Is the economic crisis a kaleidoscope or a snow globe?
This is not a trivial question. Consider the metaphorical difference between the two toys. A twist of the kaleidoscope shatters one image and produces an entirely — and manifestly — new one from the old components. A shake of the snow globe, on the other hand, creates a flurry that momentarily obscures the view, but eventually leaves things looking almost exactly as they did before.
In the months that followed the collapse of Lehman Brothers Holdings Inc., it seemed as though litigation was in the midst of kaleidoscopic change. This economic crisis was different: Litigation wasn’t the countercyclical hedge it had been for big law firms in the past. Clients talked with grim determination of slashing budgets, demanding price cuts, and forcing firms to accept alternatives to hourly billing. Partners accustomed to turning away business competed in beauty contests for work that would hardly cover expenses, just to keep associates busy. White-collar and employment lawyers geared up for a big spike in volume, while M&A litigators and patent specialists worried that their practices would wither. Firms laid off underemployed lawyers, deferred new associates, and explored outsourcing discovery to contract lawyers.
Now that more time has passed, however, the economy’s meltdown looks more like a shake of the snow globe than a twist of the kaleidoscope. To be sure, litigation has been seriously shaken by the recession. For one thing, as contributing writer Douglas McCollam reports in an excellent analysis of the meltdown’s fallout for litigators ["Don't Count on It," page 102], there’s less work. Clients really did take a hard look at litigation costs. They cut back on what they were willing to pay for commodity work, and reduced their risk tolerance for bigger-ticket cases. As one legal consultant told McCollam: “General counsel aren’t doing things they would normally do. Major corporations are picking what to defend.”
It’s also true that alternative billing is more prevalent than it was 15 months ago — and more likely to be embraced by big firms than it has ever been. In Corporate Counsel‘s 2009 survey of general counsel ["Talkin' Revolution," September], even longtime proponents of alternative fee deals were surprised at the flexibility their outside counsel now show. “We’re at a tipping point,” said Jeffrey Carr, head of the legal department at FMC Technologies, Inc. “As alternative fee arrangements become more mainstream, it will set the industry on a path that is, thankfully, irreversible.” And throughout this issue, litigators describe how the economic crisis changed their practices, from the new size and significance of Finance Industry Regulatory Authority, Inc. (FINRA) arbitration to the reluctance of judges to dismiss securities claims involving outsize severance packages.
But when the flying snowflakes settle — a process that’s already well under way — big-firm litigation practices will look very much like they did before September 2008. Litigation declined only 1 percent in the year after Lehman’s collapse, according to a study McCollam cites. And a 1 percent decline in the middle of the worst global economic disruption since the Great Depression isn’t severe enough to force change. In fact, when we contacted litigation department heads for the “Voices” section of this issue to ask them how the recession had affected their practice groups, many of them told us that their departments were as busy as ever. We heard that sentiment so often — usually with a “knock on wood” tucked in — that in some cases we decided not to run their comments. If so many people were saying the same thing, it wasn’t news. Litigation is always evolving, and the last year has seen a new presidential administration take office, the Democrats tighten their control of Congress, and the U.S. Supreme Court issue a handful of enormously significant rulings. Going forward, those developments may turn out to be more responsible for changes in the practice than the economic crisis.
So should litigators simply sit back and wait for those infamous “green shoots” to grow into billable hours? Sure — if they want to pass up an opportunity to make their practice and their department stronger and smarter. The market for lateral partners with portable practices, for instance, has remained strong throughout the Great Recession. Whether you’re buying or selling, it’s a good time to think about making a move. And if you’ve always dreamed of starting your own boutique, this could be your moment. It may seem foolhardy to leave the relative security of a big firm (even though that security is ever more relative), but as contributing writer Tamara Loomis reports in a feature about three established partners who ditched Irell & Manella to start up an entertainment litigation boutique [see "The New Price Is Right," page 54], small firms can sell flexibility and low leverage to clients who are — right now — eager to buy it.
Big firms, meanwhile, ignore alternative billing arrangements at their peril. There will always be clients willing to pay $1,000 an hour for the counsel of great litigators and $400 an hour to the associates who do the research underlying that counsel. But there are fewer of those clients than there used to be. Boutiques like Bartlit Beck Herman Palenchar & Scott and Gibbs & Bruns have shown in the last few years that small firms can handle sophisticated and demanding cases as well as big firms — and share risk with their clients while doing it. Such first-rate litigation firms as Howrey; Paul, Weiss, Rifkind, Wharton & Garrison; Morrison & Foerster; and Cravath, Swaine & Moore are all experimenting with alternative fees for major litigation clients; O’Melveny & Myers, in a five-year plan leaked in September to the blog Above the Law, says it intends to become “the leader in providing high-end legal services on a fixed-fee basis, reducing costs to clients, and achieving superior economic performance.” That memo should provoke conversation in every litigation department; if firms like O’Melveny, Paul, Weiss, and MoFo can truly provide first-rate service at a reduced cost, clients can’t afford to ignore the offer.
To return to the snow globe metaphor: After a big shake-up, things may appear to be the same. But each snowflake is actually in a different place. Now’s the time to make sure you land on the top of the pile.