Now in Legal Rebels:
Posted Jun 02, 2009 04:40 am CDT
Logic suggests that when the economy tanks, opportunities for in-house lawyers ought to improve. After all, legal disputes rise when the Dow takes a dive, and who better to tackle this growing workload than cost-efficient staff attorneys? Yet the nation’s in-house bar—however vital its role in hard times—is shrinking at a rate that tracks the widening job losses across corporate America.
The layoffs are less visible and harder to tally than the widely publicized firings at major law firms, but their impact is no less real. On Wall Street alone, hundreds of lawyers’ jobs have disappeared. Some will never come back.
By far the hardest-hit sectors are financial services and real estate, but no industry is immune to a downturn that many economists say may be more than a cyclical dip. They suggest the economy is restructuring on a longer-term path of slower growth.
Microsoft CEO Steve Ballmer cited a “once-in-a-lifetime set of economic conditions” when the Redmond, Wash.-based company announced plans in January to eliminate as many as 5,000 positions over 18 months, the company’s first major cuts. A source close to Microsoft says the cuts are expected to eliminate 50 law department positions, or roughly 5 percent of 1,000 legal jobs worldwide, through attrition and layoffs by the end of June.
When Home Depot eliminated 500 headquarters jobs last year, it was widely reported that more than 17 attorneys were among those let go. The Atlanta-based retailer cut an additional 2,000 support staff jobs in January.
The company would not say how many legal jobs were lost, but spokeswoman Sarah Molinari says, “The legal function is a key component in supporting our business. We certainly feel we have a legal team in place that meets the needs of our stores.”
On Wall Street, hundreds of in-house legal jobs were swept away by the Bear Stearns March 2008 forced merger with JPMorgan Chase, followed by the Lehman Brothers Chapter 11 bankruptcy and the Merrill Lynch merger with Bank of America just six months later. The three brokerage giants collectively employed 1,000 to 1,200 in-house lawyers, and the fallout is ongoing.
At Merrill Lynch, “some landed, many lost their jobs and many are in limbo,” says recruiter Joel Berger, president and founder of New York City-based Meridian Legal Search. “Some have been told they were being let go in three or four months, and they’re still there.”
On the West Coast, Seattle-based Washington Mutual’s takeover by JPMorgan Chase in September affected about 100 in-house attorneys’ jobs. A former WaMu lawyer estimates that more than half eventually will lose their positions. A JPMorgan Chase spokesman declined to provide numbers.
“Staffing levels are being reduced,” says Deborah House, vice president and deputy general counsel for the 23,000-member Association of Corporate Counsel. “You have to read behind the numbers. When 2,000 or 3,000 are cut from a large firm, some of those are lawyers.”
The impact is reflected in her group’s membership, widely reported to have fallen 6 percent this year through March after annual increases of 10 percent in recent years.
The painful result is fewer opportunities for a growing pool of candidates. Some hang out shingles as consultants. Others head back to law firms, though hiring freezes limit this option. Meanwhile, law firm refugees who set their sights on in-house jobs are more likely than in past years to find disappointment.
“I don’t know anybody who’s expanding,” says James Wilber, principal and senior law department consultant at Newtown, Pa.-based Altman Weil Inc. “The best that’s happening is that some law departments are staving off cuts they otherwise would have to make by bringing more work in-house.”
In a fall Altman Weil survey of general counsel at firms with up to $20 billion annual revenue, 65 percent of those responding were planning to bring more work in-house in 2009. Yet 31 percent were planning to cut lawyers and administrative staff.
A tough economy cuts two ways, says Michael Anastasio, law director and associate general counsel in Sun Microsystems Inc.’s intellectual property law group in Chicago.
“Our role is to offer a lower-cost alternative to outside counsel, so you’d expect we’d continue to be in demand,” Anastasio says. “The reality is, in a lot of cases, that the pressure to reduce payrolls across the board will overcome that economic factor.”
Maryrose Maness. Photo by Larry Lettera
Lawyers’ salaries also make them more visible targets, adds Rees Morrison of Princeton, N.J., a veteran management consultant to law departments. “They’re vulnerable in part because they’re expensive [relative to other staff], and they’re corporate overhead.”
New York City attorney Maryrose Maness recalls the job market deteriorating last summer when she decided not to relocate with Altria Group, which offered to retain her in a different position at its new headquarters in Richmond, Va. Her job search ended well: She started work as vice president and chief employment counsel at Warner Music Group on Sept. 8, one week before Lehman collapsed.
“I could sense the market shifting,” she says. “The more folks I talked to, the more were starting to put a lot of their positions on hold. They weren’t necessarily in a downsizing mode just yet, but they were holding off on future hiring. In looking back, I’m not sure some of the positions ever really came off of hold.”
Jason Goitia, who was featured in the January ABA Journal story “Situations Wanted,” faced an even tougher market when he lost his job in structured finance at Goldman, Sachs & Co. in St. Petersburg, Fla. Despite his University of Chicago law degree and recommendations from top law firms, he had only three face-to-face interviews during the year after his layoff in April 2008. He moved in with a cousin in the Washington, D.C., area because he hoped his prospects would be better there.
“The pain isn’t just in finance,” he says. “The pain is widespread. There are attorneys who are closer matches to whatever thin needs there are. While my experience or interests may be valued, they don’t fit within the area that addresses the needs more closely.”
Paulette Peltz, former assistant division counsel at real estate investment trust Vornado/Charles E. Smith, lost her job in late December. The Arlington, Va., attorney has held senior management in-house legal positions for 20 years.
“I’ve never seen a marketplace like this before,” she says. “It’s very bleak. There are weeks I have to stretch to find positions I can even apply for.”
Clement Revetti Jr. Photo by Tim Llewellyn
Employers, meanwhile, enjoy their pick of candidates. Clement Revetti Jr., chief legal officer at Philips Healthcare, based in Andover, Mass., says his in-house recruiting service sends him about twice as many applicants to review as last year. He hired three lawyers in 2008 and plans to hire three more this year at the growing company.
“Clearly the qualifications of the candidates applying seem to be much greater now,” Revetti says. “You see some great candidates, but it’s very difficult to bring somebody with 20 years’ experience in when you’re developing a department where people want to stay and grow. You want to create career paths.”
Recruiter Susan Pye, founder and president of Houston-based Pye Legal Group, recalls helping a client at a large engineering company hire two lawyers 18 months ago.
“It was almost a bidding war” to get them to leave their law firms, she says. “It took five offers to get it done.” This year, the same client convinced his boss that “this is a great time to pick up some really great talent.” His first job offer was accepted.
“You’ve got a situation now where law firms are laying off people,” Pye notes, “and those people are very willing to be realistic about their base salaries.”
Displaced lawyers, meanwhile, are considering nontraditional options. Elaine Reiss, who chairs a committee to help members in transition at the Association of Corporate Counsel’s greater New York chapter, said one member started a business that counsels boards of directors. Another teaches compliance.
Some make themselves attractive to law firms by bringing in business. Meridian’s Berger cites a highly compensated New York in-house lawyer whose employer told him that as part of his exit package, “The work you used to send out regularly, we’ll send it to you because we know it’ll be in competent hands.” That package opened the door for him at a large law firm, Berger says.
Warner Music Group’s Maness says aggressive networking months in advance paid off for her. She signed up for speaking engagements on industry panels and partnered with law firms on presentations.
“Most folks stay in their inner circle of comfort,” she says. “I tried to expand my outreach to include anyone in a position of influence. I probably averaged three to four meetings a day.”
Alisa Tazioli, managing director in Seattle for legal recruiter Major, Lindsey & Africa, advises candidates to get creative and stay active in their practice area by consulting, taking on project or pro bono work, writing articles and speaking.
“The reality is,” she says, “some will be out of full employment for a while.”
Rounding up bids, overhauling processes, scrutinizing costs, “right-sourcing.” If these functions sound more like those of an MBA than a corporate attorney, that’s because the lines between the two are blurring as the recessionary economy forces in-house counsel to broadly re-examine their jobs.
Pressured by shrinking legal budgets, smaller staffs and rising fees from outside firms, corporate lawyers across a range of industries are questioning everything they do—and taking a more proactive approach to wring efficiencies from without and within.
“I’m seeing a heightened sensitivity toward legal costs in the law department,” says Shahzad Bashir, a vice president at the Houston office of Chicago-based Huron Consulting Group, which helps corporations—including Pfizer and Qualcomm—control their legal budgets.
“General counsel have started making smart choices,” he says. “Unbundle this thing and when you unbundle it, get the right provider to do the right thing at the right price.” Along with the changes, corporate attorneys say their day-to-day lives are being transformed as they take on tasks more akin to business watchdogs than those of traditionally reactive lawyers known for putting out fires, regardless of cost.
Consider Eric Wolpin, managing attorney for the New York City staff counsel office of the Main Street America Group, a holding company for insurance providers such as Great Lakes Casualty and Old Dominion.
Wolpin used to spend the bulk of his day managing claims litigation and defending the company’s insurance policyholders in court. His role changed in January when his boss issued an edict to stanch the flow of money to outside counsel. Last year Wolpin’s department (including two offices and a handful of lawyers, paralegals and support staff) spent roughly $19 million of its total $20 million legal expense on law firms.
These days, Wolpin focuses on managing external legal costs, scrutinizing invoices to ensure they are in compliance with Main Street’s billing guidelines and timed according to the work performed. This year alone, he estimates, the efforts are going to save the company close to $3 million in fees.
“I’m holding their feet to the fire,” Wolpin says. “My role has shifted more to an analyst type rather than a litigation role.”
He’s also doing more with less. Main Street recently moved to scan and store all claims-related legal documents electronically and to consolidate the process, along with administrative support, at a sister office in Auburn, Mass. When Wolpin gets a phone call, someone in Auburn answers and transfers it to his BlackBerry.
Wolpin, who was forced recently to fire a staff attorney, says these and related moves have been adding up to 60-hour-plus workweeks for him and his staff. “Everybody I know, no matter what their job is,” he says, “is working a lot harder.”
Similar shifts are taking place in other industries. In Glenview, Ill., global diversified manufacturer Illinois Tool Works Inc. instituted a policy late last year of collecting competitive bids from the outside firms that handle much of the company’s litigation. The firms were also told they must hold the line on hourly rates, in keeping with the company’s internal salary freeze.
“Frankly, it’s a good check and balance. If nothing else, it makes the firm think about how much I am realistically going to spend on this,” says Maria Green, who heads ITW’s six-person risk management department and oversees two in-house attorneys operating out of a Paris office. “In this economy, we’ve got to try to be cost- effective. We want to apply the discipline at the beginning of the process.”
ITW, a $16 billion company with about $1 billion in free cash on its balance sheet, has historically grown through acquisitions, which Green says have accounted for much of the in-house legal work. But as deals have slowed in line with the recession, the company’s lawyers are turning their attention to matters that can shore up finances at existing business units.
About 15 to 20 percent of ITW’s annual business involves third-tier automotive suppliers dependent upon the troubled automotive industry—including larger parts makers and car manufacturers. Accordingly, Green and her colleagues have been doing more contract work, ensuring that details like payment terms mitigate increased financial risks.
“We’re paying a lot more attention to the contracts that our business units enter into,” she says. “Units, particularly in the automotive area, are thinking, ‘How do I protect myself, particularly if there’s a bankruptcy of one of my customers?’ ”
Houston-based FMC Technologies, a maker of equipment for the energy industry, has long had extensive cost controls in place, says Jeffrey Carr, general counsel for the $4.5 billion company. They include an alternative fee system that stipulates that outside law firms are paid 80 percent of their invoice up front; the remainder is calculated through a set of six diagnostic measures.
A firm can earn between 80 and 120 percent of its original invoice, based upon performance.
“I’m not trying to buy hours,” says Carr, who manages a lean staff of 17, including 12 attorneys. “I’m trying to buy results and service.” Industry observers expect such performance-based approaches will become more prevalent as the economy worsens.
Says Jane Allen, president of Counsel on Call, a Brentwood, Tenn.-based provider of contract lawyers to corporations around the country: “In-house lawyers are seeing the need and even the pressure to do more with less. It’s trying to think more from a business perspective than ‘This is the way it’s always done.’ ”
Barbara Rose is a freelance journalist in Chicago.
Barbara Rose is a freelance journalist in Chicago.