March 22, 2010

SNAP JUDGMENTS

Molly Thomas

Slow Billings Rate Boost

A new Altman Weil survey reports that law firms are projecting an overall rate increase of 2 percent for 2010, a baby step toward the recent past when broad yearly increases were the norm. The rather conservative rate changes are being decided on a case by case basis, according to client or lawyer needs. Larger firms will likely institute larger increases, whereas smaller firms will see smaller increases, although any increase is a surprise after some sources had projected rate freezes to continue into 2010. Tom Clay, Altman Weil principal, reported, "In 2009, law firms faced a constant stream of requests from clients, and that will not change in 2010. The reality is that most rates are negotiable." Changes based on timekeeper class can be more strategic, with most rate increases taking place at the associate level, whose billable hours are cheaper, and therefore potentially less noticeable to the client. Firms related various reasons that rate increases are necessary, including normalizing specific practices that are, compared to the market, undervalued and increases for associates and junior associates that reflect their increased experience after around two years of rate freezes.

Securities Suits Start to Cease

The number of securities suits filed in 2009 dropped 24 percent from those filed in 2008, according to Bloomberg News. Perhaps because litigation related to subprime mortgage losses and the credit crunch is finally beginning to disappear, stock fraud claims filed against companies numbered only 169 in 2009, versus a high of 223 in 2008, and a previous average per year of 197. Stanford Law School professor Joseph Grundfest partially explained the decline, saying, "[A]ll the major cases that were profitable have already been filed." A dearth of new grounds related to credit losses, and the relative stability of the stock market in 2009 are also responsible for some of the securities suits' dry-up. Some firms are reaching into the past to fill the gap, pulling old, formerly unattractive cases out of storage and pursuing them. Also affected by a drop in class actions is the insurance industry, because less risk means fewer claims. However, less risk also means that premiums charged cannot justifiably be as high as in previous, more risk-filled years.

Finally Tech-savvy?

With big clients increasingly pressuring their law firms to cut costs and offer services at lower rates, law firms are feeling the squeeze, and some, despite law's reputation for tech slothfulness, are turning to technology to help track, manage, and even reduce costs, according to the Wall Street Journal. For example, Foley and Lardner LLP, a 1,000 strong national firm, has implemented a web program to provide their lawyers and clients with an accurate, real-time report of costs. Their lawyers can log into the system and enter their costs and billing time, then clients can, via a secure website, access and view not only that entered information, but correspondence and court filings as well. The site allows the client to also make determinations about the staffing mix handling his or her case, ensuring it's not too top- or bottom-heavy, too expensive, or lacking enough experience. The technology can also link costs to budgets, and alert staff when spending reaches a certain percentage of the budget.

Fewer Firm Mergers

Announced law firm mergers in 2009 were down sharply as compared to previous years, according to Bloomberg News. Altman Weil MergerLine reported a 24 percent drop in mergers for the year, although they foresee a potential rise in 2010. In 2009, most firms were focused on internal issues and remaining stable, cutting costs, eliminating staff, and adjusting compensation. Also, some deals that have been on hold, waiting for 2009 year-end results, may finally come through in 2010. Most mergers that did occur in 2009 were of firms with fewer than 20 lawyers each.

Finding Funding Alternatives

The year 2010 looks to continue a dreary streak for entrepreneurs hoping to find funding, reports the Wall Street Journal. Since personal wealth, often tied to stock portfolios and real estate, hasn't bounced back from the recent economic crush, entrepreneurs who would use their own savings plus contributions from family and friends are stuck on that front. And banks, focused on bolstering their capital reserves without taking risks, are not picking up the slack, refusing loans even for those with stellar track records. Even professional investors are still feeling wary in terms of loans, and "angel investors" or high net-worth investors willing to supply capital have severely curtailed their lending, down 30 percent in 2009 from the previous year. This doesn't mean, however, that fewer deals are happening. In fact, more deals are taking place, but they are cheaper. Venture capitalists are still in the game, but later to it, investing in companies that are already in their portfolios. Average deal size dropped nearly $2 million, from numbers fluctuating between $7.4 to $7.8 million between 2005 and 2008, down to $5.7 million for the first part of 2009. Still, the number of deals is boosting some people's spirits, or at least, relatively. "We're better off than we were 12 months ago, but we are nowhere near where we were two years ago," says Bob Coleman, publisher of the Coleman Report, a trade publication for Small Business Association members. Also affected are those interested in buying a franchise. In the past, loans required a 15 to 20 percent down payment. Now banks are looking for down payments in the 40 to 50 percent range, thwarting the efforts of those without access to the increased requirements of capital. Coleman does see a trend toward "pitching in," or asking family and friends to work for free. Offered Coleman, "[I]nstead of capital infusions, there might be a lot more exchanges of services or trading favors."

Mature Matriculation

Not all law statistics are dropping! Yale Daily Law News reports that law school applications are on the rise: October 2009 saw a 20 percent increase in Law School Admissions Test takers from 2008. Of particular interest is a certain demographic: one third of those who matriculate to Yale Law School are more than two years out of college. Mark Fitzgerald among them, a 30-year-old former model, now a member of the 2012 Yale Law School class, doesn't see his age as an obstacle. His breadth of life experience taught him something that young people new to the job market might just be learning now. "I think the financial crisis has had a very sobering effect on young people," Fitzgerald said. "They now have an awareness of how vulnerable you can be in the market, and how it can be here today, gone tomorrow." Therefore, some feel that firms might be more comfortable handing a more complicated case to an older, more life-experienced associate. But on the flip side, some speculate that firms might not be willing to hand that precious "partner" title to an older, more family-focused associate over a younger associate with more time to dedicate to the firm. At the school level, however, age and life experience differences are seen as a good thing, as law schools seek to admit a diverse student body.

Molly Thomas