It's a frightening time to be a lawyer. Law firms have laid off partners, associates and staff. They've faced the sudden onset of client frugality. They'll dramatically reduce and in some cases eliminate law school recruiting this fall. These changes have led many observers to argue that Big Law is about to undergo a fundamental overhaul.
That fear is unwarranted. Lawyers looking for comfort should cast their eyes to Silicon Valley. The crash of 2000 could have been cataclysmic for law firms based there. The number of tech initial public offerings fell by 85%, which resulted in a huge decline both in securities work and the number of new public companies law firms had to advise. National firms that came into Silicon Valley during the boom successfully competed for work from large corporate clients that local firms would once have handled.
Out of necessity or choice, tech law firms did not dramatically expand their focus. As technology became an increasingly global business, firms such as Wilson Sonsini Goodrich & Rosati PC and Cooley Godward Kronish LLP did not open offices overseas. Nor did they develop dominant regulatory practices in Washington as the federal government started to focus more on tech companies.
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Despite those challenges, Wilson, Cooley, Fenwick & West LLP and Gunderson Dettmer Stough Villeneuve Franklin & Hachigian LLP
have done quite well for themselves. According to The American Lawyer,
Cooley partners made an average of $1.42 million each last year, while
their Wilson counterparts cleared $1.38 million a head. They've gotten
smaller since 2000, but among them they still employ about 1,500
lawyers, they're still structured in the same way, and they've retained
almost all of their key partners. Brobeck, Phleger & Harrison LLP,
which along with Wilson and Cooley was one of the three firms that
dominated the market, collapsed, but Morgan, Lewis & Bockius LLP hired a large slug of its lawyers, and many of the rest caught on at other firms.
The lessons: Even in tough economic times, law remains a very
profitable business with high profit margins, and law firms, despite
being frequently maligned for their business ineptitude, are reasonably
adept at adjusting to new circumstances.
Moreover, U.S. law firms today are in a much better competitive
position than Silicon Valley firms were at the start of the decade. The
latter faced a host of new competitors that often had significant
advantages in size and scale; with U.K. firms reeling, no significant
rivals are poised to enter the U.S. legal market. The Silicon Valley
firms focused on serving a few kinds of companies in one area of the
country, while most large U.S. firms now have a broad range of practice
areas and are spread out across the country and, in many cases, the
world.
The one similarity -- and it's significant -- is the decline in IPOs
generated by Silicon Valley since 2000 and in corporate work generally
by the U.S. economy since last fall. It's particularly unnerving for
lawyers who specialized in areas that never fully recovered from the
first collapse, or seem unlikely to rebound from the second: securities
and venture capital work, or leveraged and structured finance.
But the sudden demise of large practices isn't new; antitrust was
very lucrative for law firms until Ronald Reagan's presidency, which
slew that cash cow; similarly, the long decline of unions has meant
that many labor lawyers have had to develop expertise in benefits and
employment. The profitability of various corporate practices has also
shifted over time.
Law firm Cassandras say this downturn is different because clients
won't allow their lawyers to gouge them anymore. But companies in most
industries must still confront a complex welter of federal, state and
local regulation. Well-funded plaintiffs bars in areas from medical
malpractice to securities fraud can still bring litigation that
companies will have to spend large sums defending against. Companies
will still need to raise capital, restructure and combine, all of which
require lawyers.
Many law firms will continue to undergo a painful period of
restructuring, a process that will be fatal to a relative handful of
firms. But law will remain a good business, and law firms will prove
far more stable than many of their critics suspect.
David Marcus is senior writer at Corporate
Control Alert.
Comments
Excellent article .... indeed, slaying old and finding new cash cows at a prodigious rate is a fundamental fact of life in modern times in law firms as much as anywhere else. Given the responses both government and private sector to the events of 2008, a veritable tsunami of new client legal needs are emerging and those firms that are versatile and flexible enough to embrace them should find themselves doing even better in years to come than before. The firms that need to be concerned are those that cling to the past. It's a great time in history to be alive and in practice!!!