Growing Pains

San Francisco Bay Area law firms shed so many people during the recession they may not have enough people to handle a new wave of work as the economy warms up again, warns a law firm finance expert. "They are going to be challenged to find enough talented people," said Danilo DiPietro, head of the law firm group at Citigroup Private Bank. But having been hit so hard in the downturn, will firms be quick to hire again on the upswing?

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San Francisco Bay Area law firms shed so many people during the recession they may not have enough people to handle a new wave of work as the economy warms up again, warns a law firm finance expert. “They are going to be challenged to find enough talented people,” said Danilo DiPietro, head of the law firm group at Citigroup Private Bank. DiPietro presented his annual economic outlook for 2004 at the Law Firm Leaders Forum March 5 in San Francisco. He based his comments on Citigroup’s national survey of 116 firms, including 11 from San Francisco and Silicon Valley. Firm revenue and profits per partner are looking stronger than they have in years, according to Citigroup’s data. In Northern California, profits per partner revealed a “nice rebound,” increasing nearly 11 percent in 2003 versus a 1.6 percent rise in 2002, according to DiPietro. Nationally, profits per partner grew at roughly the same rate — 9 percent — in both years. Though Northern California’s numbers lagged behind national figures, overall firm revenue growth in the region showed signs of vigor, jumping 5 percent in 2003 compared with a 2 percent drop in 2002. Nationally, firm revenue grew 9.3 percent in 2003 and 8.5 percent in 2002. However, Bay Area lawyers are starting to work longer hours than their counterparts elsewhere in the country. DiPietro reported that the number of hours worked per lawyer increased 3 percent in Northern California in 2003, a healthy improvement from 2002′s 0.7 percent dip. Nationally, firms decreased the number of hours worked per lawyer by 0.2 percent in 2003 and 1.2 percent in 2002. “In the case of the rest of the country, management made a conscious decision to maintain excess capacity in anticipation of the industry coming back,” DiPietro said in an interview. But because the recession cut the Bay Area so deeply, he said, “Northern California firms couldn’t afford to do that.” DiPietro also sees improvement in what he calls a key economic indicator — inventory levels of accounts receivable and work in progress. The current levels “suggest a strong start to ’04,” DiPietro said at the law firm powwow. Mark Pitchford, chief operating officer at Cooley Godward, whose firm shed nearly 200 lawyers in 2001 and 2002, said his firm hasn’t yet confronted a need to hire a significant number of people. However, if the economic uptick continues, the firm is unlikely to be as quick to hire a lot of lawyers. Said Pitchford, “We’re still mindful of lessons learned in terms of the large amounts of hiring that were done.”

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