Legal News

Big Law?s Future: Profit Forecasts, More Layoffs, and Going Big in BRIC?

By Ashby Jones

We can say with some amount of confidence that the past six-months or so have been some of the most challenging ever for law-firm managing partners. And prognosticators seem to think that the next six will be — if not quite as hard — no cake-walk either.

So what are these fearless leaders to do to come out the other end — sometime in 2010? — with their partnerships intact and work coming in? Let’s get you up to speed with a handful of ideas.

Profit Projections? According to this story in Tuesday’s Chicago Tribune, Seyfarth Shaw put out a profit projection for the rest of the year. In an internal memo sent around the firm last week in which the firm announced 50 layoffs, the firm also projected that it’s 2009 profits would be down between 5 and 7 percent. The Trib writer, Ameet Sachdev, gets the significance of this pretty much spot on:

The projection was not extraordinary because of the rate of decline but rather that Seyfarth, one of the largest firms in Chicago, found it necessary to set expectations about its financial health. Lawyers rarely talk publicly about in-house financial matters, except once a year when American Lawyer magazine ranks the most profitable big law firms.

The firm didn’t explain the move, nor did it comment to the Trib. But legal consultants speculated to the paper that the firm is trying to put a positive spin on its third round of layoffs since December. The executive committee said the firm from a profitability standpoint will fare better than “general predictions for our industry (down on average 10% to 15%).”

So will this — a profit projection — become part of standard operating practice? Maybe, but don’t count on it, said Alan Rubenstein, executive vice president of Chicago Legal Search. “Seyfarth now has created expectations, but who knows where the economy will be in six months,” said “I don’t think you’re going to see a bunch of firms following Seyfarth’s lead on this.”

A legal “communication” issued on Monday by the legal consultancy the Zeughauser group encourages firms to adopt a handful of fairly dramatic measures, given that “we expect that 2009 will be another grim year for most of the Am Law 100 firms.” Namely, Peter Zeughauser et al. recommend:

More layoffs: How’s this for pointed?: “We encourage firms to take a sharp knife to payroll and other expenses. As painful as the exercise may be, we think firms should continue to lay off unproductive associates and counsel out chronically under-productive equity and non-equity partners. In addition, we recommend a salary rollback for all non-partner
attorneys. Rolling back salaries not only will enhance profitability, but will boost a firm's credibility with clients at a time when maintaining and strengthening client relationships is crucial.

Go Big in BRIC: Laid-off associates, how does Shanghai sound? Writes Zeughauser: “Law firms with a presence in the BRIC markets (Brazil, Russia, India and China) would be wise to add new emphasis to their practices in those markets, particularly in China, which likely will roar out of the recession. . . .”

Drop the Hour: “Except in limited circumstances, the hourly rate system is, after all, the worst of all worlds from a client's point of view. . . . While client discomfort with hourly billing may be assuaged partly through a reduction in rates, we think firms should work aggressively to create win-win billing arrangements that more closely align the client's and the law firm's economic interests for the type of work being performed. . . . We are certain . . . that the firms that are willing to make the effort will be rewarded for having done so.”

Full post as published by Law Blog - WSJ.com on May 05, 2009 (boomark / email).