive the letter, the associate said it opens the chance to have a more personal conversation. It was in response to associate requests that Schnader Harrison Segal & Lewis created a formal business development program. Kathleen Keane, director of legal administration, professional development and recruitment, said the firm is in the process of trying out different programs and getting feedback. The program is split between different associate levels, with certain groups getting different types of training. There is no business development training offered to first- and second-year associates, Keane said. At first, the associates told the firm they felt like they were getting too many training sessions at once, so now the firm spreads them out over the course of the year, she said. There is also a two-day retreat for fifth- and sixth-year associates that serves as the capstone of the yearly training, Schnader Harrison's director of associate recruitment and development, Colleen France, said. The firm has had partner-led panels to talk about how they became rainmakers, and it has also brought in outside vendors to teach things like networking, public speaking and listening skills. The program is not meant to serve as the sole method of associate business development. Keane said she hopes the associates are out there networking. The firm has traditionally focused on ensuring its associates were good lawyers, which is why there wasn't a business development program until recently, she said. The goal of the program is to make associates comfortable with getting out there themselves and meeting people, she said. Frank D'Amore of Attorney Career Catalysts said associates he has spoken with generally don't get as much out of firm partners telling war stories on panels. He said associates really want outside vendor training that helps lay out guidelines for business development. Scott Sigman of Bochetto & Lentz, chairman of the Philadelphia Bar Association's Young Lawyers Division, said there was definitely a need in the legal community for business development training so the YLD created several courses to that effect. In the current economy, Sigman said he is seeing firms cut back on many marketing-related expenses such as bar dues, external programs or Martindale-Hubbell profiles. He said associates are looking to bring in their own business in order to supplement their income as well as open themselves up to lateral opportunities. With consolidation in the marketplace, Sigman said he thinks younger attorneys are looking to build a book of business to secure a position in the larger firm or to be able to survive on their own. Steven Kruza of Kruza Legal Search said firms are definitely building up business development programs but with varying success. He said associates generally get the most out of developing relationships with partners who will have a vested interest in mentoring the associates, under a formal program or not. Associates do feel firms are making the effort to improve the programs, but Kruza said it's often difficult for associates to devote much time given strict billable hour requirements. Senior associates at larger firms are having a difficult time bringing in business, he said, because they aren't getting the big-ticket items with high rates that larger firms are looking for. It's a similar problem with firms that are acting more like corporations and limiting the types of work they do, Kruza said. Young attorneys are limited in the types of clients they can bring in, he said. General Advice One mistake Braunfeld said many associates make is to sell someone else instead of themselves. It's often about selling what the partner can do instead of the associate selling her own skills. While an associate might not be able to carry out a matter to its completion, clients want to talk to decision makers. Associates need to learn that if they are bringing in work, they should make sure the work gets done well even if they have to rely on others to help, he said. They don't even have to bring in the work, but take an ownership interest in ensuring the work gets done right, he said. According to D'Amore, associates often make two main mistakes – thinking they have to bring in Microsoft as a client or thinking they don't have to network at all if they don't plan on staying on the partner track. Even the largest firms represent smaller clients, including many emerging businesses, so knowing Bill Gates isn't a prerequisite to building a book of business, D'Amore said. In the same vein, young attorneys don't have to know the general counsel or chief executive officer of a company to succeed. D'Amore said it's important for younger attorneys to connect with their counterparts within the client's organization. They could one day be the leaders of that company or move to another potential client, he said. Law school classmates can also form another strong referral network, he said. "You don't have to shoot for the moon, you can shoot for the level where you are," he said. For those who don't plan on becoming partner, D'Amore said networking is still important because it could lead to that next job, whether it be in-house or in a different field altogether. Ryan Blazure, an attorney with Cardoni & Associates in Kingston, Pa., is the chairman-elect of the Pennsylvania Bar Association's Young Lawyers Division. He said he has been able to bring in work for his firm through the organizations he has joined. Joining a statewide organization can often lead to an associate becoming the go-to person in his particular geographic area, he said. The bottom line is, Blazure said, networking and business development need to start the second a future attorney decides she wants to go to law school. BigLaw
Firm Denies Layoffs, Posted By Nate Raymond On Monday, Above the Law posted a leaked e-mail to Paul Hastings associates from Shinyung Oh, a commercial litigation lawyer who was fired April 30, six days after a miscarriage and a few months after a poor performance review. The legal blog touted the e-mail as proof of layoffs, and in a follow-up post said the firm had canned at least 22 associates. But Paul Hastings spokeswoman Eileen King told The Am Law Daily that while some associates have been let go, they were part of typical annual performance reviews. While she declines to say how many had been let go, King says the numbers were in line with last year's cuts. "There is always resulting turnover [after performance reviews], but we have not done any layoffs," King says. "It's really normal attrition based on performance evaluations, and the numbers show year over year that we're up in associates. We're a healthy firm in terms of head count and real revenue perspective, and the numbers really say the story in my mind." King would not comment on specific firings such as Oh, who spoke with The Wall Street Journal's Law Blog on Thursday. Oh said she sent the e-mail because she didn't want associates being laid off for economic reasons to feel like they were being judged for their performance. "I want them to feel like they're not completely alone and not to worry about their own performance when it's the firm doing something for economic reasons" and because of a "desire to increase partner profits," Oh said. Oh claimed she hadn't been told her performance was lacking until a week before her last review. Yet according to her 2006 performance review, obtained by the WSJ, she was four hours over targets and was generally described as exceeding or meeting expectations. Oh has been able to speak out about the firings because she turned down a severance agreement for three months base pay which would have restricted her from speaking about the firm publicly. King says the firm's revenue and head count situation is healthy. Associate head count, she adds, is up "considerably" for the year, and the firm expects to welcome a larger summer associate class than in 2007. Revenue increased 19.9 percent in 2007, to $813.5 million. Profits per partner were up 19.6 percent, to $1.92 million. http://amlawdaily.typepad.com/amlawdaily/2008/05/paul-hastings-n.html April Is the Cruelest Month: Legal Sector Lost Jobs Again By Nate Raymond The decline marked two consecutive months of losses for the industry and made up part of the 20,000 jobs lost in the overall market last month. But as in the general job market, losses slowed in April. The month before, the legal service industry lost 2,600 jobs. Layoffs at large firms, along with tightening throughout the market generally, contributed to the lost jobs last month. Among the largest firms to shrink their payrolls was Sutherland Asbill & Brennan, which asked about 15 associates to leave March 31. Other firms have slowed their hiring, making it harder for lawyers and non-lawyers to find new jobs in the sector. In total, 1.17 million people, or less than 1 percent of the overall U.S. job market, call themselves legal service employees, including lawyers, paralegals, librarians, and secretaries. Overall, the legal services sector has lost 8,900 jobs since a year ago and 3,300 in the last six months, according to the Labor Department. The statistics are seasonally adjusted. When not adjusted, the department reports 9,700 jobs cut during the last 12 months. This April, the statistics show, marked a two-and-a-half year low in employment in the legal service industry. The last time so few people were employed in legal services was during a lull ending in December 2005. Skadden Posts Huge Capital Gains By Marisa McQuilken It's the highest-grossing firm in New York, and for that matter, in the United States. Could Skadden, Arps, Slate, Meagher & Flom be on the verge of becoming D.C.'s top revenue earner, too? On this year's D.C. 20, Legal Times' annual list of the top-grossing Washington law offices, Skadden climbed to No. 3, powered by a 19.7 percent jump in revenue. It edged ahead of D.C. mainstay Arnold & Porter (No. 4), and is now challenging Hogan & Hartson (No. 1) and Wilmer Cutler Pickering Hale and Dorr (No. 2) for the top spot. And it's already far ahead of many of its local rivals in D.C. profits per partner ($2.28 million) and revenue per lawyer ($1.16 million). Perhaps the reason Skadden is in a position to reach No. 1 is because it acts like a quintessential Washington firm. It has 299 lawyers in the District, and they're handling some of the highest-end work available. It has a superstar rainmaker: Robert Bennett, go-to guy for the scandal plagued and perhaps the king of the D.C. legal-rati. And its roster boasts scores of government recruits with deep ties to federal agencies. "In no sense would anyone say that Washington was a stepchild," says head of the D.C. office Michael Rogan. He adds that while Skadden is headquartered in New York, the firm functions under a "one firm" mentality, making Washington an equally important part of the family. In other words, D.C. lawyers get a piece of the New York client pie, and vice versa. "We kind of view our offices and our relationships as different floors in the same building," Washington antitrust partner C. Benjamin Crisman Jr. says. The firm, which opened in Washington in 1976, has also strongly resisted adding multiple tiers to its partnership or adding large lateral practice groups. That's a key difference with several other firms on the D.C. 20. Skadden is still single-tiered, it's highly leveraged, and 50 of the 72 Washington partners started out as associates. "It's culture. We all grew up together. We all support each other," says Washington litigation partner Andrew Sandler. Mining Clients A good example of Skadden's "one-firm" mentality is its work on the massive bid by BHP Billiton to purchase fellow mineral mining company Rio Tinto. If BHP's bid is successful, the transaction could reach $380 billion, and will stand as one of the biggest deals ever. Skadden D.C. partners are heading up much of the work for BHP, though Skadden's New York, London, and Sydney offices are also in play. The firm's antitrust, mergers and acquisitions, and tax practices have the biggest chunk of work, though smaller bites are going to practices like environmental. Crisman, who leads the antitrust team, says that New York partner and mass torts star Sheila Birnbaum connected him with BHP. She first represented the company about a decade ago, and Skadden has since become its primary U.S. counsel. Birnbaum introduced Crisman to BHP in 2000 when its general counsel needed help developing a worldwide antitrust compliance policy. Around the same time, Birnbaum and New York corporate partner Peter Atkins introduced BHP to D.C. M&A partner Ronald Barusch. Today, Barusch leads the Washington M&A team working on the Rio Tinto bid. BHP and Rio Tinto both have headquarters in London and Australia, and substantial operations in the United States. That makes the tax implications of the deal extra complex. It's the job of D.C. partner Paul Oosterhuis, head of Skadden's international tax practice, to help structure the deal in a way that minimizes the tax disadvantages in all three countries involved. "We're often on calls at six in the morning, or six at night," he says, referring to the time differences between the locations. Insider Access Oosterhuis describes the 54-lawyer tax practice as being divided into four groups: One chunk serves as a support system for M&A work handled in D.C.; another supports transactional work generated by the energy practice; another component focuses on helping U.S.- and foreign-based multinational clients with tax planning; and finally, there's the tax controversy group. That level of organization, says tax controversy partner Fred Goldberg Jr., "encourages us to work together and share." For many of the deals handled by the tax group, Goldberg acts as a liaison to the agencies. He has plenty of experience inside government: He was commissioner of the Internal Revenue Service from 1989 to 1992 and assistant secretary for tax policy at the Treasury Department in 1992. The insider ties helped Goldberg serve as a bridge last year when Skadden's tax lawyers in New York and D.C. handled Fortress Investment Group's initial public offering. In structuring the IPO, Skadden lawyers managed to avoid nearly all corporate tax on Fortress. When that raised concerns at the IRS, Goldberg was there to open the lines of communication. Goldberg, of course, isn't the only Skadden partner with a lot of pull inside the government. Robert Bennett is Skadden's Washington frontman, and may just be the best-known lawyer in the 1,900-attorney firm. "Having Bob being known as Mr. Skadden, Arps ... it's a tremendous advantage to us," says office head Rogan. Bennett co-heads the 110-lawyer litigation department in D.C. and thinks of the group as a boutique nested within the larger firm. He came to Skadden in 1990 along with fellow D.C. litigation chief Carl Rauh, and he says the culture of their smaller firm came with them. Bennett acknowledges that Rauh does "an awful lot of the managing.... I'm more the outside guy, and he's more the inside guy." Bennett is clearly no stranger to the spotlight. He recently helped Sen. John McCain (R-Ariz.) handle the fallout from allegations of improper relations with a lobbyist. And he represents the CIA's ex-clandestine service director Jose Rodriguez in congressional and Justice Department probes surrounding the destruction of interrogation tapes of terror suspects. Though he's the best-known D.C. litigator, Bennett isn't the only star in the group. Andrew Sandler leads the firm's consumer financial services enforcement and litigation practice. His practice caught fire in the latter part of 2007 when the subprime mortgage market collapsed. He first began counseling financial institutions on fair lending back in the mid-1990s, and today, says the lawyers in his group represent clients in more than 30 different investigations and 10 class actions related to the subprime meltdown. Colleen Mahoney heads up Skadden's securities enforcement and compliance practice. She has a long history at the Securities and Exchange Commission, where she was deputy director of the Enforcement Division from 1994 to 1998, before serving as the commission's acting general counsel for a short time. She came to Skadden a decade ago. Lately, Mahoney's group has had a lot of overlap with Sandler's practice, since the SEC is behind many of the subprime investigations. She explains that her practice is "sort of a snapshot, or sort of a mirror image, of what the hot topics at the SEC are." Aside from the subprime work, her group is presently focused on stock option accounting issues, insider trading investigations, representing hedge funds, and Foreign Corrupt Practices Act work. Litigation is the biggest practice group in Washington, but the office also houses the lion's share of Skadden's energy lawyers. The firmwide practice is based in the D.C. office, where about 50 of its 60 lawyers reside. Partner Martin Klepper describes the group as "one practice, split into two parts." He belongs to the energy and infrastructure projects side; the other half of the practice has an energy regulatory focus. On the infrastructure side, Klepper says one of the biggest ongoing projects is for the state of New Jersey, where Skadden lawyers have been working with the state government to structure a deal that would transfer all major toll roads to a private nonprofit corporation. Energy regulatory partner John Estes III says his representation of client Energy Transfer Partners in a Federal Energy Regulatory Commission investigation, and numerous related civil actions, is one of the largest ongoing matters for his part of the practice. Estes came to Skadden in 1988 from the FERC, where he was an appellate litigator. Frequently, though, both sides of the energy practice team up. The partners say both groups are involved in work for utilities that are interested in building U.S. nuclear energy facilities — though they won't reveal their client list. Leverage and Laterals Skadden's stability in D.C. also has a lot to do with its partnership structure. Of the seven single-tier partnerships on the D.C. 20, Skadden's 4.15:1 leverage is near the top of the list. Only Sidley Austin has a higher ratio of nonpartners to partners. While Skadden's leadership doesn't dole out the coveted golden handshake to just anyone, once a partner is in the club, he or she is likely to be there for good. After all, when you're making more than $2 million a year, why go anywhere else? Rogan joined Skadden as an associate in 1980 after five years at the SEC. He has spent his entire private practice career at Skadden, and the same is true for much of the Washington partnership. Two of the three lead D.C. partners on the BHP Billiton deal, for instance, are also lifers. Crisman became the fifth lawyer in Washington, when he joined as an associate in 1978. And Barusch started as an associate in Skadden's Boston office in 1978, and moved to Washington in 1981. Though a few retired during the past year, and one went in-house, Skadden only lost one partner in 2007 to another firm. Media and intellectual property partner Kenneth Kaufman departed for Manatt, Phelps & Phillips. For his specific practice area, he says there was just more opportunity at Manatt. "At Skadden, we certainly worked on a number of very interesting matters in this area, but I was probably the only partner with a significant background in entertainment law," he says. The office also has brought on a couple recent laterals. Antitrust partner Steven Sunshine just completed his first year at the firm, after joining from Cadwalader, Wickersham & Taft, where he was head of the antitrust group. Sunshine has been busy representing diamond cartel De Beers against several class actions in New Jersey federal court — work he brought over from Cadwalader. And last Thursday, the office announced that Greg Luce, previously co-chair of Jones Day's health care practice, has joined Skadden to lead the health care enforcement and litigation practice. Clearly, though, 2008 may not be the best year ever for Skadden. BHP Billiton aside, its transactional practices are getting battered like everyone else's. "The pipeline, I would say, isn't as full as it's been," says Rogan. "Whether the second half of the year, we keep pace with the first half, we'll have to see." If not, No. 1 in D.C. may still be a few years away. Banks Getting Tougher on BigLaw Loans By Leigh Jones Law firms needing extra capital from banks to weather the rough economy are finding that the times — and the terms — have changed. Many law firms are seeing a slowdown in work and a lengthening in their client payment cycles. At the same time, banks that provide lending to law firms to help cover their revenue gaps and fund bigger projects are implementing more onerous requirements for doling out credit.The upshot is that, just as law firms need more money, they're having a harder time getting it. While Dan DiPietro, client head of the law firm group at Citi Private Bank, doesn't expect interest rates to climb, he does see a change in the terms, or covenants, under which law firms borrow. "We're looking at the number of partners who leave in a given year," he said. "We're looking at cash flow coverage and asset coverage ratios." Perhaps taking a cue from the demise of San Francisco's Brobeck, Phleger & Harrison, which had $90 million in bank debt when it collapsed in 2002, law firms generally reduced their borrowing in recent years, according to the latest data provided by Citi. In 2000, firm liability was 19.8% of net income compared with 14.1% in 2006. Despite the overall decline, the average borrowing for Citi's clients so far this year has ballooned, DiPietro said. Borrowing was up 32% in January, compared with the same month in 2007, he said. In February, borrowing rose 26% and, in March, it climbed 22%, compared with the same months in 2007. A slowdown in client work — and in the time that many of them are taking to pay their legal bills — is exacerbating the revenue shortfall that law firms routinely experience at the beginning of the year, DiPietro said. In addition, many firms are feeling the full weight of the salary increases implemented last year for associates, including $160,000 for first-years. "We are being much better about practicing fiscal hygiene," said Stephen Colgate, executive director of DLA Piper, the nation's largest law firm. "We're being more careful to make sure our bills get out the door." The 3,623-attorney firm in the past seven years has doubled its partner capital contribution amount to avoid acquiring debt for expansion, Colgate said. He added that law firms seeking financing these days to cover expenses may well find stricter terms, although he is not "losing any sleep" over DLA Piper's financial picture. But many law firms "are very nervous right now" about their financial situation, said law firm consultant Richard Gary, principal of Gary Advisors in Tiburon, Calif. "All you have to do right now is look at what law firms are doing in terms of layoffs, summer hiring freezes and extension of first-year start dates by several months," he said.
Survey: Women in Large
Firms Advance At Same Rate By Gina Passarella The nation's largest law firms are in a bit of a holding pattern when it comes to the advancement of women within the firms, according to the president of the National Association of Women Lawyers (NAWL) in regard to the group's second annual survey. The numbers of women in equity partnership and management have stayed about the same since last year, while the pay disparity between male and female attorneys has increased at certain levels. "While in some respects there is some progress, there are some very distinct areas where, in our view, firms need to be careful," NAWL President Holly English of Post Polak Goodsell MacNeill & Strauchler said. Similar to last year's inaugural survey, 16 percent of equity partners at large law firms are women and 15 percent - down 1 percent - of governance committees are made up of female attorneys. Of the 112 firms that responded to the survey, 15 percent have no women on their governance committees. In a three percentage-point increase, 8 percent of managing partners at the largest firms are women. As women move up in positions within a firm, their pay disparity increases as well, according to the survey. Male of counsels earn about $20,000 more than females, male non-equity partners earn about $27,000 more than females and male equity partners earn nearly $90,000 more than their female counterparts. According to the 2006 survey, male equity partners earned about $81,000 more than female equity partners. At firms with higher billable-hour requirements, the difference grows even more. Male equity partners at those firms earn $140,000 more than female equity partners, the survey showed. While English said she understands that some of these disparities have reasonable explanations, she said it would behoove firms to pay attention to their policies when such wide disparities can be seen at the macro level. One explanation for the larger disparity at the highest levels, the survey results indicated, could be that there are just fewer senior women at these law firms. English said there is a bright spot among the survey results when it comes to the younger fe |
