Discussion series helps students navigate changing professional world
The country’s economic crisis could drastically change how large law firms operate, from their recruiting of new hires to the way they bill clients and the number of hours their lawyers work.
Some of what firms are experiencing and the strategies with which they are responding is old news, harkening back to prior recessions. But this downturn could prove more severe and accelerate some changes that have been a long time coming - as corporate clients have been pushing back against the old law firm business model.
As law students venture into the professional world amid recession, USC Law Adjunct Professor Bryant Danner last month kicked off a lunchtime discussion series, “The Evolution of Large Law Firms: Effects of the Storm.”
Danner is asking the question: Is this a major change of direction or a minor detour? Will firms actually create a new business model, or simply revert to their former ways once the downturn changes direction?
To answer these questions, Danner provided students with some background in economics and the recent history of law firm strategies during the first installment of the series, “Framing the Questions,” on Sept. 21. In the second installment, “Search for Answers (part one),” held Sept. 30, Danner welcomed Michael Roster, former General Counsel at Golden West Financial and Stanford University and steering committee chair of the Association of Corporate Counsel’s (ACC) “Value Challenge” initiative. Roster also is a former managing partner at Morrison & Foerster in L.A.
In the first session, Danner, former partner at Latham & Watkins and General Counsel at Edison International, pointed to statistics showing that large firms were expanding in size and profits prior to the recession. From the early 1990s until the mid- 2000s, the average Top 100 firm doubled in size while partner profits were up 215 percent, according to American Lawyer. Some data indicate that, in 2007, associates at the largest firms made an average of about $230,000, while equity partners made an average of about $1.2 million.
“Law firms were facing challenges, but they were doing just fine, thank you,” said Danner, who currently teaches the USC Law course “Law Firms and In-House Law Departments: Decision Points.”
However, amid all the profits, firms were raising associate compensation and this was creating financial pressures, Danner said. Clients were taking work elsewhere or building up their internal departments amid concerns over rates and the number of billed hours. Associates had complaints about work-life balance. Competition among partners and lateral movement of partners to other firms were up.
When the economy turned and business dried up, management did what they could to “right size the firm,” Danner said. Firms laid off associates, deferred new hire start-dates, reduced or eliminated second-year programs, reduced their third-year hiring targets and changed hiring schedules.
Other firm responses, with a longer-term focus, include laying off paralegals and other staff, reducing associate compensation, switching to merit-based compensation and increasing training and mentoring of associates (who have had attrition rates approaching 80 percent), among other strategies.
Roster foresees a major change coming in the way firms bill clients.
“The firms are looking at lots of alternatives, most or all of which previously existed, such as giving fixed prices,” he said, while noting that “the firms don’t have systems in place to monitor work and profitability other than by the billable hour.”
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