October 23, 2012

Can You Spot Which Developments Will Continue?

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September/October 2009 Issue | Volume 35 Number 6 | Page 14


Can You Spot Which Developments Will Continue?

Will the rise in corporate work for midsize firms, associate apprenticeships and equity partner reductions continue? Let’s take a look at some of today’s new trends and attempt to evaluate which may continue when the economy recovers—and which may die out.

For years DuPont’s policy with regard to the use of outside counsel was to work with a small number of large, mostly global law firms. Then earlier this year it began to assign work to an increasing number of midsize and smaller firms—a definite shift in strategy. While this has surprised some observers of the legal scene, it really continues a trend that gained momentum when this recession began two years ago. A growing number of large companies are recognizing that “MidLaw” and “SmallLaw” firms (as I like to categorize them) have many excellent lawyers and provide excellent service—and, of course, they have lower rates than the typical BigLaw firm because their overhead is lower.

And to think, just a few years ago some legal pundits were proclaiming the death of the midsize firm. The current trend shatters that prediction, as MidLaw and SmallLaw firms are not only surviving the recession but, in many cases, are doing quite well. Odds are good they will grow even stronger after this recession ends.

  • New law school applications. Despite the large number of associate layoffs and the decrease in the percentage of recent graduates who have been hired by firms, a number of law schools—including Virginia, Texas and Yale—are actually enjoying an increase in applications. This seems to defy logic. Or does it signal a trend in which many college graduates want to obtain law degrees instead of MBAs as preparation for a career in business? If that’s the case, it would mean a return to the thinking of several generations ago when a law degree was considered excellent training for almost any career.

  • Associate apprenticeships. Unable to bill out first-year associates at standard rates, several larger firms, and a few MidLaw ones, are initiating a one- or even two-year apprenticeship program—with a lower salary for the associates. During this training period, associates will attend classes, “shadow” partners, and get additional experience from pro bono work and even secondments to clients. Any client work that they might do will be billed at lower rates. Associates who complete these programs can earn a bonus based on performance as well as the opportunity to return to the regular pay and partnership track.

    Some prominent managing partners believe that law students will not accept less money to receive this additional training and will, therefore, decline offers from firms that institute these apprenticeships. They may be right. But, on the other hand, look at the similarity to training in the medical profession, where many young doctors go into two-, three- and even five-year residencies to be trained in specialties. Only time will tell if this thinking gains a foothold in the legal profession as well.

  • Fewer equity partners. There has been a notable increase in the number of firms that, for various reasons, have reduced the number of equity partners, either by “de-equitizing” them or by having them leave the firm. Will this trend continue? One of the reasons it might is that many younger lawyers are not interested in becoming equity partners owing to the emphasis on origination, the longer hours involved and the requirements for ever-increasing capital contributions.

    But the latter point is one that may also reverse the current trend. Law firms have been traditionally undercapitalized, but today a number of firms have recognized they need more capital. Outside of accruing debt, which is not a wise step, there are only two means of raising capital: increase the capital contributions of equity partners or increase the number of equity partners. This becomes a critical and delicate choice. But either of these approaches will require serious consideration of the qualifications for becoming an equity partner.

  • More lawyers forming firms. Despite the risk and financial sacrifice, at least initially, there has been a notable increase in the number of lawyers forming their own firms, either as solos or with a few partners. One of the causes is that some lawyers who have been laid off have not been able to find another job in a different firm, or in another industry, or have decided against changing careers. However, as the economy recovers—and we all know it will recover at some point—I believe this trend will settle back to the historical level.

    This is an unsettling period in the legal profession, but it is also exciting in a sense. For many firms and lawyers, finding the opportunities in the moment—or, in some cases, just surviving—can depend on spotting the new trends that will continue into coming years.

About the Author

Bob Denney , President of Robert Denney Associates, Inc., has been providing strategic management and marketing counsel to law firms throughout North America for over 30 years. He can be reached at (610) 644-7020.