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Even as the number of large firms continues to multiply and as rumblings grow louder of yet another first-year associate salary raise among the profession’s giants, smaller firms may well lie at the forefront of big changes in the profession.

In recent weeks, some midsized firms have implemented drastic reductions to their billable-hour requirements for first-year associates in order to enhance training and to appease clients who are increasingly resistant to paying for new lawyers’ starts and stumbles.

Such a strategy is something other law firms say they are contemplating and could represent the advent of a change in the industry that many contend is long overdue.

“Clients are driving us to make some difficult business decisions,” said Susan Zaunbrecher, head of the corporate department at Cincinnati’s Dinsmore & Shohl. She also is chairwoman of professional development at the 306-attorney law firm.

One law firm slashing first-year requirements is Dallas-based Strasburger & Price. Earlier this month, the firm announced that instead of 1,920 hours, new lawyers would need to bill 1,600 hours to allow more time for associate training.

The law firm, with 183 attorneys, said it would require incoming associates to spend 550 hours shadowing senior attorney mentors, participating in training sessions and working on pro bono projects.

The Dallas firm’s move followed an announcement in August from Ford & Harrison, a firm with 190 attorneys that decided to completely abandon billable-hour minimums for its new attorneys.

Reducing billable-hour requirements has been a topic of conversation at Zaunbrecher’s firm, she said. “Would we consider it? Maybe.”

But completely eliminating billable-hour requirements, as Ford & Harrison did, is counterintuitive to the business of running a law firm, she said. “The business model requires billable hours. That’s our product.”

Still, midsized firms, with their lower associate-partner ratios, may be more nimble in their ability to move away from traditional associate compensation schemes.

For example, Chicago-based Chapman & Cutler, with 220 attorneys, recently decided to allow second-year associates to choose one of two compensation tracks. They can opt to work fewer hours at a lower pay level or more hours at a higher level. The firm hopes to compete with bigger rivals Sidley Austin and Mayer Brown by establishing the tracks in recruiting and retaining talent.

In addition, Boston-based Lowrie Lando & Anastasi, an intellectual property boutique launched in 2003, has grown from three attorneys to 27, in part by requiring just 1,600 hours from associates but starting them at $130,000. Its pay scale is about $30,000 below the salaries that large firms in the area are offering first-years. But its billable-hour requirement is much lower than big Boston firms and about 100 hours lower than firms of the same size.

Such departures may be easier to navigate on a smaller scale. One big firm, Washington’s Howrey, with 618 attorneys, earlier this year decided to switch to performance-based associate compensation instead of lockstep compensation. The change has been a “tremendous amount of work,” said Edward Han, hiring and development partner at Howrey.

Modifying the associate evaluation instrument, putting training programs in place and bringing aboard the personnel to handle the new system is taking longer than the firm initially estimated. The firm hires between 40 and 50 first-year associates each year.

The moves at some midsized firms come at a time when there appears little, if any, slowdown to the get-bigger strategy in the industry. Law firm mergers for the first half of 2007, which equaled 33, matched last year’s number for the same time period, according to MergerWatch, Hildebrandt International’s law firm merger tracker

Even though tallies for third-quarter mergers equaled 10, compared with a whopping 19 in the third quarter of 2006, Hildebrandt consultant Lisa Smith expects 2007 to be a strong year for mergers in terms of number and size.

The larger combinations this year include 978-attorney Kirkpatrick & Lockhart Nicholson Graham with 419-attorney Preston Gates & Ellis and 456-attorney Drinker Biddle & Reath with 195-attorney Gardner Carton & Douglas. In addition, Dewey Ballantine and LeBoeuf Lamb Greene & MacRae recently completed their merger to form a law firm with more than 1,300 attorneys. In another merger, Locke Liddell & Sapp joined with Lord Bissell & Brook to create a 700-lawyer law firm on Oct. 2.

Also earlier this month, Blackwell Sanders and Husch & Eppenberger, both in Missouri, announced they were in merger talks to create a 630-attorney firm with 16 offices.

As law firms have become bigger, so have associate salaries. First-year compensation jumped to $160,000 from $145,000 in January at many of the largest law firms, and law firm leaders are watching to see if speculation about pending increases to $190,000 reported on the blog Above the Law prove true.

Whenever it happens, first-year increases will create additional tiers in the market, as many firms that struggled to match the $160,000 figure will be unable to meet the next hike, said David Brown, chairman of 85-attorney Much Shelist Denenberg Ament & Rubenstein in Chicago.

“Absolutely, there will be greater stratification,” he said. Brown does not expect to see a reduction in billable-hour requirements for associates at the largest and most elite law firms. But more tinkering with billable hours would be a way that smaller firms, unable to keep pace with the increase, can set themselves apart with clients and among law students.

Earlier this year, a group of more than 100 law students from top schools across the country, Law Students Building a Better Legal Profession, called on big firms to reduce billable-hour requirements and implement balanced-life programs, at reduced pay to associates if necessary.

At the time Ford & Harrison announced its move to eliminate billable requirements for first-year associates, managing partner Lash Harrison cited associate recruiting and retention as key reasons for the decision. The firm, which pays first-year associates $125,000 annually, also got a good deal of public relations from its decision, once it said it was to help relieve clients from the burden of having to pay for new associate training.

“It’s definitely a step in the right direction,” said Mike Dillon, general counsel of Sun Microsystems Inc. Besides providing a way for firms to compete for talented new lawyers without raising salaries, reducing or eliminating billable hours can help partner-client relationships, he said.

“I’m happy to train associates. I just don’t want to pay to train them,” Dillon said.

But law firms also must be wary about sending the wrong message to associates, said Denis Braham, chairman and chief executive of Dallas-based Winstead.

It recruits between 12 and 18 associates each year. Starting salary is $135,000. He wants to make certain that new attorneys understand the rigors of practicing law. “We want associates to step up to the plate,” Braham said.

This article originally appeared in the National Law Journal , a publication of ALM. •

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