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As most regular readers of The Legal Intelligencer know, when Christmas lights and wreaths are added to the normal d�cor, and people pack into the malls like sardines, it can only mean one thing — venerable law firm consultant Robert Denney is about to release his annual “What’s Hot and What’s Not” list. Denney, of Wayne, Penn.-based Robert Denney & Associates, said that the Enron debacle and the passing of the Sarbanes-Oxley Act has catapulted corporate governance into one of the hottest and most profitable practice areas. But he said it had also created the problematic situation of partnering too close with clients and winding up being pulled into the center of their messes. Intellectual property and litigation are listed as other hot areas, while education law made the list for the first time. IP is hot throughout the world and is often combined with information technology. Denney said computer science is the hottest sub-area. Just about all types of litigation are strong, particularly complex cases, class action suits, employment matters, and patent, mold, securities and fraud actions. Mediation and alternative dispute resolution are listed as “getting hot.” As for education, Denney said small firms that specialize in this area have been extremely busy and, even with the lower rates, quite profitable because they bill a high number of hours. Having noted the boutiques’ success and the growth in this area, Denney said large firms are now getting into the act. In Pennsylvania’s Delaware Valley, Sweet Stevens Tucker & Katz of New Britain, Bucks County, is a boutique that focuses solely on education matters, and Timoney Knox Hasson & Weand of Fort Washington also handles a substantial amount of work in that area. Energy is also hot because, despite the collapsing market in the industry, Denney said, there’s increasing need for regulatory control. Labor and employment keeps growing, and, despite the high vacancy rates and tough leasing conditions, the purchase of office buildings has actually increased and residential development has continued to be strong, making real estate a hot practice area. Other hot practice areas include natural resources, bankruptcy, employee benefits, biomedical and pharmaceutical, public sector and immigration. In addition to mediation and alternative dispute resolution, other areas listed by Denney as getting hot are environmental, antitrust and health care. Denney said that environmental law is moving up the charts because shareholders and environmental groups are putting increased pressure on publicly traded, multinational U.S. companies to codify cleaner business practices, not only domestically but also internationally. Because both U.S. and European companies are doing far fewer mergers and IPOs right now, mergers and acquisitions headlines Denney list of “cool” practice areas. But he’s quick to point out that leveraged buyouts are hot in Europe, where private-equity firms are having one of their best years ever. Also labeled cool are telecommunications and infrastructure projects (particularly in Asia where governments can’t afford to float huge projects without a strong commercial basis). “I think those strong [practice] areas really saved the overall profits of the firms from the slumping practices,” Denney said. “So I’d say most firms batted .500 this year.” As for geographic markets, Denney said that almost every domestic city seems to be hot for new offices, mainly because many firms don’t see growth opportunities in their current main office, so they expand elsewhere (usually by acquiring another firm). State capitals are among the hottest markets. Overseas, Asia is hot with Japan, China and Hong Kong attacking new offices or practice expansions. Singapore, last year’s hot market, has cooled as at least three joint ventures between foreign and local firms were abandoned this year, and consolidation is occurring among other local firms, Denney said. American firms also continued to expand into Great Britain. Germany is one of the hottest areas, though Denney said there is some concern about deflation. The No. 1 most-talked-about marketing strategy or tactic for large and midsize firms is cross-marketing. But Denney said that in many cases, all that comes of it is talk. Because most compensation systems don’t reward it and many partners don’t trust their peers to work with “my client,” cross-marketing is often better in theory than in practice. Denney said a number of firms had dived head first into branding in recent years, but he remains skeptical about the value of tag lines or firm slogans. Now some firm leaders and consultants have become negative about branding. The other law firm trends and issues are dominated by prickly topics like staff reductions, lawyer stress, associate dissatisfaction, unhealthy partnering, and general counsel being under fire. Denney said staff reductions are continuing and he always advises firms to make the first cut the deepest to lessen the worry on remaining staffers. Lawyer stress is on the upswing because of billable-hour requirements and the fact that technology has created client expectations for an immediate response on matters. Associate dissatisfaction, which took center stage with this fall’s infamous memo from Clifford Chance associates to the firm’s partners, is rooted in billable-hour emphasis and lack of training and personal development. Denney said this is also an issue for midsize firms. Merger mania has also hit the legal industry, with Denney saying it may be the biggest year ever for firm combinations. Despite obstacles like culture and computer systems, U.S. and U.K. firms are still exploring possibilities. Despite the billable-hour crush, firms are stressing pro bono and community service, and Denney said the benefits of ancillary businesses are no longer up for debate. Firms are merely trying to pick the best ones for their needs. Regardless of what firms say, Denney said, partner compensation is still based on billable hours or collections. But he said some firms that evaluate a partner’s total value had eliminated their compensation committee and transferred responsibility to the executive committee. With the exception of Philadelphia, most markets have kept their first-year salaries at the same level. But there is increased use of formula-based bonuses at all levels for exceeding billable-hour goals, particularly in litigation. Denney said that is really another way of raising salaries, but it ignores other factors such as quality of work, efficiency, client services, marketing skills and community service. Two-tier partnerships continue to rise in popularity because it avoids cutting the profit pie into more — and smaller — pieces. Firms have recognized that some partners have not met the criteria of equity status and some associates are not interested or ready for that kind of responsibility. With law school applications on the rise about 18 percent this year, Denney said, large firms can be more selective in hiring and midsize firms will see a real boost in the quality of applicants. While Cozen O’Connor is cited by Denney as a trendsetter with two business development partners, Denney said more firms are now creating full-time positions for such managers. Denney posed the question of what will happen to chief marketing officers, who were all the rage a few years ago, if partners are now serving much of their function. Conventional wisdom says midsize firms have hit tough times. But Denney said many are thriving and are not looking into merging into a larger firm. Denney also said that the use of contract attorneys is on the rise, more firms are seeking and finding IP practice groups/boutiques, and diversity is becoming more and more important to corporations when they select law firms to represent them. For the first time, Denney’s list includes a series of new ideas. First and foremost, he cites paying associates not to work. San Francisco’s Brobeck Phleger & Harrison deferred starting dates for this fall’s first-years. Some will receive a small salary and benefits, while others will just receive benefits. Other Bay Area firms have done this as well, but Denney said no Philadelphia firms had taken up such a practice. Other new ideas include support staff retreats, pro bono by marketers, replacing multiple client newsletters with a large magazine and enhanced Web sites.

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