Originally published on September 29, 2009 in our free BigLaw newsletter.
From layoffs to salary freezes to dissolutions to deferrals, the landscape of large firms has changed significantly over the past year. While many large firms struggled in the downturn, Above the Law, the legal blog that reports the bad (and sometimes good) news to the associate masses, has positively thrived, with 8,000,000 page views and over half a million unique visitors every month.
Large firm veteran Elie Mystal has served as Above the Law's editor for more than a year. Given his unique vantage point, we recently cornered him for an interview.
Do you think firms have cut associate jobs to maintain profits per partner (PPP)?
Yes, of course. Is that necessarily a bad thing? Law firms are for-profit businesses, and if associates didn't know that in 2007, they know that now.
The firms need to attract partners able to bring in business, and partners who bring in business want to make as much money as possible. By maintaining a profitable partnership, firms are, in a sense, saving more associate jobs in the long run. When a group of partners bolts because PPP is too low, that can kill a firm's business. So there are sound business reasons to maintain PPP beyond the greedy love of succulent money. However, some firms and partnerships have enough solidarity to take small reduction in their PPPs to save associate and staff jobs, and those firms should be applauded.
Bankruptcy is a hot practice area right now, for obvious reasons. Are there other departments that you think are and will continue to be "safe"?
If I knew that, I'd be Biff from "Back to the Future." Many of the old rules have been broken. We always thought that litigation was countercyclical and that IP was indestructible, but that's not the case anymore. So who can say what will truly come back fastest. It seems that any practice area that deals with government regulation will be important. The safe bet practice areas are ones that help clients navigate the new regulatory scheme.
Before 2008, "work/life balance" and "lifestyle" were selling points for firms. Does "work/life balance" exist anymore?
The balance of power has shifted and firm managers know it. Now is not the time when associates should complain of cancelled vacations or lack of quality time with the kids. Will the "lifestyle" concept return? Absolutely. Once the economy turns, associates will wonder how reasonable it is to bill 3,200 hours a year and remain a functioning member of society. Right now, "lifestyle" means "having a job." Jones Day touts that the fact that they haven't had layoffs — that's their definition of lifestyle. When people don't expect to be fired on a daily basis, we'll get back to some of these other lifestyle concerns.
Fox News and MSNBC interviewed you about trends in law firms and law schools. Is there a question about the legal field that you weren't asked by those outlets, but wish you had been while you had such a large audience?
The media has focused on the layoffs and the unemployed graduates, and pays little attention to the role of the law schools. How are we preparing young lawyers? What skills are law schools teaching to make them competent?
First year attorneys show up at work and they have no idea how to actually practice law. Law school needs to be completely reformed. We need something akin to a medical school residency, in which law students can practice law under the tutelage of practitioners. Every lawyer should be able to handle a case or a deal upon graduation, or law schools aren't doing their job. They shoulder some of the responsibility for large firm layoffs. If schools prepared students to hit the ground running, firms may not have had to lay off so many first- and second-years.
Has Above the Law's reporting changed the way law firms handle their internal affairs?
That's what the firms tell us. Our goal isn't to change the ways that they do businesses. Our goal is to bring transparency to the profession, and I think we're doing that. Law firms no longer try to hide the ball from their own people. Of course, a minority of firms still try to conceal information from their own people and from the legal community at large.
For example, one firm sent an email to its associates announcing layoffs. You couldn't forward the email, copy it, download it, print it or print screen, so our tipster ingeniously took a camera phone picture of his computer screen and sent us the JPG. The point is, if it's firm news someone can hear or see, it's going to make its way to Above the Law.
The vast majority of firms are trying to find ways to work with media outlets and work with their own people so that information is presented correctly when it inevitably becomes public. We know of instances in which firms send internal email written by press people, not partners, and I think that's the right way to do it, from a PR perspective.
Over 5,000 large firm attorneys have been laid off since January 1, 2008. Do you think most of them will eventually rejoin the large firm world? If not, will they seek other positions within the law or do you see a forced exodus from the legal profession?
That's a lot to contemplate. If you primarily focus on the associates let go, many of them will find their way back in to big law — if they want to. That being said, "want to" is a high bar. They can't sit on the couch playing Xbox for the next few months and expect that employers will come knocking on the door. They have to be proactive in their job search and in filling their resumes with relevant experience during their time off. But if they liked their job, they were good at it, and they want back in, jobs will exist.
That being said, many associates don't want back in if that would entail working in a secondary market or for a less prestigious firm. Others will discover that there's more to life than being a large firm lawyer and will pursue other careers. Many associates have been on partner track their entire lives and now that they've been kicked off, they may find that it's a great time to stand in the terminal and see that there are many other trains available. To quote Yoda, "You must unlearn what you have learned."
I don't see a "forced exodus" from the profession, however. Laid-off attorneys may not want to return to the firm, but they'll be reluctant to lose the investment of their JDs. Many of them may go in-house or to government jobs.
One thing is for sure — there is a class of young associates, recent graduates and law students who have been laid off or blocked from firm jobs before they even had a chance to build their skill sets. They are not in a good position.
In 2008 and 2009, large firms froze and even slashed salaries. Will starting salaries fall below current levels?
The vast majority of top firms are still at $160,000 and the salary cuts that happened were at firms that weren't at that level to begin with and probably should never have been there, anyway. I don't think the Cravath's and Skadden's will come down from $160,000. They'll try to hold the line there, and bonuses will continue to be low. Last year's bonus was $17,500 at top-shelf firms, and bonuses will decrease this year. Perhaps in 2010 bonuses will rise to 2008 levels, but bonuses won't go back up to 2007 levels until the next decade.
Do you think all the bad news — the layoffs, salary cuts, deferred offers, etc. — will have a chilling effect on the number of law school applications over the next few years?
God I hope so. There would be nothing better for the legal profession and for society at large if there were fewer lawyers. Unfortunately, I think the concept of going to school for three years, not worrying about finding a job, and emerging with a prestigious degree remains enticing. So no, there won't be a chilling effect. I don't know what one would have to do to slow the influx of new law students, as universities have already raised tuitions and people still enroll. That's another reason why we won't have real structural changes to the large firm business model — because the pressure from below won't stop. We can't turn off the spigot.
At the height of the recession, pundits warned that the good old days had ended forever. As the economy has turned around, that sentiment seems to have lessened. In a few years' time, will we return to business as usual?
One of the things that we report on ATL that has the potential to have a long term effect is outsourcing. About a year ago, the ABA changed its rules to allow American legal work to be done off-shore. At some point, hours-intensive legal work that used to be done by juniors will go to India and that will be a game-changer.
Of all the law firms we cover every day — two, three, maybe four have failed. I'm not saying that firms aren't still hurting, but if you look at it from the perspective of December 2008 or March 2009, people thought it was the beginning of the end of big law. When Thelen collapsed, there was a sense that other firms would follow suit, but for the most part, firms have hung on without fundamentally changing their business plans. And if it's not completely broken, they won't fix it.
Have we seen structural damage to the model of top-end lawyers working for Fortune 500 clients? It doesn't look like it. Will we see structural changes to the big law business model? That's an open question. I think big law will go back to the way it was once the clients go back to the way they were. If clients have learned a lasting lesson, then no — the profession won't rebound to its previous heights.
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