Law Firms

Law Firms See Litigation Downturn, Likely to Weed Out Underperformers

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Updated: Fears of a recession and the subprime mortgage crisis have led to a downturn in corporate legal work and litigation at big law firms, according to a report due to be released today.

The Wall Street Journal Law Blog got advance notice of the report, to be released by Hildebrandt and Citi Private Bank. It is based on information gathered from managing partners at 247 law firms.

Rather than laying off lawyers en masse, firms will be more likely to be ruthless about “weeding out those attorneys who are not performing as well as they should,” consultant Brad Hildebrandt told the blog. Firms may be most likely to cut lawyers at the partner level, since they are more costly than associates, Dan DiPietro of Citi Private Bank told the blog.

The companies’ client advisory (PDF) said 2007 started out strong but saw a remarkable downturn in the third quarter. Productivity dropped in most firms as the subprime mortgage crisis spurred a decline in work in structured finance, and mergers and acquisitions. Litigation was also down, particularly in Texas and California, prompting some firms to take on more contingency litigation.

“Unlike previous downturns in the legal market, the present slowing of economic activity has not (yet) been accompanied by upturns in litigation or bankruptcy or reorganization work,” the advisory says. “In a sense, the current downturn has thus far been a ‘perfect storm’ in which finance, transactional, and litigation work have all trended downward at the same time, with no offsetting surge in work related to the economic downturn itself.”

A prior survey by Citi Private Bank found that the confidence of managing partners at large firms is declining, and that firms will be adding non-equity partners in 2008 “at a faster clip” than equity partners.

Updated at 7:20 a.m. on 01-29-2007 to include link to and quotes from the client advisory.

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