After almost a decade of continuous ascent in the categories of revenue, profits, salaries and bonuses since the last deep doldrums we experienced following the collapse of the dot-com bubble, BigLaw’s current plunge from the stratosphere feels to most of our players to be more perilous than ever. The prevailing sense of fear was exemplified this week by the venerable Stroock & Stroock & Lavan in announcing that as part of its keep-the-boat-afloat strategy, it is offering its incoming associate class a $75,000 payout to any rookie who elects not to jump on board, eclipsing the significance of Skadden’s historic offer earlier this year to pay associates at a rate of 33 percent of base to take a premature sabbatical.
Extreme as they are, steps such as these are hardly raising eyebrows anymore as there is ample rationale to support their implementation. Indeed, 2008 marked the worst year for major US law firms in profits per equity partner since 1991. Accordingly, partnership promotions were also down across the BigLaw board, while legal job related layoffs over the last 12 months across the country topped the 22,000 mark. Compensation reductions at all levels have become perfectly palatable as a preferable alternative to unemployment, and firm wide restructurings through the partnership ranks such as the ones which have consumed BigGlobalLaw titans Clifford Chance, Allen & Overy, White & Case and Dewey & LeBoeuf remain the number one item on the agenda at the smaller BigLaw players as well. All the while, BigLaw clients, empowered by the letting of all this BigLaw blood, pursue their leverage by squeezing BigLaw stars into never before explored capital retention territory, with cost cutting competition becoming the name of the game in the relentless competition for new business.
On a brighter note, our analysts report that this BigLaw descent may be nearing its inevitable denouement, thanks primarily to our federal government’s risk enabling bailout of BigFinance. As the fortunes of BigFinance go, so go those of BigLaw, so to the extent Wall Street is turning the corner and is once again ascending towards the production of cash, the roller coaster of BigLaw is sure to follow course in short order. We are even more pleased to opine that some good may prevail after this latest protracted round of BigLaw carnage finally concludes. The sledge hammer of the ongoing financial crisis has propelled many firms to strengthen their internal oversight, employing unprecented numbers of former federal prosecutors not only to deal with the onslaught of white collar defense work but also to ensure the eradication of the steroid of greed that empowered Marc Dreier and Mel Weiss to run their law firms like criminal enterprises. Arrogance at the managing partner level is also being increasingly met head on with brazen partner level lateral movement, with good producers tirelessly seeking and routinely finding refuge on more efficient and humane BigLaw ships, calendar year 2008 reflecting this trend with a record 2509 BigUSLaw partner level lateral moves. Moreover, diversity promotions are significantly up and flex-time arrangements are increasingly tolerated and even sometimes encouraged to create healthier and more balanced work environments, and the efficiency killing billable hour has come under scrutiny and alternative billing arrangements adopted in ways never heretofore observed.
Although we harbor no illusions that the struggle to create healthier law firms will not be met with renewed resistence when the panic subsides, we are as pleased as ever to do our part to assist BigLaw in swallowing the lithium and running its operations in a manner which will begin to see significantly diminished peaks and valleys and a happier legal marketplace for everyone involved. With that, we look forward to a more stable second half of 2009 and a 2010 that approaches sanity.