Less Than Happy Holidays For Associates

The outlook gets grimmer for associates, as several sources highlight their rough road.

As we previously discussed, The National Law Journal last month reported a 1.5 percent drop in the total number of associates at the country's 250 larges law firms.

Last week, the AmLaw Daily reported on the latest Robert Half Legal Hiring Index, in which seven percent more respondents said their firms intend to add jobs in the first quarter of 2011 over the the fourth quarter of 2010.

That would appear to be good news, except for this caveat:

"Fifty-two percent of respondents reported difficulty in finding skilled legal professionals. According to Volkert at Robert Half, this suggests that while law firms and legal corporate departments may have openings, they are mostly interested in candidates who are currently employed."

To dampen the outlook even further, simply being an employed associate doesn't seem to mean what it used to. The ABA Journal recently wrote:

"Some associates who managed to avoid layoffs now lack the exposure and experience of their peers from three to five years ago."

According to that article, the unexpected consequence of the recession is that many associates who retained their jobs spent the last two years doing "pro bono work and marketing", resulting in an unprecedented lack of real experience.

"Across the board at leading law firms in Chicago, Los Angeles and New York City, there are associates who haven’t gained the experience compared to years past, says Sheri Michaels, a partner at legal recruiter Major, Lindsey & Africa in New York City."

Which leads legal recruiter Amy McCormack to observe yet another potential change to the business of law:

"The dearth of experienced associates is even more reason for firms to abandon traditional class distinctions and evaluate junior lawyers on actual experience and legal skills."

The Survey of Small Firm Economics

Last week we looked at the survey of the 250 largest U.S. firms, and this week we'll look at The Survey of Law Firm Economics, a joint project of ALM Legal Intelligence and The National Law Journal, for which the majority of respondents were firms with fewer than 150 attorneys.

Consistent with the largest firms, the small and mid-size firms also saw an historically unprecedented double dip.

According to law.com:

In 2008, revenue per lawyer declined by the largest percentage in 25 years — nearly 5%. In 2009, the figure dropped again, this time by less than 1%. Although the decrease was slight, a two-year drop in revenue-per-lawyer figures is unprecedented for firms taking this survey.

And yet, according to the report, small and mid-size firms actually increased profitability by:

• Aggressive cost cutting.

• Expense per attorney dropped by 5% in 2009, the largest ever decrease in expense-per-lawyer.

• Expense-per-lawyer also dropped in 2008, making it the first consecutive year drop in that category since numbers have been tracked.

• Net income was also up by 2.7%.

• However, actual realization rates dropped 2%, and partners wrote off 7% more of their time than in 2008.

• Billable hours also dropped for both partners and associates.

So, if billable hours were down and clients were paying less of their bills, was aggressive cost cutting the sole component of the rise in net income?

No. According to the report, small and mid-size firms also compensated by raising rates.

Hourly rates for the average equity partner are now at an all-time high among surveyed firms.

Which means we seem to have a disconnect. Because most observers feel the balance of power has shifted to the client side. And, as we've discussed, the current ACC Value Challenge expects firms to drop costs by 25% next year.

It would appear that expectations on one or both sides of the equation will have to change.

Results from the NLJ 250

The National Law Journal's annual survey of the 250 largest U.S.-based law firms by headcount is out, and the numbers are starting to crystallize our collective perceptions from the last two years.

The largest U.S. law firms trimmed another 1,400, making this the second consecutive year of cuts and the largest two-year decrease in headcount in the ranking's 33 year history.

Over the last two years, the NLJ 250 have shed more than 5% of their attorneys. The only other consecutive two-year decrease was 1992-93, which saw cuts totaling less than 2%. So, we're clearly in uncharted territory here.

Digging a little deeper into the numbers we see:

• More than half of the 250 saw decreases, while more than 2/3 of the top 50 saw declines.

• Some firms even saw double-digit percentage cuts.

• Associates, again, took the biggest hit, accounting for the majority of the decreased headcount.

• Where headcount did rise in 2010 was in the "other category", which includes non-associate attorneys, contract lawyers, and temporary attorneys.

According to Altman Weil consultant Ward Bower, "There are fewer lawyers producing more work and more revenue." Which means "there's been a reset."

"Law firms are unlikely to hire hordes of associates as they had before the 2007 recession any time soon, if ever."

And this seems to be another indicator that what used to be considered associate-level work is now being accomplished via new, emerging channels.

More Year-End Numbers

The National Law Journal released the results of their 2009 census of the largest 250 law firms, and the numbers are predictably gloomy.

A few of the lowlights:

The number of employed attorneys at these top 250 firms plunged by more than 5,200. That's a 4% decline.

This is only the third year since the NLJ started tracking in 1978 that saw a decline. 1992 saw a 1% decline, and 1993 dropped 0.9%.

Of the top 75 firms, 15 had reductions of more than 100 lawyers.

The number of associate attorneys dropped by almost 9%.

Many firms declined to near or below where their numbers were five years ago.

113 firms reported deferring nearly 2,800 new associates.

Interestingly, the number of partners increased by .9%. Of the top 50 firms, 30 reported an increase in partners.

A consultant with Altman Weil, Ward Bower, concludes that "the cuts made were done primarily to preserve workloads for partners." Which means that clients can only conclude that work currently being done by partners is work that would have previously been executed by associates. And that is exactly what clients have been trying to avoid.

The National Law Journal has a number of accompanying features, analysis, and breakdowns.