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Thursday, January 01, 2009
Law - "Law firms' woes likely to last: More layoffs, fewer bonuses may persist with economic slump"
That is the headline from this story today in the Chicago Tribune, reported by Ameet Sachdev. Some quotes:
Much has changed in the structure of law firms since the last law-firm recession in the early 1990s, and industry experts predict the current downturn could be more painful for lawyers. For one, the definition of large law firms has changed. Twenty years ago, the largest firms had 500 lawyers who had grown up together and shared a common history. Today, partnerships are two or three times bigger, geographically dispersed, often built through merger."You have pretty weak glue holding these bigger enterprises together," said William Henderson, associate law professor at Indiana University who specializes in legal labor markets.
A second key change is that law firms have much higher fixed labor costs because of the growth of associate salaries and a new tier of lawyers known as non-equity partners. These are lawyers who offer experience and knowledge to clients and lower billing rates than equity partners.
The average big law firm has 4.3 lawyers to every equity partner, Henderson said, up from 3.65 in 2000. With higher leverage, a decline in revenue per lawyer can become a "combustible combination," he added.
In 2008, there were three notable dissolutions of large firms, including the San Francisco firm Heller Ehrman. Henderson forecasts more blowups in 2009. * * *
The glory days of lockstep raises and big bonuses are over. Latham & Watkins will freeze associate salaries in 2009. Other firms are expected to follow Latham's move because the firm is considered a market leader, industry experts said.
Firms are now paying for bumping first-year associate salaries in 2006 from $125,000 to $160,000. Runaway salaries have dented profits and angered clients who had to pay for the raises through higher fees.
Firms will take a new look at their capital structure. In December, DLA Piper asked its more than 300 non-equity partners to buy shares in the firm by paying $100,000 or more per lawyer. The firm wanted to reduce its debt as well as increase financial incentives for lawyers, Miller said.
"There was no compulsion for us to do what we did," he said. "In these economic times, it's better to have a more solid balance sheet."
Posted by Marcia Oddi on January 1, 2009 08:08 AM
Posted to General Law Related