Law firms are living under a high-powered media microscope these days, with reporters and pundits at the controls. Although law firm leaders do not always welcome the increasing coverage, paradoxically it is healthy for the industry more broadly. To paraphrase Justice Louis Brandeis, sunlight is said to be the best of disinfectants.
But the scrutiny, not all of which is well informed, is also leading to perverse consequences for some firms.
Recent headlines show just how intense the coverage has become. Exhibit A, last month: “Wilson Sonsini Slashing Secretary Jobs” announced the headline in the Silicon Valley Business Journal. The legal blog Above the Law presented the story in its own voice: “Nationwide Layoff Watch: California Dreamin’ of Unemployment Benefits.” NLJ affiliate The Am Law Daily, not to be outdone, published a link to the firmwide memo announcing the layoff of 35 secretaries.
The story promptly reverberated in the media echo chamber. Then, as quickly as it broke, it faded. To law firm leaders, the pace and intensity of today’s news cycle can feel like a game of whack-a-mole.
Only a few years ago, few if any news organizations would have covered the layoff of 35 secretaries in Palo Alto, Calif. Is that something we really care to read about? Perhaps some people do, hoping to sniff out the next firm on the brink, even though a decision to lay off secretaries is not indicative of a firm on the brink. The reality is that lawyers across the industry are using secretaries less than they used to.
Almost every major media organization now covers the business of law to some degree. The beat has received more and more attention over the past 10 years, even from high-profile media organizations such as The New York Times, The Wall Street Journal and Reuters.
News executives across the spectrum increasingly recognize that a lot of lawyers are among their readers and that, similar to people in other industries, they like to read about themselves. And where journalists leave off, an army of 24-7 legal-industry pundits pick up.
What is the impact of all of this attention? In summary, it causes some firm leaders to resist taking decisive action to strengthen their firms in the face of a changing market. They worry too often about being portrayed by reporters and pundits as weak.
Ironically, by failing to more nimbly take decisive action to strengthen their firms, many become further weakened, and, in some cases, end up drawing more attention to themselves in the long run.
That lack of decisive action is taking its toll. According to Citibank, productivity at big law firms last year was down to a firmwide annual average of about 1,640 hours from more than 1,750 in the boom years before the recession.
As a result, to varying degrees, most firms have an overcapacity problem. They have too many lawyers for not enough work, partly because firm leaders fear bad press from layoffs.
Perversely, that bad press is often unwar­ranted. There is a misperception among industry observers that reducing headcount is a bad sign. In fact, just the opposite is often true. Many well-managed firms shrink to grow financially stronger.
The head of one highly profitable Wall Street firm told me that his firm is capacity-constrained by design, which, he explained, allows it to be highly disciplined in taking on only clients and matters that command the firm’s full rates.
But too often, firms don’t cut quickly or deeply enough because they worry about making headlines, especially because stories about partner reductions often do not distinguish between wanted and unwanted departures. The difference is critical: One usually strengthens a firm’s financial performance and the other weakens it.
The lack of decisive action from fear of bad press is riskier than ever for firms, considering the current market. Since Lehman Brothers fell in 2008, most law firms have felt intense downward pricing pressure from their clients. A leader of an elite firm recently told me that his firm faces pricing pressure that it has never felt before.
Further down the food chain, we estimate that at least 10 to 20 percent of the Am Law 200 has been badly weakened. A subset of firms in that group is so weak that they could fail in the next 12 to 18 months.
Today, while an elite group of high-performing firms remains steadily profitable, the industry as a whole is experiencing a return to volatility. There were 18 significant law firm failures from 1987 to 2007. That rate has almost doubled in the past five years.
There is irony in the fact that many firms slow the pace of change to avoid being portrayed by the media as troubled. But in the end, what is more likely than media scrutiny to weaken a firm is a failure to adapt decisively enough to the meet the challenges presented by a turbulent market.
Kent M. Zimmermann is a principal at Zeughauser Group, a law firm consultancy.