When the Economy Hits Home
In light of the economic conditions today, it may be appropriate to start an open thread on the market.
There's a lot to discuss here, so let me get us started.
First: to what degree is this going to impact our jobs? The simple answer is that there's going to be a contraction in the number of positions available. But to dig deeper, what firms are going to take the greatest hit?
I can't imagine firms who rely on Lehman, WaMu, AIG or Merrill are thrilled. But then again, firms that don't rely on those companies for work may see their clients shift to firms that do. Are there firms that are safe, or is everyone screwed (except for the bankruptcy lawyers)? Or will it just be the lesser-known firms getting poached by the bigger players? It's hard to imagine Wachtel associates switching to baked beans and stale bread they find in the dumpster behind the Safeway...
Second: How has the economy impacted the interview habits of Boalties? Did it / will it reduce the number of people who ONLY applied to small plaintiffs' side firms? Did / will boutiques not get any attention? What kind of info/data is available on various firm finances? How have firms approached this issue? Is it even being discussed? And how is that going to change over the next couple weeks?
Or is everyone just trying to stay blissfully ignorant about the world that is crashing around them?
There's a lot to discuss here, so let me get us started.
First: to what degree is this going to impact our jobs? The simple answer is that there's going to be a contraction in the number of positions available. But to dig deeper, what firms are going to take the greatest hit?
I can't imagine firms who rely on Lehman, WaMu, AIG or Merrill are thrilled. But then again, firms that don't rely on those companies for work may see their clients shift to firms that do. Are there firms that are safe, or is everyone screwed (except for the bankruptcy lawyers)? Or will it just be the lesser-known firms getting poached by the bigger players? It's hard to imagine Wachtel associates switching to baked beans and stale bread they find in the dumpster behind the Safeway...
Second: How has the economy impacted the interview habits of Boalties? Did it / will it reduce the number of people who ONLY applied to small plaintiffs' side firms? Did / will boutiques not get any attention? What kind of info/data is available on various firm finances? How have firms approached this issue? Is it even being discussed? And how is that going to change over the next couple weeks?
Or is everyone just trying to stay blissfully ignorant about the world that is crashing around them?
posted by tj at 2:33 PM
19 Comments:
I am not sure that the idea that big name firms will "poach" is entirely true. Companies choose to go to lesser firms often because those firms charge lower rates. If anything, it seems to me that in this climate more companies will shift to mid-size or cheaper biglaw firms, in order to save on costs.
The safest firms may be the ones with (1) strong client collections, (2) lower rates but quality work (e.g., most of the SF boutiques), or (3) specialties in the area of work.
Specialties can compensate for higher rates, but I doubt that companies will shift to paying more just because space becomes available over at S&C to handle more work.
I would like to know if there are any barometers I can use to judge firms' stability into the future. It seems like profits per partner is not a particularly good indicator, because those numbers can be skewed by a particularly big judgment or a huge transaction. I suspect that firms who have expanded with the market over the past few years will contract -- but are there any industries/practice areas that will be particularly insulated in a recession?
I'm going into patent litigation, and have not encountered any reason to worry. Anyone want to convince me otherwise?
Should I be concerned about my accounts with WaMu? I mean, I know they're FDIC insured, but I imagine going through the process is not so fun.
It can take a very long time (like six months plus) to get your insured funds. So if you need them now (like, to pay tuition) then I would recommend at least paying attention.
Bye bye corporate law. Hello litigation.
I'd also pay attention to how much the firm funds its expansion and yearly expenses with debt as opposed to cash.
5:03 - Good way to start a bank run. When IndyMac went under, customers could still use ATMs, checks, and debit cards to access their insured funds.
McWho: I think the assertion that the safest firms will be SF boutiques is exactly the opposite of the case, especially if you're looking to do corporate law.
(1) The safest place (at least in the near term) is going to be with a firm that has strong practice groups that are counter to the down cycle - boutiques are screwed. Find a firm that excels at bankruptcy, complex debt financing, or, hell, even litigation.
(2) Big clients seem to be trending toward drawing down the total number of law firms they deal with, which has encouraged the large-scale big law consolidation over the past couple years.
(3) S&C charges more than some other firms only because their expertise in the areas they operate can demand it. There's more to a firm's cost than the billable hour rate - especially if a client has to pay for some mid-level or junior partner to try to figure out something complex.
(4) However, I do think that some aspects of law, as we have seen, will become more commoditized. Over the past 10 years, much of employment litigation has seen this happen, and firms such as Littler have become really good at churning through work at cheap rates. Wilson does it with emerging company financing. I'm sure there are other areas of corporate law that will see this happen as well. But I'm fairly certain firms like S&C and Wachtel, among other elites, will always have a full plate when it comes to high-end work.
(6) And I also don't think strong client connections are going to stop this trend. It's the firms at the top that can well-afford to poach the contact partners if it's necessary to do so.
--
The big question I have is very simply "who" are going to be the firms left standing that can still demand the big law rates for top-end work once the amount of work that can justify those rates contracts?
With the recognition that it's hard to distinguish rationalizations for one's own choices from good arguments, I really do think big and established firms are the most logical place for young lawyers to weather the storm.
First, boutiques and smaller firms are dependent on a smaller client base and this makes them much more vulnerable in the event some clients walk away. Second, the "big guns" may be able to continue to charge a premium in this kind of market because the stakes have become all the more important; if a perceived advantage comes from hiring a prestigious firm and the client is fighting to save everything it has, then the expensive firm may seem well worth it. Third, newer and smaller firms may not have the institutional knowledge needed to run the firm well during an economic downturn; S&C, on the other hand, survived the Great Depression and all the other blips since and has no doubt picked up some ideas about planning for the long term along the way.
Finally, something to keep in mind. Most of the big firms -- I'm looking at NYC offices especially -- don't demand that you pick a specialty right off. So while it might sound like a great strategy to go around professing your love of bankruptcy or restructuring at the moment, think long and hard about this. A specialization can certainly be an asset, but it's also something you can easily become stuck with doing. Some of the firms really will let you be a generalist for a few years. Then you can actually make an informed choice.
In response to TJ's point #2 - I've heard this too. Firms are beginning to simplify their out-house practices down to a minimal number of firms for the sake of simplification and general red-tape elimination.
One other point I might - boutiques are not going to be able to afford to invest in the future (in terms of new lawyers) as well as big firms are. In fact, the more lawyers you have, the more you are going to need to hire in the present to maintain your presence in the future. Boutiques and smaller firms (with fewer lawyers) will be able to make up for a lack of hiring in the present easier (since it would take less hiring to maintain the lawyer-count when needed in the future vs. the hiring frenzy that would be needed for a large firm to stop hiring now and then start again when the economy takes off).
One last thing - like investments, the firms that have hedged their practices will be the most successful at weathering this downturn. I don't think strong client connections are going to do the trick, because the clients are experiencing the same downturn as the firms and will trim their legal budget as much as possible. I also don't think it's smart to go work for a firm that specializes in bankruptcy law, unless that's really what you want to do, because unless you lateral later, you're kind of stuck in a non-ideal field of work.
TJ:
S&C and that ilk have specialties in almost all areas, because they can pay/attract the talent.
I think we need to make a point: This advice should not really be so much for the student that can choose S&C, as for the student that is choosing between a large firm that is relatively generic and a midsize or boutique.
Think DLA v. Farella. Of course S&C will have work. The question is more will companies pay the high rates to Bryan Cave, when there are lawyers just as good at a midsize (or better) that will do the work for less---because of reduced overhead costs of not having 300 people in NY with nothing to do.
As economic conditions worsen, crime will likely increase. As such, I can only conclude that the DA / PD's offices are likely to be guaranteed work.
When a bank goes under, the FDIC steps in, auctions off the assets to other financial institutions, and then the old bank functions as normal under a new name. It all happens really fast - ideally the FDIC has the weekend to work, or maybe they need one business day. So make sure you have enough cash to get yourself through a weekend, but otherwise no reason to worry about WaMu.
(Assuming, of course, less than $100k in deposits for a single person, which I imagine isn't an issue for this crowd)
"Firms are beginning to simplify their out-house practices..."
Firms are using out-houses now?
Holy cow, things are worse than I thought.
Bank run! Go!
One interesting note on WaMu is that because of its situation, it's currently offering excellent interest rates in order to keep / attract funds. The online savings account currently has an APY of 3.75%.
That's because banks are hording cash right now, mostly because they are scared poop-less.
Under the mattress it is.
Post a Comment
<< Home