A frustrated student at a prestigious law school called a recruiter at a large firm to find out why she wasn’t being invited for a callback. Patiently the recruiter explained, “While you were an excellent candidate (tactfully not adding, “albeit in the middle of your class”), others were better matches for our firm’s needs.”
The student pressed on, asking, “Why are none of the firms in your area giving me a callback?” The recruiter decided to explain more honestly. “Let me walk you through my process,” she began. “I know that I want a summer class size of 10 and start by looking at about 3,000 r�sum�s. We then go on campus or invite in about 225 for screening interviews. We invite 60 for callbacks and make offers to 30. Of those 30 offers, we expect 10 to accept. Two years ago, I would have made twice that many offers, but we don’t need more than 10 people in our entering class. To be one of the 30 winnowed out of 3,000, every detail on your r�sum� and transcript has to be exactly what we are looking for.”
On the other end of the line, there was silence as the numbers began to sink in. Welcome to the world of law firm overcapacity.
Overcapacity is the polite term law firms use to describe the condition of simply having too many lawyers and too little work. Like a stubborn hurricane swirling over the Outer Banks of North Carolina during your entire two weeks of vacation, the economic downturn stubbornly refuses to give up and move on.
We are now in the midst of the second on-campus recruiting season since the workflow generated by the Internet and telecom booms dried up. A year ago, firms — particularly those with emerging industry practices — were announcing layoffs and staggered start dates, and some even rescinded offers to incoming first-years. Most thought the flow of work would be back to normal by the beginning of this year, but the stunning bankruptcies of giants Enron and WorldCom, the continued dearth of transactional work in most parts of the country, and clients’ belt tightening have kept law firm financial managers focused on wisely managing their largest asset: their legal talent. Firms have employed a number of strategies to bring staffing in line with workflow, but there are no quick fixes.
STRIKING A BALANCE
The problem seems simple — if there are too many lawyers, fire some or don’t hire any new ones. This would be a reasonable solution for a restaurant with too few customers or a car dealership that isn’t selling cars. Law firms, on the other hand, live and die by their talent. Maintaining a healthy pipeline of developing legal minds is critical to the success and reputation of a firm. If you fail to recruit at a top law school one year, you may find your schedule empty when you return in better times. If you stagger start dates too awkwardly or, worst of all, revoke offers already tendered, you may be blacklisted by all but the mediocre students on a campus. In other words, your access to the talent pipeline will be severely compromised.
If you stop hiring laterally, you may find yourself with painful experience gaps in practice areas that may heat up without warning, as mergers and acquisitions practices did in the mid-1990s. The crash of 1987, followed by the bursting of the real estate bubble, had decimated transactional practices. So when businesses started reaching out for corporate lawyers, many firms had few midlevel to senior associates with the experience to be effective and productive. Rebuilding was painful and slow, and money was lost in the process.
Firms remember this lesson about being caught short-handed — yet most recognize that they have to take corrective action to right-size staffing or else associates will begin to suffer from a lack of on-the-job training. Talented associates whose work lacks challenge and diversity may eventually lose motivation and move on, regardless of the tough employment market. Those who remain may be stunted in their professional development or may lack the options available to their more talented colleagues.
In making adjustments, many firms have focused on their summer program. A May 2002 National Association for Law Placement survey reported that among firms surveyed nationwide, 43.8 percent reduced the size of their summer program, 23.6 percent reduced one-L hiring, 13.2 percent delayed start dates for their first-year class, and 2.7 percent revoked offers to entry-levels. In addition, the NALP reported that 88.9 percent of Washington’s summer associates received offers at the end of the 2001 program compared with 94.5 percent in 1999.
Let’s examine each of these strategies.
• Reducing the size of the summer program is the easiest and least risky strategy. Hiring fewer summer associates doesn’t affect the status of the firm on its preferred feeder campuses. In fact, the recruiting environment becomes more advantageous for the employers as students become more serious about the process — some realizing for the first time (as with the frustrated student above) that they will have to distinguish themselves in order to have a chance with the top firms.
• Not hiring first-year law students does not hurt the firm in any significant way, but it may make sense to continue to offer clerking opportunities to local first-years not tied to the summer program.
• The delaying of start dates works as long as it doesn’t create too much hardship for the new lawyers. Some will even welcome a bit more downtime after the grind of law school. Creative firms have offered students the opportunity to work for a public interest organization or government office on their dime rather than start immediately at the firm. But ultimately the success of the delaying tactic is dependent on work picking up by the time of the new start date. And if that start date goes out too far, it can interfere with decisions as to the next year’s incoming class.
• Revoking offers is obviously the most drastic remedy for an overcapacity situation and should be used only when all else has failed. No one can accurately predict workflow two years in advance, but firms make commitments all the same — and law students depend heavily on those promises of employment. Most students with offers do not continue to interview or research employers in their third year, so they are almost two years removed from the legal job market. Add to that the fact that they would be competing with experienced associates on the market as a result of layoffs and you have a bleak employment picture for this group. Firms that have revoked offers with the least amount of collateral damage have been as humane as they can be — extending pay and benefits for up to six months beyond what would have been the start date, reimbursing any moving costs that are not refunded, and providing some form of career counseling support. All of this needs to be followed by rebuilding relations with the schools of those students. Being visible, attending job fairs, and volunteering for panel discussions may help the firm allay the wariness of the next class.
• Making offers to fewer summer associates used to be viewed as risky behavior. While it can still harm a firm’s reputation on the snootiest law campuses, the practice of whittling down the class to the best and brightest is becoming commonplace enough that it doesn’t set a firm apart. In many ways, making offers only to those summer associates who really present a stellar performance is a formula for greater retention and professional development later.
MANAGING CURRENT EMPLOYEES
When attrition slows to a trickle and only the best folks are getting calls from headhunters, firms have to become more vigilant about evaluating performance and supporting professional development. Now is the time to dust off the performance appraisal system and see if it really works. Associate evaluations usually eat up obscene amounts of attorney and administrative time only to yield little meaningful information on skills, knowledge, and cultural fit. To successfully monitor and manage associate development, supervisors must provide candid assessments of ability and fit, associates must have the opportunity to evaluate their own strengths and weaknesses, and the firm must have clear performance standards, as part of a comprehensive approach to professional development.
Besides making the evaluation process more meaningful, other best practices in the area of performance management include:
• Training supervisory attorneys how to give useful feedback and discuss performance objectives with associates.
• Asking associates to draft an annual professional development plan setting forth specific performance or learning objectives for the next review period, and using that plan to monitor performance during the year.
• Identifying poor matches early and providing a humane approach to separation that includes time to search for a job and professional outplacement counseling.
• Evaluating performance in real time — as the work is completed or when an hours threshold has been met on a project.
• Conducting upward reviews of supervisory attorneys, to help firms identify and reward performance management behaviors that enhance associate efficiency, productivity, and learning.
• Moving away from lockstep compensation and bonus systems to allow attorneys to advance based on their billing rate, hours worked, level of skills, and quality of work. Known as banding in the corporate world, this approach rewards individual performance and productivity, as opposed to moving everyone forward as a group merely because they have put in one more year at the firm. Plus, many firms have begun letting new hires choose a more or less demanding target for billable hours, with a commensurate salary.
• Adjusting compensation systems to reflect firm profitability. According to the 2002 NALP survey, 26.3 percent of responding firms reduced bonuses, 17.1 percent froze associate salaries, and 6.6 percent reduced salaries.
THE LATERAL EQUATION
Carefully managing lateral hiring is especially important in this market. Due diligence is the key to avoiding a potential problem. Thoughtful assessment of the skill set and personality needed, interviews by everyone the candidate will work with, and real reference and background checks all help firms make smart lateral hiring decisions. For partners, the checks need to be even more thorough, as evidenced by the recent Pillsbury-Latham mess.
Now may be the time to offer part-time schedules, year-long sabbaticals, or job-sharing opportunities. Contract attorneys have become a hugely popular solution to short-term and even long-term staffing needs. Some firms are lending out attorneys to clients or state or local government offices, rotating associates through foreign offices, or sending them off to LL.M. programs. These are all good ways to provide learning opportunities when there isn’t enough billable work. And there’s always plenty of nonbillable work to make use of downtime, such as creating an organized forms file, attending training workshops, writing articles, and working on business development projects.
Finally, firms may want to return to practice rotations for entry-level associates. Rotations used to be the rule, exposing associates to a variety of legal work, but most firms gave it up when management shifted to a practice-group-centered model. Practice group management may be efficient, but it creates subgroups of attorneys who become so specialized that the firm loses any measure of fluidity when the market shifts.
Maybe firms were right to think that all attorneys needed exposure to all areas of the firm’s practice.
With each economic downturn, law firms become better at managing their capacity planning. The best staffing strategies, those with a positive impact for the firm and its people, are characterized by creativity and humanity.
Susan G. Manch is a principal in the legal management consulting firm of Shannon & Manch LLP in Washington, D.C. She can be reached at [email protected] or at (202) 293-8900.