Questions have been received throughout the year and are always welcome. To end the year, I’ll address three that have, in some shape or form, been asked most often.
1. In-house counsel are certainly wielding a lot of power these days. Do you foresee a shift back to the balance of power that existed between clients and law firms pre-2008?
If I’ve learned anything during almost 30 years in the legal profession, it would be that: (1) it rarely makes sense to declare anything with 100 percent certitude, and (2) many business developments tend to be cyclical. With those two things in mind, my answer is that I do not anticipate a swing back to pre-recession times any time soon, if ever.
The reality is that there has been a seismic shift that has rocked the legal landscape. The recession caused companies, where and whenever possible, to reduce their legal spending, and, as a result, their behavior. Some litigation that normally would have been fought through trial and appeal was settled early or not even filed. Many clauses in new contracts forced matters to arbitration, in much higher percentages than ever before, and, as time has passed, often have been the final stop—litigation in court was forestalled by agreement or simply avoided. Quite a few deals that normally would have been pursued were tabled, as more attention was turned to internal priorities.
Those developments, along with many others, put tremendous pressure on law firms that were staffed to handle pre-recession levels of work. The pressure on in-house lawyers to reduce spending and the related stress on law firms to maintain or grow revenue, particularly in a highly competitive environment, gave companies the hammer to bludgeon price concessions from firms, including some that had been loyal, longtime providers.
Until, and if, the day comes when the number of law firms has been significantly reduced—due to dissolutions or as a result of combinations—that balance of power is unlikely to switch back to any appreciable degree. There is a new world order and the firms that will survive, and thrive, are those that can continue to grow and adapt.
2. Our law firm, like almost all others, is under significant pressure from clients on fees. With so many competitors that are competing for that work, it sometimes seems that we are in a race to the bottom on rates. How do you fight that battle without crushing profits?
This question is a byproduct of the issues addressed in number one. This concern is one that is frequently raised with me by law firm leaders and partners. While things seem dire, there are options that firms can pursue if they are disciplined, creative and not afraid to take some risks. Look for an article on this issue early in 2014.
3. I am a law firm partner and am considering an attractive general counsel position that I expect will be offered to me. I like the company, the description of the work sounds great, and the compensation, while not at my level, is acceptable, especially if the stock that I receive appreciates over time. The challenge for me is that I am concerned about security. I feel like I am in a safe position in my firm and am worried—more than a bit—as to whether that same level of security exists in a general counsel position. What are your thoughts?
It is impossible for me to fully address this without knowing a lot more about the company, its CEO and management team, its history with its general counsel, and quite a few other factors. Nevertheless, I’ll offer some general thoughts that I hope are helpful.
General counsel positions have a lot of allure and can be enormously fulfilling. I can attest to that, as I was a GC and loved the experience. Being part of the business—and not at arm’s length as one normally is as a private-practice attorney—is challenging, fast-paced, interesting and often exhilarating. No matter how close a law firm lawyer may think he or she is to a client, nothing matches being inside.
GC spots are not for the faint of heart, though, as it is not the position that one can ride into retirement as it used to be many years ago. The concern that you have is often quite real, as the turnover in the GC ranks, while not studied (at least not in any report that I have seen), certainly seems to be much higher in recent times. There are several reasons for this perceived phenomenon.
First, although M&A work has been down since the recession, companies are still being bought and sold, which often leads to a general counsel being replaced, especially if his or her employer is the one that was acquired. I learned, firsthand, that the words “corporate synergies” often equate to headcount reduction, as I, along with the other members of our senior management team, had our positions eliminated years ago after our company was sold to an especially acquisitive Fortune 100 company. The faltering economy has also triggered the dissolution or bankruptcy of many other companies, which also typically leads to the end of the line for a general counsel.
Second, the lifespan of a CEO is much shorter these days, which also contributes to greater turnover in the GC ranks. Much like a sports team’s new general manager, who often likes to have “his guy” in place as the coach of a team, an incoming CEO often brings in key senior managers whom he or she knows and trusts. A general counsel, especially in this Sarbanes-Oxley world, which has seen CEOs do perp walks when they are tagged for bad acts, is frequently someone who is very high on the list of essential new hires for an incoming CEO.
Third, as most law departments are viewed as “cost centers” (which I think is normally a pejorative and unfair characterization), a general counsel, especially one that is well compensated, can be a target if the company is not doing well, legal spending escalates, or a bad result (such as a major verdict) or development occurs. In situations like that, the GC may well be the fall guy, even if that is not justified.
Consequently, your concern is not misplaced, but it begs the ultimate question, which is: “What is your risk tolerance?” For some, the upsides of being a GC (and I only mentioned a few) far outweigh the risk of being displaced. This calculus is often driven by the stage of one’s career. For example, a younger lawyer, who has a working spouse and no children, may be able to handle losing his or her job. Such a lawyer may be able to live off a severance package (assuming he or she negotiated well) and may have the flexibility to move to another part of the country if that is required for a good opportunity.
For others, who may be in the middle stage of their career, the risk of displacement may tip the scales toward staying in your law firm. Lawyers in that stage may have children in school, college tuitions that must be paid (or are looming), and other factors in place that militate heavily against being able to stomach the loss of a paycheck. Competition for GC spots is fierce, and if it requires moving, a mid-stage partner may not be able to do it, especially if it entails uprooting children.
For those in the fourth quarter of their careers, the risk calculus may have tilted much more in favor of taking the general counsel spot. Children may be through school at that point, a solid nest egg may be in place, and a path back to their law firm, even if things don’t work out, may be paved due to a plethora of significant contributions over the years.
These are only some of the factors that come into play in assessing just the security variable in this equation. The one piece of advice that I do offer to you, and all other readers, is that the person who is most secure is a law firm partner who has a sizable book of business, especially if it is built on a deep and varied group of clients. This type of partner controls his or her destiny, as, if his or her firm is in trouble or does not do well by him or her, he or she can leave and should easily find a new home (and does not have to geographically relocate like a GC often does). This partner also does not have to wait for a position to open, like a GC does; if the partner wants a change for any other reason, it can happen.
So, while there are numerous variables that must be weighed in a move in-house, to government, or to another law firm (stability of the entity, strength of management, culture, support, compensation, etc.), if security is the outlier for you and is important above all others, then be a good citizen in your firm and build a big book of business that is replete with strong clients that you enjoy good relationships with—you’ll be golden.
I hope everyone has a good holiday and terrific New Year. I look forward to continuing our dialogue in 2014.
Frank Michael D’Amore is the founder of Attorney Career Catalysts, http://www.attycareers.com, a Pennsylvania-based legal recruiting and consulting firm that focuses on law firm mergers and partner placements. He is a former partner in an Am Law 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.