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Despite the softening economy, associates at some of the nation’s largest law firms last year remained firmly ensconced in the driver’s seat. Some were able to entertain better jobs and more money at other firms or in other fields. Managing partners were still locked in 1990s-style bidding wars, promising big salaries to young lawyers in the hope they would accept offers, or pumping up bonuses and perks so star associates wouldn’t defect. Today, those associates are getting fired or living in fear. The National Law Journal‘s annual survey of the nation’s 250 largest law firms confirms what many have long suspected: U.S. law firm growth has slowed for the first time since 1993. From Oct. 1, 2000, to Sept. 30, 2001, the nation’s top 250 law firms grew at a rate of 8.2 percent, down from 9.4 percent the previous year. The true slump may be worse than the numbers show, law firm consultants say, given the hundreds of associates who have been laid off in the two months since the Sept. 11 terrorist attacks. Since 1996, NLJ 250 law firms have grown by 45 percent. But since 2000, as recessionary fears seeped from the general economy into the usually more resilient legal sector, caution has become the watchword at law firms. “Everyone in the world blames everything on Sept. 11, but this was already in the works,” says Bradford Hildebrandt, head of the consulting firm Hildebrandt International. He says more than 400 associate positions were overtly eliminated in the past four months, and that many firms have been surreptitiously downsizing as well. High-profile layoffs include Palo Alto, Calif.’s Cooley Godward, which pink-slipped 86 associates in August; New York’s Shearman & Sterling, which recently cut 10 percent of its associates; Pillsbury Winthrop, which cut 10 percent of its New York associates; and Morgan, Lewis & Bockius, which laid off 50 associates. Hildebrandt says he expects at least another 400 layoffs by February. Other legal industry experts say the current downturn will also encourage more law firm mergers, including unions between some of the huge international firms in the upper reaches of the NLJ 250. But mostly, they say, Darwinism will reign, and the strong firms will simply accelerate their consumption of the weak. GROWTH BY MERGER The top 10 firms in terms of growth the past year did so by merger. Only New York’s Kramer Levin Naftalis & Frankel grew naturally, by 31 percent, reaching the rank of 151 after adding 62 lawyers to its staff. Managing Partner Paul S. Pearlman attributed his firm’s growth to increased bankruptcy, intellectual property and even mergers and acquisitions work. The other nine top growers did so by swallowing competitors. Cincinnati’s Frost Brown & Todd reached the rank of 96 by adding 180 lawyers — doubling its membership — in its merger with Louisville, Ky.’s Brown Todd & Heyburn. Other major gainers-via-merger: Sidley & Austin, by adding 507 lawyers in its joinder with Brown & Wood; Pillsbury Madison & Sutro, by adding 305 lawyers in its merger with Winthrop, Stimson, Putnam & Roberts; and Foley & Lardner, which grew by 116 lawyers after subsuming Chicago’s Hopkins & Sutter and Washington, D.C.’s Freedman, Levy, Kroll & Simonds. Other key findings in the 2001 NLJ 250: � Not surprisingly, the king of the NLJ 250 remains Baker & McKenzie, with 3,117 attorneys, far ahead of number two, New York’s Skadden, Arps, Slate, Meagher & Flom, with 1,704 lawyers. � On the salary side, 18 firms reported paying some of their first-year associates more than $130,000 this year. Dallas-based Jenkens & Gilchrist was in the lead, offering some law school graduates up to $185,000. � One of the most telling signs in this year’s NLJ 250 survey is the associate attrition rate, which dropped dramatically, from an average of 23.6 percent in 2000, to 16 percent this past year. � Despite the economic downturn at home, law firms continued to expand abroad. Some 8,481 NLJ 250 lawyers are working in other nations now, a 23 percent increase from last year. THE BIG GET BIGGER Despite recent layoffs at huge firms and dire predictions of more to come, the largest firms still managed to grow at a much faster clip than smaller NLJ 250 firms, with the top half beefing up its ranks by 10.3 percent, and the bottom half growing by only 4.6 percent. The top quarter of the NLJ 250 grew even faster, by 11 percent, though still two points slower than a year ago. The bottom quarter grew by only 3 percent for the second year in a row. The decline in attrition, consultants say, initially may have been the result of how managing partners succeeded in buying associate loyalty through increased salaries and bonuses. Now it may be more indicative of how those same associates have lost confidence in the job market. “This time last year, we were still seeing a number of firms using money to keep associates,” says Blane Prescott, head of the Strategy and Merger Group at Altman Weil consultants. “You didn’t see a lot of people saying they wanted to stick around because of the economy.” Usually, says Michael Dwyer, co-managing partner of Seattle’s Lane Powell Spears Lubersky, ranked 235, most “associates change jobs in their first seven years,” and firms average a 20 percent associate attrition rate. Now, Dwyer says, the economy is causing many to stay put. Washington, D.C.’s McKenna & Cuneo reported the highest percentage of associate turnover this past year � 46 percent, or 43 associates. Trailing were Pittsburgh’s Buchanan Ingersoll, which saw 35 percent of its associates, or 73, depart, and two firms that lost 34 percent: New York’s Wilson, Elser, Moskowitz, Edelman & Dicker, which lost 96 associates, and Loeb & Loeb, which lost 24 associates. All of these firms note that many departing associates are replaced with new hires. At McKenna & Cuneo, Vice Chairman Raymond Biagini says his firm’s attrition rate is not related to the general downturn, but rather to a “rightsizing effort.” With client mergers and a decline in work from government contractors, the mainstays of its practice, Biagini says, his firm was forced to embrace attrition. “When you go through a rightsizing, there are always lawyers who you would prefer not leave,” he says. “But what you are seeing with other firms laying people off is a reflection of the same management attitude we had in the mid-1990s.” Loeb & Loeb managing partner Frederick Levy says the concept that associate loyalty can be bought with higher salaries or bonuses is a myth. “I don’t think that people stay at a firm or leave a firm for compensation exclusively,” he says. Levy attributes associate departures to whether they are comfortable with their work environment, the training they receive or the “lack of respect they feel in the workplace.” At Buchanan Ingersoll, President William R. Newlin attributes his firm’s high turnover to a combination of factors. “During the early part of the period we were still losing associates to the dot-coms,” he explains. “But we did make a conscious movement to bankruptcy and creditors’ rights and adjusted our family law practice [and] placed more pressure on productivity in our employment law area.” All of these moves, Newlin says, led to associate departures. Additionally, some 15 associates left with partners in the firm’s Princeton, N.J., office where he says there was an inability to “integrate the personalities.” WINNERS AND LOSERS The biggest overall declines in attorney employment among NLJ 250 firms were led by Cleveland’s Arter & Hadden, which dropped from a rank of 64 to 123 after losing 146 lawyers, 31 percent of its attorneys. Other loss leaders included Washington D.C.’s Verner, Liipfert, Bernhard, McPherson and Hand, which lost 19 percent of its attorneys, and Swidler Berlin Shereff Friedman, which dropped 14 percent — a decrease that managing partner Barry B. Direnfeld attributes to the loss of a financial services group to Shearman & Sterling, “modest” layoffs and a reduction in contract attorneys. Arter & Hadden’s Daniel Bailey, chairman of the firm’s executive board, attributed his firm’s contraction to layoffs. The downsizing, says Bailey, was more “geographic than substantive.” The firm’s Los Angeles office dropped from 88 lawyers to 21, its Cleveland office fell from 118 to 87 lawyers and its Dallas office shrunk by 19 attorneys, to 45. Like other managing partners who engaged in cutbacks, he says the firm’s partners are now seeing bigger profits. “We are seeing 20 [percent] to 25 percent increase in profitability over last year — six-figure increase in profits per partner,” he says. Law firms did make some strides in 2001, especially in the upper echelons of NLJ 250 firms. Baker & McKenzie grew by 346 attorneys, or 12.5 percent; Skadden Arps by 137 lawyers, or 9 percent. Rounding out the top five were Jones, Day, Reavis & Pogue, growing by 206 lawyers, or 15 percent, to 1,610; White & Case, adding 274 lawyers, a 22 percent increase, to 1,538; and Latham & Watkins, which grew by 321, or 29 percent, to 1,437. For the first time, the number of law firms who reported employing more than 1,000 attorneys expanded to the double digits last year, going from seven to 10. Newcomers to the 1,000-lawyer club were sixth-ranked Sidley Austin Brown & Wood in Chicago, Shearman & Sterling and Akin, Gump, Strauss, Hauer & Feld. Lower down in the ranks, there are now 69 firms with more than 500 attorneys, 12 more than was the case in 2000. SOME PAY INCREASES In the realm of compensation, 18 law firms paid first-year associates more than $130,000 this year, an increase from just seven firms last year. While Jenkens & Gilchrist leads the entry-level salary brigade this year at $185,000, last year’s trendsetters were Skadden Arps; Wachtell, Lipton, Rosen & Katz; and Boston’s Testa, Hurwitz & Thibeault, each paying $140,000 to new associates. Meanwhile, this past year, 44 of the top 50 firms reported paying starting associates at least $125,000. Baker & McKenzie was one of only two of those firms to not disclose starting pay, saying it pays “market rates.” Among the entire NLJ 250, firms reported an average range in starting salary of between $104,588 and $105,429, contracting from that reported by firms in 2000: $97,534 to $108,583. Despite the economic downturn at home, law firms also continued to expand abroad in 2001. Some 8,481 NLJ 250 lawyers are working in other nations, a 23 percent increase over 2000. The biggest increases came in Spain, which saw a doubling of the number of lawyers assigned to offices there, from 89 to 177, and Switzerland, which saw a 90 percent increase, up to 129 lawyers. The largest contingents of lawyers overseas remain in the United Kingdom, which has 2,080 NLJ 250 lawyers, a 23 percent increase over last year; France, with 836, a 37 percent jump; and Germany, with 790, a 42 percent increase from 2000. The magic number for entry into the NLJ 250 climbed from 153 attorneys to 158. There are 10 new members of the NLJ 250, with Cincinnati’s Taft, Stettinius & Hollister jumping in with a 33 percent increase in staff, landing at 207. The firm gained 34 lawyers as a result of its merger with Cleveland’s Kelley, McCann & Livingstone. Also reaching NLJ 250 status is the class action king Milberg Weiss Bershad Hynes & Lerach, now ranked 238 with 163 lawyers. Among those vanishing from the NLJ 250 was Santa Monica, Calif.-based Haight, Brown & Bonesteel, ranked 250 in 2000, which lost 46 lawyers this year.

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