Barnes & Thornburg's Alan Levin
Holme Roberts' Larry Theis
FACING THE FALLOUT
Midsize firms see a silver lining
October 13, 2008
Midsize law firms across the country have found a silver lining in the dark cloud looming over Wall Street.
Many smaller shops are hopeful that the slowing economy will actually be good for their business, as clients looking to cut their legal budgets may consider shifting work from larger, pricier firms in New York and other major cities.
Economic uncertainty and downsizing at major firms could also translate into lower associate attrition and more recruiting options, say attorneys at several midsize firms.
With fewer ties to the financial sector's heavy hitters, smaller firms say they are experiencing less fallout from the recent economic turmoil than their big-firm counterparts — at least for the time being.
Despite some potential benefits, smaller firms aren't immune to Wall Street's woes.
Many are reporting that practice areas such as real estate, transactions and initial public offerings are down. But other practice areas, including bankruptcy and restructuring, have stepped up to fill the void, and many midsize firms say they are on track to meet or surpass their 2007 financial performance.
"In this type of downturn, we expect to see some negative impact on the firm, but not to the extent you see with the New York firms," said Alan Levin, managing partner at Indianapolis-based Barnes & Thornburg, which has 446 attorneys and seven offices, including four in Indiana. "Our economy is not quite as tied to the highs and lows of the financial markets."
Picking up business
It appears that the economy has yet to bottom out, but Denver-based Holme Roberts & Owen, with 260 attorneys, is already picking up business from clients that are moving away from more expensive firms, said Chairman Larry Theis. Most recently, a large Colorado-based client moved its antitrust business from an East Coast firm to Holme Roberts, he said.
"We were $250 or $300 less [per hour] than the East Coast firm," Theis said.
Holmes Roberts & Owen isn't the only regional law firm expecting to pick up business from clients that are seeking to trim their legal budgets.
Dykema Gossett Chairman Rex Schlaybaugh Jr. said clients have been shopping around for cheaper legal services for several years.
"That trend becomes accelerated in tough economic times," Schlaybaugh said. "Purchasers of legal services have found that there is tremendous value in what I call 'Main Street' firms as compared to 'Wall Street' firms."
Dykema Gossett has nearly 400 attorneys, including five offices in Michigan and another in Chicago.
A recent survey of legal spending at 233 companies found that law departments are cutting back. The survey, by legal consultant Hildebrandt International, found that legal spending is growing more slowly than it has in the past, and nearly a third of the companies said they plan to decrease the number of law firms they will use.
While some midsize firms sense opportunity in the economic downturn, legal consultant Joel Rose said those opportunities to grab large firm business are limited.
"If a company has a significant issue they need to address, I don't think they would necessarily make a change," said Rose.
But some clients may be willing to switch to midsize firms for day-to-day legal work in order to save some money, he said.
Snell & Wilmer likely won't pick up business from the top New York firms, said Chairman John Bouma, who noted that many clients have long-standing relationships with certain firms. The 440-attorney law firm has six offices, including Phoenix, Salt Lake City and Costa Mesa, Calif.
However, the firm may very well pick up clients who willingly paid more in the past just to get deals and projects done quickly. With the economy slowing down, value becomes a higher priority, Bouma said.
Lower attrition
Midsize firms have another reason to be cautiously optimistic during this period of financial upheaval.
Sluggish economies and uncertain job prospects historically have resulted in low attrition among associates and less competition for new hires.
"Right now, there just aren't a lot of options for associates to jump ship," said Gary LeClair, chairman of LeClairRyan in Richmond, Va.
LeClair said his firm, with 310 attorneys, has seen attrition hover around 5% this year, which is significantly lower than in past years.
Some major firms have recently shed positions, or at least aren't expanding as quickly as they have in the past. Those reductions, coupled with uncertainty at top firms, create opportunities for smaller firms to make good lateral hires.
James Gilliland Jr., chairman of the intellectual property firm Townsend and Townsend and Crew in San Francisco, said the slow economy could be a big plus for the firm when it comes to hiring. Townsend has 230 attorneys.
His firm is particularly interested in attorneys with degrees in science and engineering.
"We've been in direct competition with the major firms for those hard-to-find associates," Gilliland said. "We have more opportunity to hire them in a slow economy."
The country's economic woes are having an impact on hiring plans at some midsize firms, however.
Leaders at a number of those firms said they expect to continue lateral hiring, but are being more selective about the attorneys they bring on.
Instead of taking a chance on a promising hire, those firms will look for laterals who have proven they can bring in business.
Regional law firms aren't on the legal frontlines of the Wall Street meltdown, but they are feeling the effects of the stagnating economy.
While overall financial performance at many firms appears steady, midsize firms are generally seeing declines in a number of practice areas. Not surprisingly, real estate is the area consistently cited as slumping.
"There's just not credit available to do the deals," said Bouma of Snell & Wilmer.
Some firms appear confident that their diverse practice areas will protect them from the worst of the economic crisis, while others are cutting expenses and bracing for tough times.
"It could all change overnight, like it did with Heller Ehrman," said Theis. "We're holding our breath that we will continue to be successful."
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