The down economy, Part 6: How bad is it?
Given the recent events at Lehman Brothers, Merrill Lynch, AIG, Fannie Mae, and Freddie Mac, the economy clearly has problems. But what does it mean for your practice?
I’ve been giving talks about the down economy at law firms for several months now, and have been surprised by how widely experiences vary from firm to firm, and even from lawyer to lawyer. Some have never been busier, and are not the least bit concerned about the economy. If that’s you, skip the rest of this post and come back next week.
But if you are starting to worry, and you’d like to keep track of how large firms are reacting, see Above the Law’s “layoff watch.” Then read Leigh Jones’ recent article in Law Journal which notes that “Since October, some 338 attorney layoffs have been confirmed and reported by various news organizations at 12 law firms among the NLJ 250, The National Law Journal's annual survey of the nation's largest law firms.”
Jones went on to say that law firms are notoriously secretive and that the true number could be much higher. Even so, he put a positive spin on these figures, and argued that “Even if stealth layoffs are... [two or] three times the reported amount, the number of attorneys ushered to the exits in the last 10 months is relatively small. Attorney layoffs since October equal about 3.5% of the total number of attorneys at the 12 law firms confirming layoffs.” And of course the vast majority of firms have not reported any layoffs at all. That’s why Jones titled the article: “About those law firm layoffs? It isn't that bad.”
I disagree. I think it is that bad.
I am amazed that law firms have acted at all. Law firms are known for many things, but speedy action is not one of them. Maybe you’ve heard the joke:
What does a law firm do when the building catches fire?
They form a committee to study fire extinguishers.
I’ve watched firms spend years debating small decisions. Whenever powerful partners disagree, the matter gets tabled until the next meeting. No one wants to lay off people they have worked with, whom they like and respect, and whose families depend on them. So when I hear that 338 attorneys and a large number of staff have been laid off, I am astonished at the number of important decisions that have already been made. Especially given that the larger economic picture remains cloudy.
And these layoffs are not the first storm clouds on the legal horizon. Consider the large firms that have failed in the last few years, including the 300 lawyer firm Altheimer & Grey, the 400 lawyer firms Testa Hurwitz and Arter & Hadden, and the 700 lawyer firm Brobeck, Phleger & Harrison, founded in 1926.
And what about the fact that it’s getting harder to become an equity partner? At AmLaw 100 firms, the percentage of equity partners declined from 28% to 25% between 2000 and 2006. The reasoning behind this trend was summarized in The American Lawyer (May 2007, p. 127): “Tenure is dead. Produce (at an attractive rate) or perish.”
Put it all together, and I say this is an excellent time for lawyers to prepare for the worst.
How should you do that? By paying more attention to the needs of the people who can help you if things do go downhill: your clients and your colleagues. By making sure that the lawyers who refer work to you know how much you appreciate it. By insuring that your clients are not just reasonably satisfied, they are raving fans. It’s called marketing.
Exactly how should you begin? The answer depends on your practice, your personality and your schedule. One way to start is to review best practices from other firms to pick the ones that apply to you. For details, you can surf the web, or start from books and CDs, such as my LegalBizDev Success Kit.
If you’d rather just jump right in, set up a free meeting with a top client or referral source. Next week’s post will provide some advice on one way to do that.
That meeting will be good for your practice, whether the economy continues down or heads back up.
Note: The week after this item was posted, Heller Ehrman dissolved. The firm was founded in 1890 and had 570 lawyers.