Law Firms Post-Recovery: How They'll Hire and Whom They'll Serve

Gina Passarella

06-15-2009

Editor's Note: This is the sixth installment in a weekly series from The Legal Intelligencer examining the lasting effects of the economic recession on the legal industry.

As firms climb out of the morass that is today's economy, the type of work they do will largely remain unchanged, but the people doing the work and the clients they serve could be quite different.

Industry consultants and firm leaders alike anticipate law firms will primarily model themselves to suit their clients' geographic needs, rather than focusing on diversifying practices. As the economy rebounds, they also expect hiring levels similar to those seen pre-recession, but firms will likely hire fewer partner-track associates as part of that push.

While many firms pointed to practice diversification as their saving grace through the financial sector collapse, most consultants and firm leaders said the largest of firms are already offering a pretty broad array of services, albeit for perhaps bigger clients or higher-end matters.

So those firms aren't going to push to diversify to combat slowdowns in other practices, Hildebrandt's Joseph Altonji said. But he does see a narrowing of the client type they serve, and he doesn't mean by industry.

"Firms of all sizes are going to begin optimizing their service models around the type of clients and work they can handle," he said.

Altonji said he is already seeing opportunities for midsize firms to acquire laterals from the largest firms and said that is a good thing. While some may be getting pushed out of the large firms, many lawyers and clients are repositioning themselves. Why would a partner, even with a profitable, strong practice, stay in a firm with thousands of lawyers around the world -- and the infrastructure that entails -- when his practice is focused mainly in one geographic area, Altonji questioned.

"So I think what you're going to start to see is some of the bigger firms will optimize around broad swaths of work that need that infrastructure," he said.

"Other firms will start to optimize around more local practices."

This isn't to say that clients won't use both types of firm, he said. But there are only a handful of firms that currently meet the truly global model and only a certain number of clients who require such a reach, he said.

Recruiter Robert Nourian of Coleman Nourian said while firms that traditionally have focused on slightly lower-rate, middle-market work for a diversified client base are thinking now that they made the right move, larger firms aren't going to be suddenly looking to get into lower-rate work. Instead, firms are back to asking the old questions of whether they need to be national, regional or international.

"I think if you're focusing on regions, then you have to be more diversified in terms of the clients you bring in," Nourian said.

Firms with 400 to 600 lawyers that are in-between a regional and truly national model might have the toughest time because they have fairly regional practices with national offices and ambitions to match, he said.

"I think it's going to be hard to establish themselves as a regional player in every region in which they want to service," Nourian said.

So those firms might need to develop a national reputation and go after national clients. When there was a lot of work to be had, that was easier to do, he said. In this economy, that goal becomes much more difficult to achieve. Many firms are still at the drawing board stage, looking to figure out how they fit into this new market.

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So once the model is selected, who will be doing the work? Well right now it's no one new.

Nourian said firms aren't hiring much at all and even when they are, it's to refill vacancies in busy practice areas. They are reluctant to bring in anyone new, even into a busy practice area, because they are often conducting layoffs in other practices, he said.

And the traditional partner-track associate hiring is "virtually non-existent," Nourian said.

Both Nourian and Altonji said hiring practices are pretty cyclical and firms will start to bulk back up as the economy improves. It's whom they might bring on board that could change.

"I think you'll see that hiring will change," Altonji said. "We're really looking at a rethinking of how you bring people along and the other thing that will happen is a rethinking about what kind of people we actually need to do the work."

The distribution of starting salaries has a high point at the big firms of around $145,000, a big trough in the middle for people who aren't making it to the big firm world and then the majority of graduates who come out making around $65,000 to $70,000, he said.

It's that middle group that typically was passed over by the large firms that will now have a shot as firms start to think about what types of people need to do certain levels of work. They will start to move away from wanting only the top Ivy League graduates in their firms, he said.

Firms aren't going to go back to the same level of hiring for partner-track associates, Altonji said. Firms still need to hire for the traditional associate track because they will be future leaders of the firm, Nourian said, but there won't be as much of that hiring.

Instead, firms will focus on staff lawyers with credentials maybe only half a step below the traditional associate level to help in a support capacity.

"There's chiefs and there's Indians," Nourian said. "Somewhere down the pyramid you can have some folks who maybe aren't Ivy League grads."

Those staff attorneys typically have fewer hours, capped compensation and different bonus opportunities, he said.

While firms are loosening their traditional standards at the associate level through hiring staff attorneys, they are becoming all the more critical of partner-track associates and partners.

Nourian said the two phenomena aren't inconsistent. He said there could be more of an up-or-out philosophy when it comes to partners and fewer people will be made partners.

Firms are currently having difficult conversations with a number of partners who are either being de-equitized or sometimes asked to leave.

"Firms don't want to have to do that again in any major way," Nourian said. "But if you're more careful about who enters the partnership ranks from the start, you don't have to do that."

Pepper Hamilton partner-level hiring partner Joan Arnold has definitely been more closely scrutinizing potential laterals and the books of business they promise to bring along. She said the firm is paying more critical attention to the parameters it has always had in place.

"You're more risk averse today in that you want to have more comfort that the choices you're making are long-term," she said.

But Arnold said the firm was always focused on strategic hiring rather than expansive hiring. So its focus hasn't changed too much with the down economy and won't change drastically as the economy improves.

Nourian said firms aren't looking to make investments right now in partners that might not pay off for a few years, but he said that will change as the recession ends and firms feel more confident in taking some risks.

The final installment of The Legal Intelligencer series will offer an overview of what the "New Firm Order" will look like and re-examine some of the major potential changes to the legal industry.