Revisiting Seasonal Hiring

In terms of the legal profession, one of the first casualties of the financial meltdown was last summer's army of newly minted lawyers, as many law firms asked their new-hires to postpone their start dates.

At the same time, many firms were canceling their 2010 summer associate programs, with some even hinting that the policy change might become permanent.

So where does that leave the seasonal hiring outlook for 2011?

The most likely scenario would be one in which the economy does not improve by leaps and bounds (hey, I think we'd all be satisfied with baby steps in the right direction for now).

In this scenario, the stock market will tick upward, but that won't translate to a boost in hiring since employment rates typically lag behind the stock market.

Then, even when the economy and hiring both pick up, legal employers will have a huge supply of laid-off junior associates who already have desirable work experience. On top of that, there will be all the qualified 3Ls who didn't experience summer associate programs as 2Ls because of the program cancellations.

And even if Big Law returns largely to seasonal hiring, smaller firms formed by Big Law expatriates might feel the need to replicate the seasonal hiring of their old firms. As we previously blogged, Steven Molo of MoloLamken sums it up:

"Most boutiques also see a chance to cut costs by avoiding summer hiring. We don't have to hire first- or second-year lawyers, we're only going to hire lawyers who have had a few years experience at a minimum."

No matter how you look at it, there will be a significant backlog of educated and qualified potential attorneys. To make matters worse, simply start multiplying the above equation for each year the economy remains flat.

Except American Spectator recently featured Georgetown Law grad Russ Ferguson's observation that the backlog may naturally thin itself out, since many of those new-hires who had start dates deferred were subsidized to work for the "public interest", and they might not be coming back.

These new lawyers have found that their new jobs are more fulfilling and more interesting, and -- more importantly -- they've seen that they can live on a smaller salary. As one of my classmates put it, "Add up the hours I worked this week and add up the hours my friends at law firms worked. Divide our salaries by the amount of hours and you'll see -- I'm rich."

These firms may have given associates a sweet deal in order to retain top talent; but that deal may be backfiring as more and more of those associates leave the firm for good.

The real answer to whether there will be long-term strategic changes to new associate hiring may not be known for another year.

But seasonal hiring is an interesting trend to watch, because it was one of the first very public reactions to the economic change of fortunes and because it is one of the most visible, as it's not happening behind closed doors.

Going Lateral

The Recession of 2008 is casting a shadow that doesn't show any sign of fading.

AmLaw's annual Lateral Report, which tracks trends in attorneys' lateral movement, found that a record number of Top 200 Firm partners left their comfortable quarters last year.

And many of them have entrepreneurial aspirations, as significant numbers left Big Law to start their own boutique firms.

Law.com looked at a number of the personal stories behind the lateral moves, and a few consistent themes emerged.

• This trend is not a one-time blip on the radar.

"114 partners left the Am Law 200 to start or join small practices, up from 70 in the previous 12-month period. Some notable new startups include MoloLamken, whose name partners came from Shearman & Sterling and Baker Botts; Kendall Brill & Klieger, an Irell & Manella litigation spin-off; Chaffetz Lindsey, started by five former Clifford Chance litigation partners; Harrington Dragich, a bankruptcy boutique whose founders were Foley & Lardner lawyers; BuckleySandler, formed from the merger of Buckley Kolar and a group from Skadden, Arps, Slate, Meagher & Flom; Bryant Burgher Jaffe & Roberts, whose partners left DLA Piper, McKee Nelson, and Alston & Bird; and Van Etten Suzumoto & Sipprelle, founded by three partners from McGuireWoods."

• These firms saw opportunity in a marketplace that is demanding value.

"If the lawyers who started their own firms had different personal reasons for leaving their old firms, their business rationales are nearly identical: It's all about value. The recession has increased clients' price sensitivity, creating an opening for smaller firms with lower, more flexible costs. Boutiques cater to cost-conscious clients by lowering overhead expenses, slashing rates and offering alternative fee arrangements, while providing the same legal services that their founders offered at their old firms."

• The Great Recession caused chaos that some viewed as opportunity.

"Steven Molo of MoloLamken says " rent of buildings in midtown Manhattan dropped by 40 percent, you had this incredible pool of talent suddenly become available, and you had a greater cost sensitivity among clients. We thought our law firms were great as large law firms, but we really had a desire to do something that would free us up to do new things in terms of fee structures and clients."

• Alternative approaches are becoming the norm.

"Alternative billing arrangements include flat fee installments and multiple bonus options based on trigger "success outcomes."

"B. Seth Bryant of Bryant Burgher says "If the deal breaks down, they pay x; if it goes through, they pay y," In cases where flat or minimum fees don't work, Bryant still uses billable hours, but at rates lower than what he charged at DLA Piper. "Our rates are generally one-third less than large firms' rates," he says."

"These strategies -- flexible fee arrangements, discounted rates and lower overhead costs -- all make sense on paper."

• These firms are built to be nimble.

"These smaller firms are peeling away the layers of infrastructure -- administrative assistants, associates, recruiting programs -- that exist at large law firms.

With head count small, office space is an expense that's easily limited. Molo's firm rents a total of 13,000 square feet in its New York and D.C. offices. "You have a lot more flexibility when you don't take up 10 floors in a big office tower," says Molo.

"If you find a better, more efficient way to operate, you can make a change."

Alternative Billing Software

There has been plenty of talk lately concerning clients' and counsels' desire for alternative billing arrangements, but not a whole lot of discussion regarding the mechanisms by which to calculate potential new billing numbers.

The American Lawyer recently profiled a couple new software programs that will be rolling out soon, both aimed at helping attorneys formulate and track alternative billing options.

Washington, D.C.-based Crowell & Moring, which accounted for more than 30% of their revenue last year from alternative billing, will begin working this month with a program that will provide an automated process to craft alternative fee proposals for clients.

American Lawyer describes the process:

"... A partner who wants to take on an alternative fee matter inputs information -- such as matter type, expected duration, and distribution of work -- online. The information is routed to the finance department for modeling into an alternative fee proposal, then on to the finance committee for approval, and back to the lawyer without the need for a meeting, telephone call, or e-mail.

Crowell's new alternative billing program, which is integrated into the firm's matter management computer system, allows lawyers to select specific alternative fee arrangements such as flat fees and holdbacks that the client has expressed an interest in pursuing. And for lawyers who aren't at that point in the process, the program can make alternative fee suggestions based on client priorities such as leverage, fee predictability, and risk sharing. If the new matter involves a pre-existing client, an attorney will be able to access information about current alternative fee arrangements."

Another firm that will begin testing alternative billing software is Winston & Strawn, who also reported more than 30% of last year's revenue from alternative billing arrangements.

Winston & Strawn's software, though, is geared to monitoring the costs of alternative billing by installing a "dashboard" on each partner's computer that provides daily budgetary updates on alternative fee matters.

On the surface, these developments portend increased exploration of alternative billing.

Because, as the technology evolves, it will support the growth of alternative billing by taking the guesswork out of fee arrangements, thus elimination risk and resistance from attorneys.

The Entrepreneurial Attorney

One of the interesting results that came out of LexisNexis's year-end survey of the legal profession was the finding that 65% of law school students (and 90% of lawyers) feel that law school does not teach them the practical business skills needed to practice law in today’s economy.

While it is common for MBA programs to offer cross-disciplinary entrepreneurial studies, it is not the norm at the vast majority of law schools.

But that may be changing.

Duke Law School recently announced that it will launch a unique master’s program in law and entrepreneurship for prospective lawyers "who plan to be involved with innovative business."

From the Duke Law School press release:

In America and, increasingly, on a global basis, we look to the entrepreneurial sector for creativity and solutions. The ongoing economic shifts resulting from the crisis in the global capital markets are likely to accelerate this trend.

Duke joins a number of universities leading the charge to incorporate entrepreneurial studies into their law school curriculum.

The University of Pittsburgh Law School offers cross-disciplinary opportunities in their Innovation Practice Institute. The IPI's director, Max Miller, says on the IPI website:

The marketplace is demanding solution-oriented, business savvy lawyers. IPI is here to train the new generation of lawyer.

The University of Oregon offers their Center for Law and Entrepreneurship, whose mission is to "prepare law students to represent and to be entrepreneurs."

Drexel's Earle Mack School of Law offers their Business and Entrepreneurship Law Program, and the Pepperdine University School of Law has the Geoffrey H. Palmer Center for Entrepreneurship and Law.

The trend towards incorporating entrepreneurial disciplines into traditional law school curriculum makes perfect sense.

One inevitable byproduct will be new law school graduates who think like entrepreneurs, which can't help but bring technologically driven advances to the business of law.