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Silver Lining in Law Firm Layoffs News: Many Partnerships are Better-Managed

Posted Jan 9, 2009 6:45 PM CDT
By Martha Neil

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With law firm layoffs seemingly snowballing and major international firms making capital calls on partners and predicting flat profits at best, the economic outlook in the legal arena right now clearly isn't sunny.

But neither is it as stormy as some news reports might suggest, despite the demise of a few well-known law partnerships largely focused on servicing shell-shocked financial institutions. Law firms that are well-managed shouldn't suffer too much, and the worldwide economic crisis is encouraging many to sharpen their oversight skills, says Joel Henning, a senior vice president of Hildebrandt International who is in charge of the legal consultant's Chicago office.

In a survey Hildebrandt conducted to see how law firms were doing on bellwether December collections efforts, many were at, just below or even slightly above projections—perhaps because the economic situation spurred some to handle collections more aggressively this year, he tells ABAJournal.com.

Likewise, the economy can provide a useful impetus for addressing issues such as unproductive attorneys and the need to shift from lockstep to merit-based associate compensation that have been looming for some time, Henning states. "One of the things that I've said to a number of clients ... is that a crisis is a terrible thing to waste."

Well-managed firms also are keeping a close eye on new clients, to make sure they have the financial ability to pay their bills, he says.

As discussed in earlier ABAJournal.com posts, news of law firm layoffs has been on the upswing lately: Just within the past few days, there have been reports of lawyers being cut from the attorney rosters of Baker & McKenzie; Kirkland & Ellis; Parker Poe Adams & Bernstein; and Wildman Harrold Allen & Dixon.

And the situation isn't any much better abroad: In addition to contemplating possible layoffs of up to 80 associates in its headquarters office, London-based megafirm Clifford Chance is calling on partners to contribute $92 million in new capital.

Although European partners of U.S.-based law firms expect a significant uptick of litigation and bankruptcy business, "the only lawyers to sound truly chipper were partners at the small handful of New York-based firms that are hip-deep in work from multibillion-euro bank bailouts and mergers," reports Focus Europe.

Nonetheless, many law firms are positioning themselves well for the upswing, whenever it may come, says Henning, who predicts a sunnier day economically towards the end of 2009, at the earliest.

"The successful firms are seeing opportunities here, to some extent," he tells ABAJournal.com, noting that some law partnerships "are in a buying mode. They're increasing lateral partner hiring, for example."

Megafirm DLA Piper's recent move to shift income partners to equity status—and obtain capital contributions from them in the process—while "at the same time asking those who made the money money to reduce their draws also is a good idea, Henning says. "I think that sort of thing makes sense, asking people to put some skin in the game."

Related coverage:

ABAJournal.com: "More Lawyers May Delay Retirement Due to Stock Drop, Crowding their Firms"

ABAJournal.com: "Trouble Ahead for East Coast Law Firms; One Expert Expects Dissolutions"

ABAJournal.com: "Law Firm Consultant Issues ‘Grimmest Ever’ Forecast"

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