While many law firms during the economic slowdown have pulled back on associate recruitment or culled their lower ranks of attorneys, a lesson in recent history shows that any drastic moves could well lead to hiring headaches once business improves.
The temptation among law firms as work starts to dry up is to cut from the bottom. Whether it means retrenching on associate hiring, laying off recently minted associates or both, getting rid of idle workers frequently starts on the first rung.
But if the business lull earlier this decade serves as any example, associate cuts that go too deeply today may create tomorrow’s sky-high salaries.
Predicting how many associates a large law firm will need is tricky business, especially because they generally must look two years ahead. Law firms right now are conducting on-campus interviews with second-year law students for summer 2009. Those people will not become full-time associates until fall 2010.
Morrison & Foerster Chairman Keith Wetmore said that trying to gauge associate demand that far out is “somewhere on the spectrum between astrology and numerology.”
This year, the 1,160-attorney law firm was aiming for about 110 summer associates but wound up with 140, because more students accepted positions than the firm anticipated, Wetmore said. During recruiting this year, the firm will try to hit closer to its mark, he said.
Wetmore rejects reports that Morrison & Foerster systematically has called off any on-campus recruiting. Instead, he said, the firm will make fewer offers to meet its summer associate demand.
In general, law firms are not good at predicting their future needs and tailoring their hiring accordingly, said Bruce MacEwen, president of the online publication, Adam Smith, Esq.
He expects law firm revenues to drop by about 15% for 2008 and for associate hiring to reflect that decline. The decrease in revenues will put most firms back to their 2006 levels, he said.
“We can’t go on with double-digit increases as far as the eye can see,” he said.
Law firms that slash associate numbers in hopes of keeping profits-per-partner high may be headed for trouble, he said.
“A critical priority for management now is managing expectations and educating partners that some small percentage drop in profits is not the end of the world,” he said.
MacEwen and others point to law firms’ reactions to the economic downturn that followed the Sept. 11, 2001, terrorist attacks and the sharp drop in technology sector work as a cautionary tale.
In 2002, the number of associates employed by law firms among the NLJ 250 declined by 0.5%. Not since 1994 had associate totals fallen at firms on the NLJ 250, The National Law Journal‘s annual survey of the nation’s largest law firms.
The trend continued in 2003, when associate numbers sagged by 3.5%. In 2004, however, associate totals climbed by 4.6%. And their salaries followed suit.
In 2005, Los Angeles’ Gibson, Dunn & Crutcher raised associate salaries from $125,000, a figure most major law firms had adhered to for five years, to $135,000. The next two years marked fierce competition for associate help, with law firms on both coasts lobbing raises back and forth. In 2007, salaries landed at $160,000, plus huge bonuses in many cases.
It was an amount that many firm leaders complained was far greater than their associates’ value but necessary to recruit and retain the workers they needed to handle the influx of business.
In addition to the enormous salaries law firms had to pay for new associates, they also had a shortage of third- and fourth-year associates with experience to handle higher-level matters, Wetmore said. He added that competition for new attorneys from investment banks and private equity firms also contributed to the salary escalation.
Dorsey & Whitney partner Robert J. Dwyer Jr. said that predicting a law firm’s future needs during an economic downturn is the “$64,000 question.”
He is head of the law firm’s New York office, which has decided not to participate in on-campus interviews this year and has cancelled its summer associate program. Dorsey & Whitney’s move was first reported on AboveTheLaw.com.
The 640-attorney law firm usually hires a handful of summer associates for its New York location. Some uncertainty about what the office’s associate recruiting needs will be down the line led to the decision to pull out of on-campus recruiting, Dwyer said.
Other firms have decided to opt out of this year’s on-campus recruiting, including Chicago’s Arnstein & Lehr and Indianapolis’ Barnes & Thornburg. Both firms said they had ample opportunity for recruiting outside the on-campus system.
“Firms are really struggling with what their numbers need to be,” said Ellen Wayne, dean of career services at Columbia Law School.
Although the number of firms participating in on-campus interviews is the same at Columbia this year, she said, firms are taking longer to extend employment offers.
Janet Hutchinson, assistant dean for career services at Emory University School of Law, said she is urging law students to remain open-minded about their options.
“They need to think about a variety of practice areas, instead of going to a firm thinking, ‘It’s real estate or bust,’ ” she said.
Emory has seen a drop in the number of on-campus interviews, Hutchinson said, but the decline has been small.
Some have been “re-evaluating whether they want to come or not,” she said.
Anticipating that law firms will be choosier in their selection process, Hutchinson said that she is encouraging students to “make sure they’re on their best behavior.”