Midsize law firms in the Midwest, outside the biggest cities, are hiring lawyers, opening offices and bringing on new associates this fall as they fare better than many larger urban rivals in the face of the recession.
Law firm leaders at the firms, with between 100 and 450 lawyers, say their better fortunes are mainly tied to being less dependent on capital markets and big mergers and acquisitions work than their megafirm brethren. Less expensive overhead, lawyers with broader skill sets and lower billing rates have also helped the Midwest firms escape the need to ax employees and expenses, unlike their coastal and big-city counterparts.
Nyemaster, Goode, West, Hansell & O’Brien in Des Moines, Iowa; Clark Hill in Detroit; and Barnes & Thornburg of Indianapolis are among the Midwest firms avoiding major cutbacks and steadily continuing to hire lawyers, if not as aggressively as in years past.
“We don’t have some of the same highs, but we don’t have some of the same lows,” said Rick Neumann, who is chairman of Nyemaster Goode, Iowa’s largest law firm, which has 95 lawyers. “I have not noticed anywhere near the kind of angst in the Iowa [legal] community that I’m reading about in the national press.”
Big law firms with offices in many of the nation’s most expensive cities are rushing to rein in spending, postponing the hiring of first-year associates to next year and scaling down partner meetings and summer associate programs, among other things. While some of the firms are still willing to hire partners with books of business, they’re doing so selectively.
DLA Piper, Latham & Watkins and O’Melveny & Myers are among the many firms that have shed lawyers during the past year. Typically, they attributed the cutbacks to a slowdown in financial securities, transactional and real estate work that forced them to get rid of employees who didn’t have enough work to do.
To be sure, the smaller Midwest firms aren’t saying they’ve totally skirted the effects of the downturn. Their clients are feeling the financial pinch and reducing legal spending, but the impact has been buffered by lower costs, shifting lawyers to different practice areas and attracting new business with lower rates.
“We have an M&A practice and private equity, but it’s not as specialized [as at larger firms] so that it’s all those lawyers were doing,” said Neumann, whose firm has grown its attorney head count by 12% over last year and opened a new office in Cedar Rapids, Iowa, in January.
In Michigan, many law firms were also better prepared for a major economic decline because of years of adapting to boom and bust cycles tied to the state’s manufacturing industries.
“We certainly have been in the economic downturn longer,” said Rick Zussman, who is the chief executive of Southfield, Mich.-based Jaffe Raitt Heuer & Weiss, a firm with about 100 lawyers. “I think the bigger difference is the Chicago and Wall Street law firms were much more tied to the financial industry.”
Unique practice areas
The Michigan firms in recent years have created unusual practice areas to stoke new sources of revenue. For instance, Clark Hill — which boosted its attorney head count by 18 to 183 this year partly by absorbing a Scottsdale, Ariz.-based firm — in December created a practice to handle growing demand from investors in India who are scouring the Detroit area for attractive real estate investments.
Similarly, Grand Rapids, Mich.-based Varnum, Riddering, Schmidt & Howlett, which has 150 lawyers, added a wind energy practice last year and recently shifted two additional lawyers to the group.
Kitch Drutchas Wagner Valitutti & Sherbrook, a Detroit firm with about 100 lawyers, has developed a new niche representing medical providers in birth trauma cases.
Still, the Michigan firms have also groomed well-rounded lawyers, allowing them to shift attorneys more easily from one practice area to another.
For instance, the law firm Bodman, with 140 lawyers across five Michigan offices, has moved lawyers from its loan origination area, which stalled amid the credit crunch, to its busier bankruptcy and restructuring practice.
Barnes & Thornburg and Ice Miller, both firms based in Indiana, have also evaded the need to chop their work forces and are bringing on new associates this fall, unlike some larger firms that are delaying start dates.
“We haven’t [cut lawyers] because we don’t need to,” said Byron Myers, the chief managing partner at Ice Miller. “The business climate is a bit different here than New York, Los Angeles and Chicago.”
The midsize firms in the Midwest were more conservative about bringing in associates in recent years, said David Van Zandt, the dean of Northwestern University School of Law.
The big firms, which have been increasing the size of their classes by 10% annually during the past few years, “weren’t planning well,” Van Zandt said.
Ice Miller also has eight associates coming in September, down slightly in number from last year. The firm’s 10-week summer program for 12 associates was reduced from 11 weeks but is still longer than at many firms this year. Litigation, labor and employment, and intellectual property matters have kept Ice Miller’s 250 lawyers busy despite flagging transactional work, Myers said.
Barnes & Thornburg, which has about 460 lawyers, has taken the downturn as an opportunity to expand significantly, adding offices in Atlanta and Columbus, Ohio, this month. The firm will still bring on 12 new associates in the fall, down from 15 last year, said Alan Levin, Barnes & Thornburg’s managing partner. “It’s a funny environment now with all the stuff that’s happening, and we’re trying to take advantage of it,” he said.
The Midwest firms also say they’ve more conservatively managed their costs, avoiding overhead in expensive cities and the fast-paced ramp-up in attorneys and offices that have overloaded some firms up with debt. While Barnes & Thornburg may be expanding its footprint with new U.S. offices, it isn’t spending money on expensive overseas outposts, Levin said. Ice Miller’s Myers said his firm “carries no debt.”
“We have never overextended ourselves in terms of financial obligations,” said Ronald Wagner, the managing partner at Kitch Drutchas.
The more conservative approach to spending has allowed these midsize firms to keep billable rates lower, which the firm leaders said is paying off as cash-strapped clients and prospective customers seek ways to reduce legal spending.
Court and other documents available on the Internet and electronic exchange of information with faraway clients have increased the Midwest firms’ ability to compete, said Neumann, who pointed to one large Midwest manufacturer that is giving his firm more projects these days. He argues that, instead of companies sending legal work to contractors in India to slice costs, they can send it to Iowa firms with more assurance of quality control.
“Some of the advantages of the larger firms have eroded,” Neumann said. “If no one is looking for you in that particular niche, the premium rate doesn’t make a whole lot of sense.”