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There are many signs that the economy took a bite out of law firms the past year. The Greedy Associates message board is still buzzing, but based on the tone and tenor of the postings somebody ought to replace “Greedy” with “Needy.” Starting associate salaries, which the Web site helped bid up, were again stagnant at best — as they have been for the past three years. Many firms reduced their fall classes, but some failed to prune sufficiently. One pushed back the start date for some associates to January 2003. Another offered to pay associates as much as $3,000 a month to start in January 2004. Yet another paid more than a dozen would-be associates $20,000 to forget the whole thing. It’s no wonder jobs are at a premium. The National Law Journal‘s 25th annual survey of the country’s 250 largest law firms found that from October 2001 through September 2002, the total number of lawyers in the 250 firms grew just 3.7 percent — less than half of last year’s rate of 8.2 percent and the lowest since 1995. Yet, given the prolonged economic slump, some observers interpret this as good news. “I think those are fantastic numbers,” says Lynn Mestel, president of the attorney placement consultants Mestel & Co. “It’s an industry that grew,” compared to many that flattened or contracted. One thing hasn’t changed. Baker & McKenzie remains atop the 250 for the 25th consecutive year, and it also cracked the 1,000-partner barrier (including nonequity partners) for the first time. [ See " Baker & McKenzie is No. 1"]. The firm’s 3,244 lawyers put it 1,424 ahead of New York’s Skadden, Arps, Slate, Meagher & Flom and Jones, Day, Reavis & Pogue and nearly doubled the lawyers at fourth-place Latham & Watkins. Among the NLJ 250′s other findings: • Twelve firms now employ more than 1,000 lawyers — two more than ever before — and 32 firms have more than 750 attorneys. • Eight of the 10 fastest-growing firms grew, at least in part, through mergers or acquisitions. The leader was Kansas City, Mo.’s Stinson Morrison Hecker — No. 120 on the chart, with 337 lawyers. • West Coast firms took some of the biggest hits. San Francisco’s Brobeck, Phleger & Harrison dropped from No. 16 to No. 46 as it lost 232 lawyers (26 percent), while Pillsbury Winthrop, also of San Francisco, slid from No. 17 to No. 37 as it shed 152 lawyers (17 percent). • In the last 15 years, the number of lawyers in the 250 has grown from 58,533 to 108,361, a jump of 85 percent. The number of lawyers practicing abroad during that same period rocketed more than sixfold, from 1,404 to 9,573. ASSOCIATE ANGST The associate layoffs that began in August 2001, when Palo Alto, Calif.’s Cooley Godward pared 86, continued on the West Coast and expanded east. Some firms, like Cooley, didn’t shy from acknowledging the economic basis, while others sought to cloak the layoffs in performance reviews. The result, according to a recent survey in The American Lawyer (a sister publication of The National Law Journal and law.com), is that 31 percent of the mid-level associates polled said they are very worried about their futures, compared to 26 percent last year. Those who escaped the ax appear to be sitting tight. Overall, the NLJ 250 showed an associate attrition rate of about 15 percent, down slightly from last year’s 16 percent and down substantially from the 23.6 percent racked up in 2000. It’s unlikely many departures were lateral moves. Overall, the number of associates employed inched up only 2.1 percent this year, compared to 9.3 percent last year and 14.5 percent in 2000. The reason the number grew at all, of course, is that firms continued hiring associates even as they laid them off. Though it’s counterintuitive to most lawyers, says Ward Bower, a principal at management consultants Altman Weil, firms should hire even during a recession. “Any paring they do should be done at all levels,” he says, “not just the new people they hire. This is an opportunity to trade up.” Mestel agrees, adding that firms seem to have learned from the mistake many made during the downturn of the late 1980s and early 1990s. Back then, she says, many stopped hiring. By the time business picked up, they were caught with a dearth of quality associates. The highest attrition this year was logged by Denver’s Holme Roberts & Owen, which jettisoned 23 associates, or 40 percent of the total it employed in 2001. Brobeck shed 234 associates, or 38 percent, followed by the newly merged McKenna Long & Aldridge’s 34 percent and 33 percent at Katten Muchin Zavis Rosenman, also recently merged. On the other end of the spectrum, Baltimore’s Miles & Stockbridge lost only one associate (1 percent). NONEQUITY PARTNERS RISE Another sign of the economic times: The number of partners rose 4.8 percent, compared to 7 percent last year. But the number of nonequity partners and “other” lawyers — senior and of counsel — grew more rapidly. The nonequity number is slippery. Some firms that reported large increases in nonequity partners acknowledged, when pressed, that they’d lumped them together with the associates last year or made other mistakes that skewed the results. As Bradford Hildebrandt, founder of Hildebrandt International and the dean of law firm consultants puts it: “Law firms have a tendency to report what they want to report.” Even so, after suspect statistics are dropped, the rise is still about 9 percent. “Our experience,” says Hildebrandt, “is that more firms have adopted and are using more consistently two-tier partnerships.” Partners want “to improve leverage and, by definition, the economics of the firm.” Therefore, associates are apt to wait longer to share the wealth, he says, adding that nonequity status doesn’t necessarily carry a stigma. Many lawyers in this category, says Bower, would have made partner 20 years ago. Now, he says, “they’re keepers, but they’re not yet people [the partners] are going to share profits with.” In addition to watching their own bottom lines, partners know that profits-per-partner statistics influence a firm’s ability to attract quality recruits, Bower adds. A small number of lawyers choose a nonequity status or a status that falls into “other.” These might include of counsels who prefer flexible hours or don’t want to do what’s required to make partner. But most nonequity partners are hoping it’s a “way station” on the equity track, Bower says. MERGERS AND A WARNING Mergers continued to consolidate the industry. While the number this year appeared to slow from the furious pace of the last two, when it hovered around 60, Hildebrandt partner Lisa Smith says that was only a result of the Sept. 11, 2001, terror attacks. Mergers often surge during the fourth quarter, as law firms race to complete deals, Smith explains. But last year, unable to travel after the terrorist attacks, lawyers postponed mergers and the market froze. Among the 45 mergers completed during this year’s survey period, Smith identifies the marriage of Boston-based Bingham Dana and San Francisco’s McCutchen, Doyle, Brown & Enersen as one that made a splash. The newly christened Bingham McCutchen is a national firm, now the country’s 24th largest, with 806 lawyers and complementary practices on both coasts. “It’s all about competition and client services,” says Donn Pickett, formerly McCutchen chairman and vice chairman of the new firm. “The law firm that is not thinking about expanding and better meeting the needs of its clients is the law firm that does not understand the realities of the marketplace.” “We will continue to move,” adds Jay Zimmerman, formerly Bingham’s managing partner and chairman of the combined firm. “When you stand still, you fall further behind.” Industrywide, he predicts “further consolidation, further globalization.” Another merger that attracted attention, Smith says, was Washington, D.C.-based Hogan & Hartson’s merger with New York’s Sqaudron Ellenoff Plesent & Sheinfeld. It was one of several, she observes, involving a mid-size New York firm “that has recognized that in order to compete for the kind of work they want, they have to join with a larger firm.” Another example was Los Angeles-based O’Melveny & Myers’ merger with New York’s O’Sullivan. These demonstrate, Smith notes, that even firms a lot larger than 50 lawyers now feel the need to merge. CLIFFORD CHANCE GRABS ATTENTION The move that attracted the most attention, however, was not even a merger, but the acquisition of a group of Brobeck partners led by the firm’s former chairman, Tower Snow. The acquiring party, of course, was Clifford Chance, now the world’s largest law firm (but not included in our survey because a plurality of its lawyers is based in the United Kingdom, whereas even though most Baker & McKenzie lawyers work abroad, the single country with the largest contingent is still the United States). Many observers read great significance into the British behemoth’s planting a flag in California. “They are firing a shot across the bow of American firms,” says Bower. The firm is saying, according to Bower: “We’re not only going to be in New York and compete there; we’re going to compete on a national basis.” He also believes the move will spur the competitive juices of other British “Magic Circle” firms, which, he predicts, will also look to expand by merging with U.S. firms or swiping practice groups. GOING GLOBAL If some firms nervously eyed the big boys across the Atlantic, many had their own notions of global expansion. Even in a down economy, the number of lawyers working abroad continued to surge. It was up 12.8 percent this year, on top of 22.7 percent last year. Lots of firms are aiming for the global reach of Clifford Chance and Baker & McKenzie, says consultant Peter Zeughauser of The Zeughauser Group. About 70 U.S. firms have opened offices in London during the last five years, he says, “and that’s the first step of the march for many of them.” WINNERS AND LOSERS When Morrison Hecker merged with Stinson, Mag & Fizzell to form Stinson Morrison Hecker, it grew 87 percent, tops on the list. Of the top 10, only New York’s Pennie & Edmonds (30 percent) and Los Angeles’s Quinn Emanuel Urquhart Oliver & Hedges (27 percent) grew without benefit of a merger or acquisition. The magic number to make the list this year was 155 lawyers. Ten new entries made it, led by New York’s Brown Raysman Millstein Felder & Steiner, which leaped to No. 179, and Birmingham, Ala.’s Balch & Bingham, which came in at No. 217. Twelve firms dropped off the list. Eight disappeared because of mergers or acquisitions. Of the four others, the sharpest drop was suffered by Philadelphia’s Montgomery, McCracken, Walker & Rhoads, ranked No. 230 last year. Related chart: The NLJ 250

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