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Is It Do or Die Time for Top Law Firms?

Posted Jan 13, 2009 4:52 PM CST
By Rachel M. Zahorsky

The 15 minutes of fame many corporate lawyers enjoyed during last fall's economic implosion may be coming to an end, reports the Financial Times (reg. req.).

When the financial crisis heated up, deal-makers shifted their focus to the intricate language of merger and credit agreements, parties sued each other over breached contracts, and corporate attorneys stepped into the limelight once dominated by investment bankers and hedge fund managers.

But, as the parade of bank deals slows, major players like Lehman Brothers, Wachovia and Washington Mutual are now gone, and the newspaper says that some attorneys may find themselves back in the chorus line.

“Bankers’ ability to garner fees is going down,” says the head of a top global law firm, “But we definitely feed at the same trough.”

Several leading global firms expect revenues to flatline or sink deeper in 2009. Reports of lawyer layoffs are rampant, and at Clifford Chance, equity partners are being asked to ante up additional capital contributions of 100,000 pounds ($150,000).

Leaders at Skadden, Arps, Slate, Meagher & Flom and Dewey & LeBoeuf told Financial Times they are redeploying attorneys to practice groups expected to be busier in the new year, such as bankruptcy and restructuring.

At Skadden, mergers and acquisitions lawyers hope to maintain their high-level client relationships by advising on divestitures or restructuring.

“We’re going to have a lot more crisis management, and that’s what M&A lawyers do,” a high-ranking partner told the Financial Times. “Hopefully, you take the relationship you’ve had and expand it into more general corporate governance.”

Comments

1.

B. McLeod
Jan 13, 2009 5:19 PM CST

I am not sure Wachovia is technically “gone” yet.  It may be many months before Wells Fargo completely absorbs it.  I am waiting to see whether Wells Fargo will fire a bunch of the Wachovia incompetents and transition the acquired Wachovia operations to more normative banking agreements.

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2.

NY law
Jan 16, 2009 6:56 AM CST

Big Law will always be here.  No ivy league ceo is going to send their work to a little poe dunk firm.

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3.

ny law is funny
Jan 16, 2009 8:32 AM CST

Beg to differ, whiteshoes.  We take the stuff that ceo’s won’t trust to sleep-deprived attorneys driven to meet a 2200 billable hour bonus target.

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4.

Older Guy
Jan 16, 2009 8:34 AM CST

I wonder if clients have to pay top dollar for the services of “redeployed” lawyers who probably know jack squat about their new practice area.

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5.

wall street
Jan 16, 2009 8:49 AM CST

You are not sleep deprived after 2200 hours.  We can work circles around you little folk and still crank out A+ product even after working round the clocl

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6.

Vaughn A. Carney
Jan 16, 2009 8:59 AM CST

As the chief legal officer for an equipment finance corporation, I will not pay the new big-firm partner rate of $1100 per hour when a boutique firm can turn out the same quality product for half that rate.  Yes, the Cravaths and Sullivans and Debevoises and Davis Polks will always be well-fed, but the more typical firms of the 1000+ lawyer model, with high-cost offices around and crushing overhead - think DLA Piper, among others - simply cannot last.

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7.

Kevin
Jan 16, 2009 9:00 AM CST

“A+ Product” that hopefully does not have glaring typos like the above comment…

I’m glad to see the whiteshoes burn.  Bye!

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8.

ClassAct4
Jan 16, 2009 9:03 AM CST

Hey Wall Street, too tired to review your comments for spelling? I beg to differ, the Fortune 500 companies are looking for innovative, smaller firms, that can run circles around the greedy Wall Street types.

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9.

Isaac Laquedem
Jan 16, 2009 9:05 AM CST

It depends on the work.  A company faced with a hostile takeover is going to go to Skadden or Paul Weiss (whichever one the acquiror didn’t hire) and not to a small town firm—not even to most of the Biglaw firms.  But the trend for GCs is to send the bread-and-butter work—the stuff that keeps the doors open and that the CEOs never see—to smaller firms that don’t charge $400.hour for the work product of someone that’s never written a contract.  And wasn’t it a big firm that had a sleep-deprived lawyer leave three zeroes off of a mortgage a while back, costing the client $40 million?

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10.

NY BigLaw
Jan 16, 2009 9:08 AM CST

It’s time for those firms ranked further down the AmLaw 100 to feed.  The rates are cut by half and they still produce the A+ product.  They also have the size (500+ attorneys) to adequately service clients.  No small firm can do that, and it’s not often easy for large companies to supervise several boutiques for each area of law.

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11.

NY
Jan 16, 2009 9:13 AM CST

You guys are full of it.  How many public clients do firms with under 50 lawyers have?  Most none, maybe 1 or 2.  And even with the emerging companies, must board members are made of up vc firms who require usuing big firms for any investment deal.

You guys will never get our work.

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12.

B. McLeod
Jan 16, 2009 9:25 AM CST

When the fragile big firms break up, the work will have to go somewhere (if it has not already been rechanneled by the fee differential).

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13.

HVB
Jan 16, 2009 9:26 AM CST

NY—I am a solo and I have several publicly traded clients.  Most I represented at the PrettyBigLaw firm I just left, and many still use that firm for larger matters. My old firm and I have a friendly sharing relationship and we are both resources for each other.  But it’s not a controversial issue:  BigLaw can’t (or shouldn’t) do commodity work and BigClients have lots of commodity work to go around.  A friendly division of labor feeds the mid to small-sized firms well, with great benefit to the client, while BigLaw can continue to provide its “bet the farm” work…while its business model fails, its employees are miserable and its clients hate to have to use them.

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14.

MommyEsq
Jan 16, 2009 9:58 AM CST

No, they are not full of it.  BigLaw is full of itself.  I started out working for small boutique firms (less than 20 attorneys in each) and more recently have worked in-house for very large (multi-billion dollar) corporations.  I can say this absolutely:

* Boutique firms deliver an exceptional product for the right price.  Their attorneys are experienced and specialized in their field, which BigLaw associates often are not.

* Small boutique firms can and do have Fortune 100 clients as their main clientele.  “Your” work *is* going to these firms.  Do you think that your clients regularly tell you about the work they send to other firms?

* Companies routinely use smaller firms for the “bread-and-butter” work that is farmed out on a daily basis.  There is a lot of smaller-dollar work that it would be silly to ask BigLaw to do at $500+/hour.

* BigLaw firms do not necessarily deliver a better product, just a bigger bill.  I have personally spent weeks cleaning up the mess and re-doing the work that young BigLaw firm associates (who apparently had no idea what they were doing) caused.  And then we had to fight with the firm over their enormous bill for the privilege of the experience.

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15.

John Dope
Jan 16, 2009 10:16 AM CST

Ivy League CEO’s send business to small firm all of the time.  In fact, the general counsel’s office at many of the Fortune 500 are receiving tremendous pressure to reduce outside legal costs.  GC’s are putting pressure on Biglaw to either reduce rates or lose all or a substantial amount of work.

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16.

Isaac Laquedem
Jan 16, 2009 10:59 AM CST

#11 misses the point, I think.  It’s not that small firms are the lead counsel for big public companies; we aren’t.  We do, however, get a lot of day-to-day work from public companies where big firms have priced themselves out of the market.  Our firm is very small—single digits—and we have more public clients than we have lawyers.  Public corporations send us about 1/3 of our work.

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17.

Michael
Jan 16, 2009 11:05 AM CST

Sorry, but this sounds for the most part like a bunch of kindergarten kids arguing about who has the better action figure. Let’s not forget we are all professionals.  At the end of the day, the size of the law firm rarely matters.  The quality of the lawyer is what counts. I worked in a large international law firm before going in house. Since then, I worked with law firms of all shapes and sizes and encountered very bright lawyers and less qualified ones.  I have seen small firms over charge and waste billable hours and seen big firms provide to the point, efficient work, and vice versa.  As to large firms, it is hard to compete with the ability to tab into the expertise of 1,000+ lawyers that are just a phone call away.  But most matters do not require that kind of expertise, which is why the individual lawyer matters most.  We as, a profession need, small, medium and larger sized firms and we should provide each other the respect we all deserve and we seek from our clients.

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18.

AndytheLawyer
Jan 16, 2009 11:22 AM CST

I look forward to the spectacle of former BigLaw types in raggedy Armani suits standing at freeway entrances and holding up “Will merge and acquire corporations for food” signs.

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19.

Government Lawyer
Jan 16, 2009 11:46 AM CST

I agree with 17.  We’re all professionals and we all have a niche to fill.

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20.

ab
Jan 16, 2009 11:50 AM CST

I understand that most of the high level legal work on the derivatives and other financial packages which exploded under the hedge funds, banks,investment bankers and brokers and their customers,were papered by the largest of the New York fims and their few peers in other major US cities.When will those chickens come home to roost?

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21.

B. McLeod
Jan 16, 2009 11:50 AM CST

Andy, I only hope while they are doing it, they will at least desist from regaling idle passers-by with their boastful tales of how “successful” they are.

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22.

West Coast Big Firm
Jan 16, 2009 12:14 PM CST

Real Estate Transactional lawyers (Partners) charge a max rate of $300/hr here.  I am told by a DC developer client that I should reduce my fees becuase other lawyers on the east coast are doing it.  Is that true?  I feel like my client is already getting a good price for sophisticated work and am not inclined to reduce my fee.

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23.

HVB
Jan 16, 2009 1:04 PM CST

WCBF: don’t reduce your fee for a race to the bottom.  Residential RE lawyers did that 20 years ago and now the title companies do their work.  If you don’t haev enough RE Transactions to do, look around at related work until the market turns around.

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24.

WestchesterIsBetter
Jan 16, 2009 4:13 PM CST

Never get your work? LOL. Please keep thinking that; your hubris only encourages your clients to look elsewhere for legal advice at a reasonable cost. In the past month we’ve had two VC firms that *were* using name-brand Manhattan firms send us cases—one we’re being substituted in on—because the clients has seen what we can do and, like most clients, they like to save money. Will we get bet-your-company cases from them? Probably not. Do we care? The better question is, do you care that you’re losing business? Because don’t look now, but you are. The funny thing is, you probably don’t even know it yet.

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25.

West Coast Big Firm
Jan 16, 2009 6:29 PM CST

Thanks for the feedback.  It sounds like some people are reducing their fees on the east coast to stay competitive.  That hasn’t happened here yet from what I can tell.

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26.

Law Student
Jan 19, 2009 9:22 PM CST

I read all the comments and wonder if anyone has any advice for a 3L who has focused on Bankruptcy and Restructuring, even worked for BigLawFirm as a restructuring paralegal for major clients before law school. I did not do the summer itnernship at BigLawFirm. I bet I would be as good if not better than a young associate being “redeployed” to these areas, but no one seems interested in interviewing any newbies. Anyone have any advice?

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27.

Will Rechatta
Jan 19, 2009 10:04 PM CST

My advice is to keep plugging.  The dummies you see in firms today are no better than you, just older.  Try working for a smaller firm where you can get into bankruptcy work for individuals. Needless to say, there will be many individual bankruptcy cases in the next 2 years.  From there you can work up to other firms with corporate cases. 

I knew a guy after law school who was very stupid, and he did just this, and now (after 20 years) his firm merged with a white shoe law firm and he is now, yes, a partner bringing home $800K per year (better than 4x what I make).  Now look who is the dummy!  And he is really dumb as ever!  So with that as a start, you can do even better, because he couldnt even write a question the way you did.

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