Posted Jan 03, 2004 07:56 am CST
Although Simpson had been reading in the papers about Kmart’s financial woes for months, the news still left him reeling. He was heavily invested in this client it–accounted for almost half of Simpson’s revenues–and his small firm was dependent on the work. Now he wondered about his prospects of collecting payment for his work on the upcoming trial, not to mention the fees he had already earned.
These days, with the economy in flux and the government stepping up its scrutiny of corporate America, an increasing number of lawyers are finding themselves in situations similar to Simpson’s. It’s hard not to feel vulnerable when each day brings stories about yet another company in financial turmoil. And it’s even harder when the bad news is about a client.
“Any time there is some kind of big client activity, it makes everyone look at where they are and whether they are positioned where they want to be,” says one Chicago lawyer who, by his own admission, sent himself into a tailspin when a client relationship was jeopardized by the departure of a key corporate executive.
But, the lawyer says, he recognizes that his reaction to the news could have been more measured. Worried that the client would sever its relationship with his law firm, leaving the firm without one of its biggest sources of revenue, he started pounding the pavement within days of receiving the news.
“There were a lot of fundamental questions that lawyers were asking about the direction this corporation was taking as both a corporation and a client,” he says.
But the loss of a substantial client does not necessarily mean that one’s job is doomed, says technology lawyer John Delaney of Morrison & Foerster’s New York City office. Delaney, who has seen many of his startup clients fail, advises lawyers to step back and take a realistic look at the situation before panicking. Even if the client accounted for a large percentage of billings, most larger firms still are diversified enough that a loss of any one client is unlikely to impact the firm or individual lawyers.
Distinguishing gossip from reality is also important. Don’t get sucked in, says the Chicago lawyer, and trust your instincts–the situation may not be as dire as the gossip would have you believe.
Instead, try talking to law firm management. The firm should be willing to have an open and honest discussion about the impact of a client’s misfortunes on the firm and on job security, says Cheryl Heisler, a career counselor for lawyers.
“Don’t rely on just what you read in the paper. Hopefully you have a good enough relationship to talk to the partners and ask, ‘Hey, what’s up? How does this affect me?’ ” says Heisler, founder of Lawternatives in Chicago. “You may not get the most truthful answer, but hopefully you will get enough to help you make an informed decision.” After all, she adds, “It’s better than sitting in your office and cowering.”
Simpson, whose small firm is in Christiansted, St. Croix, in the Virgin Islands, decided honesty was the best tactic to take with his employees in light of the looming Kmart bankruptcy.
He told two of the four associates that he could not retain them if the client filed for bankruptcy. “More problems are generated by not knowing what the employer will do than by being told what may happen,” he says. Eventually, Simpson was able to rehire one of the associates. The other was able to obtain quick employment at another firm in St. Croix.
Heisler also believes lawyers can gauge their own situation better by learning whether the client’s problems are unique or if they are industrywide. “If you do environmental law, you need to see if environmental practices at other firms are folding. If so, then you have to think about changing practices. If it’s just your firm, then it is wise to explore other firms.
“Put out feelers and see who else is hiring,” she says. “If it’s the industry, then you have to think about how you can show your value in another area of the law.”
Of course, lawyers can take steps within their firms to protect themselves when this situation inevitably occurs. Just as law firms should not be too dependent on one client for work, Heisler says, lawyers need to diversify themselves within their firms.
“The concept of diversification is going to come back to haunt the associate if he or she was aware that 100 percent of the associate’s work was coming from one client or one partner. If you see that as an associate, you need to be nervous,” Heisler says. “The best you can do is to try to manage the workload so that you are never fully a one-client lawyer.”