Author’s note: Two of the most common questions I have received in the past few months have been: "Should I be more open to at least considering a move to another law firm, especially in the midst of this recession?" and, "If I do decide to explore a move, what factors should I examine when looking at other firms?" Last month, we addressed the first question. There are a plethora of issues related to question two, which have been addressed, in part, in prior columns. This month, we will focus on only four of those factors, with special attention being paid to recession-related points.
The first factor focuses on the health of the prospective firm — quite simply, how has it been faring in this downturn? No layoffs or compensation decreases are positive indicators of strong financial footing. If there have been some reductions, this does not necessarily exclude the firm as a potential home. A firm should be allowed the opportunity to explain the rationale behind its changes. If they are reactionary and suggest a firm is just trying to stay afloat, this is problematic. Conversely, if the changes are part of a more strategic effort to adapt and restructure the firm, this is more compelling. If that plan makes sense, then you will likely benefit later from the heavy lifting being done today.
I do offer one cautionary note in this regard: Don’t be overly influenced by the raw numbers associated with reductions. For example, it may have been the lead story that Firm A cut 40 lawyers from its ranks, while Firm B’s decision to jettison nine lawyers only merited a sidebar note. If Firm A has 1,000 lawyers and Firm B has 175, then Firm B’s percentage reduction is higher than that of Firm A’s. It thus is apparent that Firm B cut more deeply and may have bigger issues.
A second consideration concerns performance and basic economic metrics. As with layoff numbers, it is prudent to dig beyond surface levels. A lot of attention is paid to profits per equity partner, much of which, in this author’s opinion, is misplaced. It is important to note that, except in a few circumstances, these are unaudited numbers, so their reliability is hardly a given. As the numbers can also be skewed by the compensation of some outlier partners, this, too, minimizes their significance. Most partners simply want to know what these numbers mean for them, the so-called "profits per me" moniker, as referred to by other commentators. I believe revenue per lawyer is a more pure number and is one that can easily be compared across firms.
There are three numbers that are telling in this economic climate: year-to-date revenue (as compared to the prior year); overhead per lawyer; and the firm’s debt level. As the full brunt of the recession did not hit until the middle of 2008, one would expect a decline in top line revenue in 2009, especially if partner head count has been reduced. If the percentage decline approached double digits, this is cause for some concern. Many firms are working hard to decrease overhead per lawyer. If that has not happened, or worse, it is increasing, this, too, should trigger some questions. Debt levels frequently are higher at the beginning of a calendar or fiscal year. If this is higher on a YTD basis, as compared to prior years, your antennae should be raised.
Third, the firm’s history, especially recently, with laterals also should be examined. A firm should be eager to share its lateral success stories. Your attention should be drawn to parallels with your practice, including clients, rates and related factors. It also is instructive to examine why other laterals did not succeed. Have the issues that led to those missteps been rectified or were they partner specific (and self-inflicted)? It also is important to assess whether a firm has been attracting more lateral partners in this downturn or has seen more leave. Again, raw numbers are not necessarily telling, as some partners who have left may have gently been shown the door because of underperformance. The key is whether there is a net positive with respect to attracting or losing rainmakers.
Finally, there are two miscellaneous matters to consider. Capital requirements are an increasingly important topic and one of some complexity, not the least of which is timing. Some firms are increasing capital requirements, which, if the firms are managed well, is a sensible means of reducing debt load. If the firm is not handling this downturn well, increased capital translates to more of your money at risk.
Additionally, you should have the mindset that this will be the final move in your career. Nevertheless, prudence suggests you should at least consider what would happen if you do decide to leave the firm some day. Some firms have lengthy notice periods, which effectively give them ample time to dissuade clients from leaving. It is an interesting question as to whether extended periods serve as unenforceable restrictions that militate against a client’s right to pick its own counsel and to be zealously represented. This is an issue of mutual destruction, as virtually no departing lawyer wants to litigate the matter. Firms that try to impose such restrictions also want to keep them out of the press as tough notice periods are not the type of policies that will attract future laterals to their firms; in fact, they are more likely to deter them.
Similarly, you should also examine when you will get your capital back and under what conditions. The reality is that even in the best of firms, situations may arise where it makes sense, for you or the firm, to part ways. In light of that, if you are entering a firm where the door is wide open on the way in, but is virtually bolted shut on the way out, you should think long and hard about joining. •
Frank M. D’Amore is the founder of Attorney Career Catalysts, www.attycareers.com, a Pennsylvania-based legal recruiting, consulting and training firm. He is a former partner in an AmLaw 200 firm, general counsel in privately held and publicly traded companies, and vice president of business development. He can be reached at email@example.com.