Hanover Legal

January 2012 - A Glimpse Back and Ahead

2012-01-08T13:39:48Z

To be clear, 2011 was marked by stability in the world of BigLaw only in a relative sense, 2009 being characterized as perhaps the most tumultuous year in the history of major law firms and 2010 by paralyzing risk aversion and the refrain "flat is the new up." Lateral hiring of associates and other service oriented attorneys picked up a trickle as the strongest of our major players sought to regain some of the bench strength they had let go in the aftermath of the 2008 Wall Street collapse, the leading pack ever thinning. Trimming and efficiency remained priorities as corporate clients continued to enjoy growing leverage over their law firm advisors, and law firm mergers and acquisitions were abundant as more players found themselves struggling merely to stay afloat while those not fortunate enough to accurately gauge the dangers around them or find healthier players on whom to link were swallowed up by the relentless waters around them.
By the end of 2011, Cleveland's Squire, Sanders & Dempsey had merged with London based Hammonds; Atlanta's Kilpatrick & Stockton with San Francisco based Townsend and Townsend and Crew, Boston's Edwards & Angell with Chicago based Wildman Harrold, Indianapolis' Baker & Daniels with Minneapolis' Faegre & Benson, San Francisco's Howard Rice with Washington, D.C. based Arnold & Porter, and U.S. global monolith DLA Piper with Australia's Phillips Fox adding about 600 lawyers to create the world's largest law firm with more than 4,000 attorneys. In the meantime, Howrey declared bankruptcy and dissolved, many of their productive partners finding refuge aboard Chicago's Winston & Strawn.

While corporate work diminished and civil litigation by and large stagnated amidst decreasing deal work and companies' reluctance to gamble, white collar criminal work continued to flourish. Whether or not the languishing economy was in part to blame for the white collar uptick, the year saw its biggest insider trading case in history against the Galleon Group family of hedge funds and its founder Raj Rajaratnam, in which two former Ropes & Gray associates were deemed complicit. The American Lawyer reported that aggregate gross revenue among the largest 100 U.S. based firms increased by four percent in 2010 negating a virtually equivalent loss in 2009 and the number of attorneys affiliated with these firms decreased by 2.7 percent, together with other cost cutting measures leading to an overall jump in profits per partner at the largest U.S. 100 firms to almost $1.4 million. However these findings were called into question by the Wall Street Journal, which opined that more than half of the top 50 U.S. law firms may have exaggerated their profits per partner numbers citing an industry analysis prepared by a unit of Citigroup Inc. indicating that about 22 percent of the top firms overstated the 2010 measure by more than 20 percent.

To name a few major firms, Weil, Schulte, O'Melveny, Dechert, Cadwalader, White & Case, Shearman & Sterling and Debevoise announced falling revenue for 2010, whereas Paul Weiss, Patterson Belknap, Fried Frank, Cahill, Proskauer and Gibson Dunn announced increased revenue and profits, the latter reporting that it broke the one billion dollar mark in gross revenue for the first time in the firm's history. Overall, the legal industry lost about 3000 jobs in 2011, outsourcing becoming an increasingly popular trend among the nation's largest firms in response to unrelenting pressure from clients to reduce costs and amidst fierce competition for their business.

In the absence of significant economic policy initiatives emanating from Washington and a languishing global economy, it seems clear that the the pack of leading firms will continue to thin in 2012. The more profitable and less risk averse firms will continue to venture into opening emerging markets in Brazil, China, Turkey, South Korea and Israel, and the strongest players like Cahill, Sullivan & Cromwell, Simpson Thacher, Cleary and Cravath will continue to outpace the rest of the market by implementing such token measures as awarding mid-year bonuses to their associates. Rainmaking partners will be at even more of a premium on the lateral market in 2012, and will be especially drawn to the aforementioned dominant players able to attract top associate talent. Firms will continue to expand their white collar practices in response to enhanced regulation and more vigorous financial crimes prosecutions while firms world-wide will face an even harsher competitive environment for business. With law schools continuing to churn out record numbers of graduates seeking employment, students will increasingly opt for non-legal options in industries where their skills and talents are likely to add substantially more value.

As more firms struggle to stay afloat and both the supply of and demand for rainmakers heightens, our consultants at Hanover Legal expect to be busy in 2012 advising prospective laterals and firms alike as to how to act prudently in the current market. As always, we warmly welcome your inquiries.

R.I.P. Howrey

2011-06-13T19:14:17Z

Thankfully, the tsunami that claimed so many BigLaw casualties in 2009 and 2010 is increasingly a distant memory as the waters of 2011 have remained relatively tranquil. We are certainly not only leaner and more efficient but also more circumspect as we venture further into the heart of 2011, major American and British firms focusing more of their attention outward and exploring opportunities especially in the emerging foreign markets of the so-called BRIC countries - namely Brazil, Russia, India and China. Francis B. Burch, Jr., global chairman of DLA Piper explained: "If you look at where the large multinationals and the most attractive emerging technology companies are generating their revenue and their net income and where they expect to see the most growth, it's in the BRIC countries."

But the most captivating drama of first quarter 2011 came from the halls of Howrey, whose exodus of partners everyone except apparently Howrey management itself understood would quickly snowball into the firm's demise. Indeed, while Howrey spokeman Robert Ruyak assured the captivated public that the departures were merely part of a plan to make Howrey stronger, the emperor's new clothes did not fool such luminaries as John Quinn, who, soon after Vice Chairman Henry Bunsow took himself along with his reported $20 M. book of business to Dewey, tersely tweeted, "I really doubt [Ruyak's] explanation."

Howrey's struggles notwithstanding, as soon the gates of 2011 sprung open firms began reporting better than expected 2010 financials. Fried Frank, Paul Weiss, Wilmer, Patton Boggs, Akin Gump, MoFo, Patterson Belknap, K&L Gates, Gibson Dunn and Cahill all reported 2010 revenue increases, the latter three posting the best results in terms of gross revenue in their respective histories. Nonetheless, with other major firms posting revenue declines including Shearman & Sterling, White & Case, Cadwalader, Schulte, Dechert, Weil, and Dorsey, clients continued to exercise their leverage by securing alternative fee arrangements which assured savings from the billable hour method - one major survey finding that 29 percent of in-house counsel reported an increase in their use of such arrangements in 2010. American Corporate Counsel Association General Counsel Susan Hackett summed up the alternative-fee phenomenon thus: "My big worry in 2010 was that lawyers would all revert back to their comfort zone after they put a Band-Aid on the wound caused by the recession. But they've drunk the Kool-Aid."

Perhaps coincidentally, BigLaw competitors began breathing easier as reports indicated that for the first time since the onset of the Great Recession, demand for legal services rose during Q4 2010. And maybe equally hopeful to latch onto the positive momentum elsewhere, Howrey's management declared itself optimistic, insisting that its hemorrhaging was merely part of a conscious design to become more efficient: "Our clients understand what we are doing as most of them have had to do the same thing," Ruyak wrote. "Downsizing is hard and it is painful... Please remember that our glass is much more than half full. We have excellent clients, first-rate lawyers and staff and we compete successfully in the three practice areas where we focus. None of that has changed. What has changed is our headcount - nothing else. We are simply a smaller, more efficient firm..."

By March 15, Howrey's decision to dissolve had become common knowledge, most pundits attributing their demise precisely to their failure to diversify beyond those three core practice areas to which Mr. Ruyak referred. In contrast, at about the same time another major survey verified that the U.S. legal sector's fortunes generally were improving, a total of 60 percent of large firms posting revenue increases in 2010 over 2009 levels and the sector reporting revenue increases in Q1 2011 of over three percent. Legal sector jobs were rebounding as well, 1500 additional people being employed in April 2011 over the same time the previous year and the demand for legal services in the first quarter of 2011 up 2.1 percent over that in Q1 2010.

We respectfully pay homage to the memory of Howrey, who joins other recently departed giants including Heller, Thacher, Thelen, McKee and Wolf in the graveyard of BigLaw.

2010 Year End Report

2011-01-23T13:00:52Z

Our long held view that BigLaw is among the most conservatively run and change resistant industries on the planet seems understated in light of the tornedos that we've been experiencing of late. That said, 2010 served to raise awareness of issues critical to our long term viability such as globalization, diversification of practices as well as personnel, alternative billing and work-life balance and it appears that by and large, while still far from healthy, BigLaw is a better place to live and work as we enter 2011 than it was a year ago.

2010 drew to a close without a great deal of fanfare, which was precisely what the doctor ordered. After a harrowing stretch for our players and managers alike, many are content merely to see the light of day as we enter the new year and decade. Sonnenschein finalized its merger with Denton as did Squire Sanders with Hammonds to join the ranks of great American firms including Hogan & Hartson, Mayer Brown, and Rogers & Wells all chosing the path of combining with London to gain a competitive edge and improve fortunes. In contrast, Proskauer and SJ Berwin broke off their engagement, reportedly on an amicable basis. Our pundits at Hanover Legal view Proskauer's continuing independence as a clear net positive for this perpetually rising New York star, especially in light of the less than inspiring history of transatlantic unions.

Whether or not firms decided they were better off negotiating turbulent waters solo or in tandem, the common refrain among people in the business was that with respect to revenue and compensation, "even is the new up." Associate lateral hiring remained at a virtual standstill, those employed recognizing that thousands of equally qualified casualties from the 2009 hemorrhaging remain available and eager to take their spots on a moment's notice. Meanwhile, partners with business remained highly sensitive to tremors in order to be prepared to jump in a timely fashion should the need arise, Howrey's former vice-chairman Henry Bunsow exemplifying this in announcing that he would be leaving for a more secure platform aboard monolith Dewey & LeBoeuf. In taking with him an estimated $20 million book of intellectual property business and perhaps any lingering hopes for Howrey's resuscitation he explained: "I lived through the down times, but I wanted some insurance. ... Rather than waiting to see if the good times were around the corner, I wanted to take advantage of them now. I didn't want to invest more years in the process."

While firms remained reluctant to implement change, Main Justice did not hesitate to announce that it would not hesitate to do so in its war on white collar crime. Perhaps for the benefit of particularly tone-deaf potential fraudsters, Southern District of New York Criminal Division Chief Richard Zabel warned that his soldiers would make "aggressive use of wiretaps" in cases such as the one against Galleon Group founder Raj Rajaratnam as opposed to relying solely on cooperating witnesses and e-mails -- a formula that proved insufficient in the office's recent case against Bear Stearns ex-fund managers Richard Cioffi and Matthew Tannin.

The fury still raging on Main Street towards Wall Street ensured that at the very least, white collar defense lawyers and securities litigators will be in demand in 2011. As for general corporate work, those who have set up shop in emerging markets including China and Brazil are likely to be rewarded as the U.S. economy continues to putter along. Real estate lawyers predict at least one more year of gasping for air. By and large, our sense is that in 2011 BigLaw managing partners will be praised for keeping their attorneys free from sea-sickness, and those that achieve accelleration in the seemingly interminable uphill race against a myriad of energy sapping forces will be duly revered.

On a more personal note, Hanover Legal, founded in 2000, now enters our second decade of life. In contemplating these last ten years we are reminded of the Chinese curse, "May you live in interesting times." So in this context, please accept our genuinely good-hearted wishes for a relatively boring next decade!

Third Quarter 2010 Report

2010-10-01T15:35:59Z

Listen carefully and you will hear BigLaw breathing a collective sigh of relief as we continue to distance ourselves from the worst financial crisis since the Great Depression and the ensuing havoc that characterized the legal market of 2009.

That said, as July 2010 set in, clients remained by and large insecure and major law firms focused on increasing control of revenue and costs. Newly formed transatlantic monolith Hogan Lovells announced for example that is was putting in place a quarterly partner conference and e-mail in-boxes were reportedly inundated with advice as to how to effectively network. Top law firm earners seized on the instability by escaping golden handcuffs of heretofore secure equity partnerships to assume positions of management at major corporations, highlighted by the third Cravath partner departure in as many months -- one taking the helm of the legal department at Morgan Stanley, the second at private equity fund TPG Capital, and the third at consulting giant Accenture. In a similar spirit, prominent Milbank and Shearman litigation partners opted to set up their own small shops aiming to pitch more efficient service and better rates, while a former McKee Nelson tax partner gained acclaim by leaving the practice of law altogether and jumping to the trendy restaurant business.

As global transactional work and M&A activity de-thawed, so did law firm merger activity, a total of ten law firm mergers announcing in the second quarter plans to tie the knot representing a doubling of the pace from the first quarter. On the transatlantic merger front, Sonnenschein fast approached the alter with Denton (eventually tying the knot at third quarter's end), while Proskauer and SJ Berwin continued to date. Meanwhile, London based Magic Circle firms Linklaters and Allen & Overy reported decreasing revenues in 2010 attributing the negative numbers primarily to the drying up of cross-border takeover deals, and U.S. law firms lined up to crack promising emerging markets especially in Brazil and throughout Latin America. This flurry of activity was not surprising as Brazil's economy was expected to grow by 6 to 8 percent in 2010 and Latin America as a whole saw a 170 percent increase in M&A activity during the first half of 2010. Major firms including DLA Piper, WilmerHale, Akin Gump and Weil Gotshal which had just months before lowered associate compensation or instituted merit based compensation for associates reinstated pre-crisis salary standards, and permanent associate offers showed a marked increase over 2009 levels as well, Clifford Chance extending 60 to an applicant pool of 68 trainees. Notwithstanding, the carrot of partnership appeared less attractive than ever to BigLaw associates, only 38 percent of them expressing interest according to a major survey. And those gloomy numbers were significantly lower for female associates, a mere 29 percent indicating that they were aiming for partnership at their respective firms.

In mid July, Goldman Sachs reached a $550 million settlement with the SEC serving to further de-thaw the engine of Wall Street, while the government continued to pursue Goldman's 31 year old trader "Fab" Fabrice Tourre, who maintained his denial of fraud related to the 2007 sale of the Abacus 2007-AC1 collateralized debt obligation linked to subprime mortgages insisting that he had relied on Goldman's legal and compliance department in making any materially misleading statements or omissions. While the $550 million fine may have been a drop in the bucket to Goldman, the settlement's teeth came in the form of regulations ordering Goldman to bend at the knees and establish processes to ensure that written marketing materials for mortgage securities offerings would not include any material misstatement or omit a material fact necessary to keep the statements from being misleading. Specifically, the SEC required written marketing materials to be reviewed by Goldman's legal or compliance departments and demanded that the company record "the name of each person in the Legal Department or the Compliance Department who reviewed the materials, the date of completion of the review, and a list of the materials reviewed;" conduct an annual internal audit to ensure that it was complying with those requirements; review all marketing materials when it retains outside counsel to advise on an offering and ensure that counsel also review all marketing materials; and required that Goldman's general counsel or head of global compliance "certify annually in writing compliance in all material respects" with the settlement. As the Goldman settlement portended similarly enhanced regulations upon the entire financial industry, major law firms sought to recruit superstar lawyers from the SEC, the Department of Justice, and the United States Attorney's Office for the Southern District of New York in order to effectively compete for the soon expected avalanche of work for top regulatory and white collar practitioners.

Meanwhile, the delicate issue of mandatory retirement at major law firms remained in the spotlight thanks primarily to Eugene D'Ablemont and Kelley Drye & Warren. In the D'Ablemont case, the Equal Employment Opportunity Commission had sued Kelley Drye on D'Ablemont's behalf for age discrimination after the firm revoked his equity share under its mandator retirement (at age 70) policy, the clear preponderance of major firms retaining similar mandatory retirement policies. As the parties argued whether law firm partners qualify as employees or as employers, some savvy firms without any retirement policies whatsoever such as Stroock & Stroock & Lavan bulked up by offering homes to aging talent not quite ready to call it a day including Joel H. Goldberg, who found refuge at Stroock after he was required to leave Willkie Farr upon reaching 65. As Goldberg explained: " I still enjoyed what I was doing, and could still do it well." More broadly though, with the recession sputtering into another year and the number of age discrimination cases swelling, related awards were generally perceived as modest. "Many very good plaintiff lawyers recognize that juries who are composed of people who've been laid off and gotten re-employed are more cynical about layoff cases," explained Orrick Herrington & Sutcliffe partner Lynne Hermle.

As fall approached, law schools emerged from the dismal job market (according to a report by the National Association for Law Placement, in the fall of 2009 New York firms had reduced summer associate offers by 44 percent) and prepared for a modicum of demand for their students. Indeed, law firm summer associate hiring levels remained constrained in 2010 not only due to the challenging economy but also diminished attrition rates and firms' plans to absorb incoming associates from the classes of 2009 and 2010 whose start dates had been deferred. Shearman & Sterling, for example, indicated that 54 deferred associates from the graduating class of 2009 would not begin work until 2011 and consequently only hired 27 summer associates in New York in 2010 (compared to 129 in 2008).

Nonetheless, Columbia Law School reported that the number of interviews firms had agreed to conduct with second year students increased in 2010 by 8 percent over 2009. "Most firms have scaled back as far as they could, so it makes sense that we would see some growth," explained NALP's executive director James Leipold. Cravath for example employed 22 summer associates in 2010 (compared to 121 in 2009) but was expected to hire 70 to 80 for the summer of 2011, Skadden planned to increase its summer associate class firm-wide from 78 in 2010 to 100 in 2011, and Milbank from 16 summer associates in New York in 2010 (down from 60 in 2009) back up to 50 for 2011. "The workload justifies it," Milbank hiring partner Jay Grushkin noted. "We're firing on all cylinders and want to get back to more of a normal intake level." White & Case hiring partner J. William Dantzler Jr. offered a more tempered assessment: "The economy is coming back slowly, and we're feeling better about our ability to absorb the people we deferred," he said. "It's not full speed ahead, but it's cautiously optimistic half speed ahead." Shearman hiring partner John Cannon III offered the following observation: "Obviously, the economy does not seem to have quite righted itself," making it difficult to predict if there will be an increase in demand. Given the way the market for associates is, there's always the possibility we could supplement a summer class with future hiring. Over-hiring creates greater problems than under-hiring." All told, according to the U.S. Bureau of Labor Statistics, while the U.S. economy lost a total of 54,000 jobs in August, the legal sector handed out 1,000 jobs, marking the second straight month of improved numbers for the legal industry.

The increased sense of optimism for the legal sector was perhaps best exemplified by the fact that by the end of the third quarter 2010, partners were seen by and large increasing hourly rates to pre-recession levels and and shying away from the alternative fee arrangements that had been in vogue for the previous two years. This phenomenon did not escape the attention of the United States Supreme Court itself, noting in its majority opinion in Perdue v. Kenny A. Click as rationale for rejecting an argument in a fee dispute that departures from hourly billing are becoming more common: "[I]f hourly billing becomes unusual, an alternative to the lodestar method [hours worked times billing rate] may have to be found. However, neither the respondents nor their amici contend that that day has arrived."

While the Supreme Court may have the last word in the Perdue case, our humble opinion at Hanover Legal is that the jury is still out on whether and to what extent the adjustments our major law firms implemented during the financial crisis in order to operate more efficiently and compete more effectively will take root as the economy continues to improve. We look forward to reassessing in our year end report.

Second Quarter 2010 Report

2010-07-09T12:21:44Z

While "tepid stability amidst continuing uncertainty" may best define the state of the legal market during the second quarter of 2010, stability of any sort has come as welcome relief from the historic tumult that characterized the brutal legal market of 2009.

As predicted, our law firms are now by and large leaner, meaner, and more competitive and also more focused on creating healthy, fair and diverse workplaces flexible enough to meet the needs of increasingly empowered personnel and clients alike. Layoffs are no longer the issue of the day and firms are taking advantage of the best buyer's market in years to plug holes in practice capacity and acquire rare talent. Moreover, firms are continuing to branch out into emerging markets recognized as necessary hedges to the traditional bread and butter major-market corporate work that has sustained BigLaw for decades.

Notwithstanding, courting and combining among transatlantic monoliths continues unabated. The Hogan Lovells union was still just on their honeymoon when Sonnenschein announced that it would be merging with Dentons. In the meantime, Proskauer continues to publicly date SJ Berwin while Mayer Brown and Simmons may be taking a break. We are all eminently aware of the difficulties experienced in the aftermath of other landscape altering unions such as Clifford Chance/Rogers & Wells and Dewey & LeBoeuf, not to mention the modern day Titanic that resulted from the union of Thelen/Brown Raysman, and one might think that this history would temper the pace of trips to the alter. Nonetheless, the allure of one stop global shopping apparently continues unabated.

In the meantime, iconic American law firms like Simpson Thacher, Sullivan & Cromwell, and Davis Polk show no signs of slowing down and also no intention of significantly altering their respective platforms. These firms, each consisting of "only" about 700 of the most talented, ethical and hard working lawyers on the planet, remain the true AmLaw Rolls Royces. Indeed, we would venture to suggest that it may be wise for the rest of the AmLaw 200 to aspire to the model of the aforementioned RRs rather than that of the merged monoliths. To many seasoned practitioners, the benefits of providing one stop shopping simply do not outweigh the risks associated with attempting to maneuver Queens Elizabeth on less than welcoming waterways. As such, it was not surprising to learn that over 100 partners had elected to leave Hogan Lovells in the first few weeks following news of the merger or that DLA Piper, K&L Gates and Reed Smith are setting new records on both the incoming and outgoing lateral partner fronts simultaneously.

We predict that the firms that will experience the best fortunes vis-a-vis the rest of the market as this period of uncertainty continues will be the conservatively managed, mid-sized name brand reliables, willing to take risks but in cautious and well tailored fashion. Simultaneously, we foresee the increasing appetite for autonomy, maneuverability and efficiency spurring the creation of more high powered boutiques across all practice areas. And as the business of law marches on, the valiant efforts of our attorney underclasses to achieve parity will become more intense as women and minority groups continue to compel firms to focus resources on eliminating barriers and leveling the playing field. A recently released survey of women partners indicating that they are disproportionately dissatisfied with compensation highlights one important front in this ongoing struggle.

In sum, we are optimistic about the third quarter, but caution that there is still no easy sailing on the legal market horizon.

First Quarter 2010 Report

2010-03-30T15:39:26Z

With 2009 -- the most tumltuous year in the history of major law firms since the Great Depression -- now a full quarter behind us, we are poised to assess the extent to which the myriad changes then implemented in the universe of BigLaw seem to have taken root, and prognosticate a bit as to what we are likely to see in the three quarters to come.

We begin this brief note by remembering Heller Ehrman, Thacher Proffitt, Thelen, Wolf Block and McKee Nelson as well as IP boutiques Morgan & Finnegan and Darby & Darby - all one-time venerable firms that saw their last days in this latest storm. But still, we are pleased to opine that by and large, the managers of our major firms did nothing short of remarkable work steering their respective ships through last year's tsunami, and moreover that it seems that we are pulling further and further away towards increasingly calm waters with every passing day in 2010.

In a nutshell, the 2009 financial reports generally came back significantly better than experts anticipated. Leading the pack as it traditionally does was Cravath, whose 2009 numbers were up across the board: gross revenues by 7% (to $569m), profits per equity partner (PEP) by 8% (to $2.7m), overall headcount by 8% (to 477 lawyers), and number of equity partners by 2 (to 92)! (To put these numbers in some wider perspective, though, Cravath's 2009 improvements come after a depressed 2008, when its gross revenue declined by 13% and its PEP plummetted by 24%, but also off all-time highs reached in 2007, revenue then peaking at $610.5m and PEP at $3.3m.) Weil Gotshal also saw its 2009 gross revenue increase (0.18% to $1.233m), thanks to a blockbuster year for its bankruptcy and restructuring practice (which firm executive partner Barry Wolf noted amounts to only "100 lawyers out of 1250"). Cahill Gordon proudly reported increases in gross revenue and profits as well, its gross revenue climbing over 9% (to $269.5m), revenue per lawyer about 6% (to $987,000); and PEP 19% (to $2.5m)! "Improvements in the capital markets starting around May of last year led to more activity on our corporate side," co-administrative partner Jonathan Schaffzin modestly summarized. "We were pleased with how the year ended." Jenner & Block, Kirkland & Ellis, Davis Polk, Sullivan & Cromwell, Cleary, Gibson Dunn, Hughes Hubbard and Bryan Cave were also reported to have enjoyed increases in both gross revenue and PEP from 2008 levels.

More representative of the tsunami of 2009 however were the firms reporting either gross revenue drops but PEP jumps as a result of strident restructuring measures, or declines in both categories. Milbank, for example, whose 2009 revenue declined by 3% (to $601.5m), number of lawyers by 8% and the firm's partnership by 3.5%, saw its PEP increase by 5% (to $2.23m) and its revenue per lawyer by 5% (to $1.13m). Similarly, while Fried Frank reported a decline in revenue of 13%, its PEP and revenue per lawyer figures increased by 6% each (to $1.3m and $906,000 respectively), primarily as a result of the firm's decision to cut its attorney workforce generally by 18% (to 469 lawyers firmwide) and its equity partnership by 14%. Firm chairman Valerie Ford Jacob summed up the year's results with great optimism as follows: "It is the firm's third most profitable year and we are on the right trajectory." And while Dewey & LeBoeuf saw its gross revenue in 2009 fall by 11.3% (to $913.876m), its PEP in 2009 actually rose 3.4% (to $1.6m, with lawyer headcount falling from 1268 in 2008 to 1054 in 2009 -- among those being 20 fewer equity partners). Other firms reporting decreases in revenue but increases in PEP were Paul Weiss, Sidley, Paul Hastings, and Cadwalader.

Howrey was among those firms whose 2009 numbers were down across the board, its gross revenue declining 16.3% (to $480m), revenue per lawyer 19.2% (to $702,782), and profits per partner 34.9% (to $846,053). "It was a tough year," said Howrey chairman Robert Ruyak. "A lot of things changed, and we've had to make some changes to account for that." For example, the firm paid nonequity partners $20 million less by cutting bonuses, and required each department to cut expense budgets by 5%. Ruyak also attributed the steep revenue decline in part to tardy client payments. "By December, we were behind by about a month," he said. DLA Piper's U.S. operations reported that in 2009 gross revenue declined by almost 14% (to just over a billion dollars), while revenue per lawyer and PEP fell by only about 5% primarily as a result of attorney layoffs (the headcount at DLA Piper U.S. declined by 89 associates (11.6%), 24 equity partners (10.1%), and 16 non-equity partners (4.3%), for a total loss of 129 lawyers (9.3%)). Nonetheless, firm Chairman Frank Burch declared: "We are bullish on 2010 based on the strong position of the firm as we enter the economic recovery and expect to continue making investments where we believe there is potential for growth. In short, we are very confident that 2010 will be a solid year for the firm." White & Case's 2009 revenue fell by 11% (to $1.3 billion compared with $1.46 billion in 2008), while its PEP, as a result of massive firmwide restructuring across the associate and partner ranks, remained virtually unchanged (at $1.595m). Debevoise reported that its gross revenue dropped 12% (to $667.9m) and its PEP 16% (to $1.87m). "Frankly we did see some of the slowdown this year," acknowledged Martin Frederic Evans, Debevoise's presiding partner. Debevoise's numbers must be observed through a different lens, however, as -- in keeping with its reputation for stability during downturns -- it did not subject itself to significant restructuring to compensate for declining PEP. Similarly, at Quinn Emanuel, PEP declined 6% (still exceeding the $3 million mark!), while revenue dropped 5% (to $420m) -- these numbers achieved without resorting to layoffs. Other firms which reported drops in both revenue and profits include Dickstein, O'Melveny, Mayer Brown, Sonnenschein and Dechert.

Beyond the financials, major firms remain focused on many fundamental issues that came to the forefront during the storm such as alternative fee structures, work-life balance, flex/part-time arrangements, diversity hiring and promotions, and cost-cutting measures such as staffing matters more thinly and reducing summer program and holiday party expenses. The extent to which changes for the better in these areas will take root still remains to seen but by and large, firms are clearly more healthy, efficient and competitive now than before the crisis.

In sum, the essence of our view of the condition and direction of BigLaw as of April 1, 2010 is: Stabilized and looking positive but with significant uncertainty.

A 2009 BigLaw Retrospective

2010-01-05T00:45:00Z

It would hardly be an overstatement to say that the 2008 debacle of Wall Street hit the world of BigLaw like a tsunami. In October of that year, Thelen's management -- which was already on its last legs after its ill-fated acquisition of Brown Raysman only one year earlier -- began parcelling out entire sections of their firm. At the same time Heller Ehrman, whose partners had voted to dissolve on September 26, was closing its cafeterias and starting to remove coffee machines from its numerous offices nationwide. Like falling dominoes, one firm after another began throwing as much baggage overboard as possible in seeming desperation. By the end of the month, Katten had laid off 21 attorneys, Sonnenschein 24 and Clifford Chance 20. Even firm captains were jumping ship. Thacher Proffitt's Vice Chairman lateralled to Greenberg Traurig and Thelen's Chairman was reported to be in talks to join Howrey. Firms across the board were scaling back and in some cases eliminating their summer programs outright, forcing law students everywhere to consider debt forgiveness programs and alternative careers even before graduation.

Barack Obama's historic election in November may have provided hope but clearly not enough to turn the tide. McKee Nelson -- which had made its fortune on the back of the structured finance boom -- lost seven partners to London based Ashurst and then started shedding non-revenue producers en masse presaging its own soon to be demise. Cadwalader, Shearman & Sterling, Brown Rudick, Squire Sanders, Mayer Brown, Dechert, Orrick and White & Case announced associate layoffs in record numbers. By the end of November 2008, White & Case, which had just laid off at 70 associates, declared that instead of spending $750,000 on its holiday bash as it had in the boom year of 2007, it would limit the budget of its 2008 bash to $250,000 -- a move which not surprisingly generated significant backlash. Cadwalder partners overthrew their Chairman after declaring his strategy of plunging his firm head first and deep down into the structured finance market an abject failure given the firm's tanking revenue and profits in the wake of the market's sudden collapse. Alston & Bird announced that it was offering its partners early retirement, Cravath and Simpson Thacher led the league in slicing year end bonuses to fractions of their previous year levels, and Thelen's partners ended any question about its viability voting to dissolve before the end of the year.

In the meantime, White & Case declared that it was undergoing a major reorganization, while DLA, Reed Smith and Proskauer announced dozens of layoffs each. Cleary, Dewey, Clifford Chance, Sullivan & Cromwell, Allen & Overy and Milbank all followed Cravath's lead in slashing bonuses, and as if to add insult to injury, Marc Dreier, the sole equity partner of his 250 New York based firm aptly named Dreier LLP, became instantly infamous upon his arrest as an imposter in Canada, leading almost immediately to the dissolution of his firm as well and 250 more lawyers pleading to be rescued by any still floating BigLaw ship. (Mr. Dreier himself would eventually be sentenced to twenty years incarceration.) Soon thereafter, Thacher Proffitt's merger talks with King & Spalding collapsed and by the end of 2008, the 160 year old Thacher -- a firm which had survived the bombing of its World Trade Center home at the hands of terrorists on September 11, 2001 -- would now come to its demise. To those BigLaw players not directly impacted, Bernie Madoff''s multi-billion dollar ponzi scheme seemed a mere drop in the bucket. With all this tumult already in the books, 2009 was upon us and the hatchet was in full force.

During the first days of 2009, a major survey reported that a full two-thirds of major law firm partners were admitting job security fears and seriously questioning the BigLaw business model, Cravath's presiding partner Evan Chesler leading this charge by arguing that "the billable hour makes no sense." Linklaters confirmed their bonus cuts, Morgan Lewis switched from seniority-based to merit-based bonuses and Orrick froze associate salaries at 2008 levels. Major firm managing partners reported record low confidence in the economy as they braced themselves for waves of bankruptcy filings. Clifford Chance, still the reigning global champion of the firm wide revenue charts, demanded that its partners contribute 40 million pounds to serve as a life preserver to the firm, Cadwalader claimed a 30 percent plunge in profits and a 14 percent decrease in revenue, US intellectual property boutique Morgan & Finnegan declared that it was on the brink of dissolution after 12 of its 17 partners jumped ship, and Akin Gump admitted that it had let 17 percent of its partners go in order to become more streamlined. January 2009 culminated with Fulbright and Haynes & Boone also announcing salary freezes and an additional 270, 200, 113 and 51 additional layoffs at Linklaters, Morrison & Foerster, Wilson Soncini and Cooley respectively. In total, it was estimated that in January 2009 alone the US legal sector suffered 1300 job losses. To make matters even worse, BigLaw's ethical image was further compromised as a fourth Milberg Weiss partner reported to prison after pleading guilty to felony kickback charges, his former firm having barely survived its 2006 federal criminal indictment by agreeing to pay the United States $75 million. Seizing the opportunity, BigLaw clients exercised their leverage by insisting that aside from reduced rates and alternative billing arrangements, diversity and work-life balance become the new BigLaw holy grails.

By February, Clifford Chance's partner restructuring had become public information, McDermott prepared to lay off 149 employees throughout its US offices, Freshfields and Morrison & Foerster froze associate pay, and Latham annouced that its profits had sunk by 21 percent and revenue was down $100 million. The second Thursday of February saw 800 job cuts, including 243 associates and staff at Holland & Knight, 180 at DLA Piper, 144 at Bryan Cave, 74 at Goodwin Proctor, 61 at Cozen O'Connor, 53 at Epstein, Becker & Green and 19 more at Dechert -- a grim day by anyone's measure that may have saved these firms an estimated $100 million but earned the moniker "Black Thursday." Cravath shortly thereafter announced a 24 percent drop in profits and Allen & Overy confirmed that it had succeeded in cutting its operating costs globally by 9 percent. The bitter pill capping off this dismal month came in the form of Latham's announcement on the 27th that it was cutting 440 jobs firm-wide.

The hatchet's momentum carried it unrelentlessly into the first week of March when Dewey, Clifford Chance, Shearman & Sterling and O'Melveny implemented a total of over 530 attorney and staff cuts, only to be followed the next three weeks by a whopping 400 more layoffs at White & Case, 249 at Sidley Austin, 155 at Pillsbury, 122 at King & Spalding, 79 at Blank Rome, and hundreds more at Bingham, Arent Fox, Wiggin & Dana. K&L Gates, Chadbourne, Venable, Paul Hastings, Katten, Jenner & Block, Gibson Dunn, Skadden and Baker & McKenzie combined. In the event anyone hoped otherwise, it was made crystal clear that no longer would even BigLaw equity partnership be a safe haven, Dewey & LeBoeuf leading the battle on this front by slicing the pay of 66 of its partners -- some by as much as 80 percent. Also that month, Morgan & Finnegan filed for bankruptcy, and the venerable Philadelphia firm of Wolf Block voted to close its doors as well.

Nor did April bring any relief from all the BigLaw bludgeoning, commencing with Stroock's decision to cut associate and staff headcount by 10 percent, Mayer Brown laying off 45 more attorneys, and Baker & McKenzie, Hogan & Hartson, Lovells, Alston & Bird and Manatt cutting 124, 93, 79, 52 and 25 jobs respectively with scores more let go at Kirkland & Ellis, Clifford Chance, Linklaters and Schnader Harrison. That same month, Chadboune, Squire Sanders and Nixon Peabody all lowered associate salaries, and our newest crop of lawyers-to-be were notified by such major league players as Ropes & Gray, Wilmer, Goodwin Proctor, Linklaters, Buchanan Ingersoll, Dechert and Mayer Brown that their start dates would be deffered. Skadden, innovative as usual, offered their incoming associates $80,000 to delay their start dates by a year if they succeeded in finding suitable public interest work, and further incentivised already employed associates to take a voluntary "sabbatical" by offering to supplement their leaves with one third of their annual compensation Thankfully, some good was finally starting to emerge from all the BigLaw blood-letting as well. Flex-time programs such as the ones instituted by London based Freshfields and Norton Rose were receiving resounding praise and support among their American counterparts, and more efficient and economical firms were competing effectively for plum assignments by taking advantage of the BigLaw client mandate for significantly lower rates.

But to those legal professionals deemed dispensible, May would prove no less harsh. Allen & Overy and DLA kicked off the month by implementing 450 and 124 staff cuts respectively, while Fish & Richardson laid off 129 (35 lawyers, 85 staff), (Milbank 89 (49 associates and 40 staff), Fenwick & West 22 (16 associates, 7 staff), and Day Pitney 20 (all attorneys). Allen & Overy, MoFo and Pillsbury jumped on the associate deferral bandwagon, and Stroock took the unprecendented step of offering $75,000 to members of its incoming class to reject their offers outright and go away permanently. Dechert followed Dewey on the more senior front by cutting the compensation of 36 of their partners as well, and by this time a full two-thirds of all surveyed BigLaw revenue generators expected their 2009 compensation to decrease from 2008 levels as BigLaw clients had succeeded in lowering their outside counsel costs by 7 percent and the economic forecast remained grim. Further, Reed Smith, DLA, and Kirkpatrick followed Chadbourne, Squire Sanders and Nixon Peabody in reducing US associate salaries. But while partner promotions among the top firms were down across the board, Allen & Overy gave us some positive news in announcing that of the attorneys it would promote that year, 40 percent would be women. Moreover, word of alternative billing arrangements with BigLaw clients to supplement or at times entirely replace the billable hour was becoming routine.

The summer months saw more of a mix of cuts, innovations and embarrassments. Weil Gotshal, McDermott, Kirkland & Ellis and Baker Botts were among the firms to shed more attorneys and staff. Buchanan Ingersoll, Blank Rome, Alston & Bird, Akerman Senterfitt and Troutman Sanders all finally succumbed to the trend of associate salary reductions, and Pillsbury joined Howrey and Orrick in cracking their lockstep salary model for associates by tying compensation to merit and productivity. Clifford Chance admitted that profits per partner had decreased by 37 percent, while BigLaw partners en masse attempted to push back retirement in order to pad their savings accounts. Hogan postponed the start date for students finishing law school in 2010 to sometime in 2011, and Orrick pushed the start of its 2009 summer associate class back to 2012. The number of students invited to participate in summer programs was also reduced at virtually every BigLaw firm -- Skadden cutting theirs in half -- as was the number of summer associates extended permanent offers. Indeed, no longer were the days of lavish summer associate parties and virtually guaranteed permanent offers for all summer associates. Leading the pack in this regard was Morgan Lewis, which extended permanent offers to only 30 percent of its 2009 summer associates and further expressed an intent to kill its 2010 summer program in its entirety. Meanwhile, Pepper Hamilton extended permanent offers to only half of their 2009 summer associates, Drinker Biddle to two-thirds, and Paul Hastings to three out of four. And by the end of the summer, the firm of McKee Nelson had joined fellow financial crisis victims Thelen, Thacher, Dreier, Morgan & Finnegan, and Wolf Block in the annals of history, with most of McKee Nelson's survivng lawyers being acquired by Bingham McCutcheon.

As for 2009 summer innnovations, Mayer Brown offered its associates a guarantee of one year of employment in exchange for a $100,000 pay cut, Cadwalader followed Skadden's lead by offering 34 real estate and structured finance associates unrestricted one year sabbaticals at one-third pay in lieu of layoffs, and Weil Gotshal asked its incoming associates to further defer their start dates from January 2011 to January 2012 in exchange for $75,000 salary plus health benefits provided they obtain a firm-approved public service job. And while firms were reporting that recovering fees from clients was becoming more of a struggle than they had ever before experienced, Indian outsourcing firms aggressively pitched and found many receptive clients for its low cost legal outsourcing services.

September 2009 greeted us with some more good news on the diversity front: Simpson Thacher, for the first time in their 125 year history, elected two women to their Executive Committee. Layoffs continued to be announced in significant numbers though and it was found that the total number of lawyers who had lost their jobs at the 250 largest United States based firms between October 2008 and September 2009 had exceeded five thousand. Helpless career counselors at even our most prestigious law schools were seeing stressed out students in record numbers.

By October. the salient issues in the quickly adapting legal market had crystallized: Microsoft spoke for in-house legal departments everywhere indicating that it would be cutting outside legal costs by at least 15 percent; BigLaw layoffs continued with Wilmer cutting 57 more jobs; Bingham and Reed Smith decided that they would also be reforming their strict associate lockstep system in favor of a merit-based system; King & Spalding and MoFo joined many of their BigLaw counterparts in reducing associate salaries; McDermott, Baker & Hostetler and Schulte were observed taking clients to court to recoup unpaid bills in what appeared to be yet another new trend among major firms hard pressed for revenue; the struggle for work-life balance continued while Quinn Emanuel associates endured a blow from a partner who ordered that unless they were dead they should be checking their Blackberries regularly; Weil's bankruptcy fees on the Lehman case alone approached $125 million; the debate on the efficacy of legal outsourcing continued to heat up; Sullivan & Cromwell promoted five associates -- four of whom women -- to partner; DLA announced plans to open an office in SaoPaulo and compete there with American rivals Proskauer, Mayer Brown, Gibson Dunn and Simpson Thacher, evidencing optimism that Latin America and particularly Brazil would continue to be a profitable emerging market; and on the Asian front, Mayer Brown asserted that their 2007 merger with 260 lawyer Hong Kong based Johnson, Stokes & Master and concurrent leap into the Chinese legal market had turned out to be a great success.

As November set in and 2009 finally began to wind down, Linklaters reported a 10 percent revenue drop for the first half of 2009 but nonetheless overtook Clifford Chance as the world's top revenue producing law firm, Covington froze associate salaries outside of New York, Seyfarth implemented their own associate salary cuts and Reed Smith took matters two steps further in not only cutting salaries for all 51 associates set to start in their US offices in January 2010 by 20 percent, but also by lowering their billing rates by exactly the same percentage and asking their roughly 300 non-equity partners to contribute roughly 15 percent of their salaries in order to retain their partner status. Goodwin Proctor and Drinker Biddle announced dozens more job cuts, and Drinker Biddle, Sutherland Asbill, Kelley Drye and Wilmer became the latest firms to abandon associate lockstep and implement a merit based promotion system, Wilmer however simultaneously expressing its own commitment to diversity by indicating that of the nine counsel it was promoting to partner, five were women. On another desperately needed bright note, Cravath once again was the first major law firm to announce associate bonuses, ranging from $7500 for second year associates to $30,000 for their most senior associates but nothing for first years -- a far cry from the peak of the boom years when even rookies at the major New York firms all received $40,000 bonuses and only the sky was the limit at the senior end of the salaried spectrum. Yet noone even whispered a complaint as these diminished bonuses were markedly better than the zeros many BigLaw attorneys were reasonably anticipating. Sadly, one particularly misguided BigLaw associate at Ropes & Gray forfeited not only his year end bonus but his entire legal career upon his arrest and indictment for insider trading.

By the end of the year there was no doubt that 2009 had easily set the dubious standard for BigLaw attorney and staff layoffs, with an estimated 15000 jobs cut at the largest 150 law firms alone -- an average of approximately 100 each. But arguably the biggest single BigLaw news story of 2009 came at the end of the year as well: Lovells and Hogan & Hartson celebrated their agreement to tie the knot on what would be the largest transantlantic merger of law firms since Chicago based Mayer Brown hooked up with London based Rowe & Maw in 2002. Hogan Lovells would thus catapult into the top ten firms globally in terms of number of attorneys and revenue, and if their strategy proved correct would result in a distinct competitive advantage in facing the myriad challenges that the ever-increasely interconnected world was bound to face in 2010 and for many more years to come.

And so, 2009 finally came to an end. While major law firm managers have expressed confidence that 2010 promises to be not quite as merciless as 2009, from our vantage point at Hanover Legal it is simply too early to tell. It does feel however to us that the tempest has at least started to subside, and there are thankfully a few positive indicators. At the very least, we assure you that we will remain on board with you in 2010 no matter how turbulent or calm the seas of BigLaw may turn.

So congratulations to all for surviving this bear of a year, and please accept our sincere wishes for a happier, healthier and kinder 2010!

Internal Oversight, the SEC and BigLaw

2009-11-16T15:39:29Z

As the US Army engages in introspection with respect to its internal oversight in the wake of the Fort Hood massacre and the SEC does the same after the Madoff disaster, the government is clearly announcing that it will require no less of private sector supervisors than it will of itself. In a recent example, the SEC is compelling the former general counsel and CEO of San Francisco investment bank Merriman Curhan Ford to pay for its failure to properly supervise David "Scott" Cacchione, who pleaded guilty to fraud in March for emailing customer accounts to William "Boots" Del Biaggio III in connection with a scheme to scam banks out of $50 million worth of loans: "When you find major frauds at a broker dealer like this, you're going to naturally look at 'Where is the supervision?'" said Michael Dicke, the enforcement director of the San Francisco office.

Needless to say, the plates of BigLaw managers are currently overflowing with challenges as they struggle to keep operations viable in the midst of the most tumultuous economic climate in decades. Indeed, those managers deserve great admiration and respect for implementing painful cost-cutting measures and alternative billing and compensation structures to make their operations leaner, meaner and more competitive. This acknowledgement notwithstanding, the issue of internal oversight reform should not be fed to Fido as criminal wrongdoing at our firms is by no means diminishing and it will not be long until the SEC attempts to penalize our law firm executives when their underlings get mixed up in fraud under their roofs.

One simple suggestion that we have consistently offered our BigLaw clients is that they promote more former prosecutors who have already joined their respective folds to positions of management and oversight within their firms and that they hire one or two on a full-time basis with the primary responsibility to ensure that the line between right and wrong is not being crossed, in much the same way that financial institutions employ full-time compliance officers. While the implemention of such measures will never completely eradicate fraud even at our most respected firms, they will certainly minimize the scourge of BigLaw criminality as well as the possibility that the SEC will be able to attribute responsibility for transgressions to law firm captains already working overtime to keep our ships steady and afloat.

With this note, we wish you all a happy, festive and well deserved Thanksgiving holiday!

Labor Day Greetings and Kudos

2009-09-09T16:26:11Z

By and large, BigLaw should be proud of the way it has reacted to the near collapse of our financial system as we appear to be teeter tottering away from the brink at least for the time being. To be sure, while we are at long last witnessing deals trickle back in and real transactions that require our servicing, bankruptcy and restructuring practices remain our life preservers. But once sacrosanct principles like no publicly disclosed layoffs have been left behind in the rubble along with associate salary and bonus wars. Also, alternative fee arrangements to the billable hour are becoming commonplace; skepticism of our financial sector clients and avoidance of the toxicity that has come to define it appears enhanced; partner level lateral market due diligence is virtually destigmatized; and practice area as well as personnel diversity and work-life balance and more humane work environments for all our attorneys and staff have emerged as the new holy grails. In short, our major law firms are now leaner, meaner, healthier and more competitive.

It of course remains to be seen whether we are simply in the eye of the storm or it is really behind us. Either way, no matter how long the current lull lasts, we urge that everyone keep in mind that storms are simply part of the market environment and the arrival of the next tempest is just a matter of time. What is key though is to avoid the manic swings that have defined our behavior over the last couple of decades by allowing the aforementioned positive changes to take root and by steering away from the notion that AmLaw chart ascent is in and of itself a laudable goal. That way, we will all be better situated to deal with the next jolt whenever it greets us.

Hanover Legal remains eager to do its part in making BigLaw a happier place, and we look forward to continuing to work with all of you as we welcome in this new work year!

Work-Life Balance and the Tour de France

2009-07-29T19:17:42Z

We may be a millenium from the day that BigLaw is healthy enough to enable its attorneys to train sufficiently for a spot in the real Tour de France. But we certainly took a spin in the right direction when three members of Hogan & Hartson, namely Warren Gorrell, 55 (Hogan's chairman), Stephen Immelt, 57 (partner in Hogan's Baltimore office) and Dennis Tracey, 53 (managing partner of Hogan's U.S. offices) hammered unofficially but with ample BigLaw fanfare through one particularly beautiful stage of the celebrated bike race, culminating atop a pristine peak amidst the Alps.

Kudos are in order. What is truly newsworthy however is that Messrs. Gorrell, Immelt and Tracey's taste of physical and mental well being in the altitude of Alsace is newsworthy at all. Sadly, the fact of life in today's Tour de BigLaw is that attorneys must pay an inordinate price in order to summit its peaks: control over their lives and thus their mental and physical equilibrium. And only once they have so summited (i.e. attained a sufficient level of portable business), will they have the autonomy required to train regularly enough to enable them to peddle a bike up a mountain.

It is undeniable that BigLaw is currently making progress towards becoming leaner and meaner. Gone at least for the time being are ever increasing salaries, bonuses and billing rates, Fifth Avenue shopping sprees for summer "associates," and the illusion that the efficiency-killing billable hour is the sole viable source of firm revenue. It is equally clear however that these changes for the better have been dictated to BigLaw by the harsh economic realities of the day, where cash flow can no longer be assumed and employees are keenly aware that they are fortunate to be taking home bi-weekly paychecks. As such, we at Hanover Legal cannot be optimistic that this challenging economic climate will also translate to better working conditions for all those BigLaw attorneys whose livelihoods depend on their being available to service the needs of the omnipresent and omnipotent BigLaw client, be it Wednesday 3 a.m., Sunday afternoon or the first night of Hanukkah.

This harsh reality notwithstanding, our advice to all BigLaw attorneys is to go out and buy that bike anyway, disappear for at least an hour every day, and contemplate your life while working your muscles at the same time. And if the price to pay is the wrath of the tyrant-client, at least a good argument can be made that it's not too high as long as what you're getting in exchange is the return of your sanity.

Our hope here is that Messrs. Gorrell, Immelt and Tracey are leading by example, and that all attorneys, not only throughout the venerable halls of H&H but at every other law firm, will follow their path. Whether the goal is a stage of the Tour or a lap around Central Park, chairmen, partners and associates alike should understand that a healthier core of attorneys mentally and physically up and down the ranks inures to the benefit of all participants in the never ending race through the hills and valleys of BigLaw.

Turning the Corner on the Big Roller Coaster Ride of BigLaw

2009-05-07T18:12:03Z

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.

The Record 2509 2008 U.S. Partner Laterals

2009-02-23T19:28:28Z

In the midst of these current turbulent market waters, a total of 2509 partners at AmLaw 100 and 200 firms managed to successfully jump ship in 2008. The biggest winners were K&L Gates (185 partner acquisitions), Reed Smith (74), DLA Piper (58), Jones Day (57) and Alston & Bird (53), while the biggest losers were Akin Gump (59 partner defections), Heller Ehrman (47 pre-dissolution), Thelen (46 pre-dissolution), Mayer Brown (45), and, K&L Gates (again) (40).

The two questions logically raised by these statistics are these: Why are today's BigLaw partners now jumping in record numbers, and how can one explain the fact that the biggest lateral partner winner in 2008 simultaneously ranked among the top five lateral losers? (We note for the record here that Reed Smith, DLA Piper and Alston & Bird ranked among the top ten lateral partner losers in 2008 as well with 38, 37 and 22 defections respectively.)

Simply put, partners today are jumping like grasshoppers primarily for two reasons: first, more BigLaw firms feel seriously unstable to partners than ever before, which means that finding a more stable ship is no longer a matter of preference but rather one of survival; and second, lateral partner movement is becoming increasingly destigmatized to the point that partners who make a good lateral move or two during the course of their careers are generally as admired within and without the legal community as any other business person is and should be for trading up wisely.

As their impressive numbers of lateral partner acquisitions as well as defections indicate, K&L Gates, Reed Smith, DLA Piper and Alston & Bird are clearly firms that have adjusted to the reality of lateral partner movement being as professionally palatable as Manny Ramirez hopping to the other coast to play for Joe Torre. This by no means however implies that career exploration at the BigLaw partner level is greeted with sympathy and understanding at all of our otherwise finest firms. Quite the contrary is true, in fact. Any partner-level legal recruiter worth his or her salt met many BigLaw partners during the course of 2008's record slashing year in corners of greasy spoon diners at the potential defectors' requests to allay fears of being seen talking to one of us. And while confidentiality and discretion remain essential components of good work in the field of attorney career consulting at all times and at all levels, a reasonable trepidation of being excommunicated from any firm's inner circles merely for having committed the sin of examining career alternatives with a respected BigLaw market expert is as good a reason to call Hanover Legal as any we can suggest.

In sum, every major player in the market of BigUSLaw recognizes that in this cataclysmic economic environment great opportunities abound for acquiring talent and increasing revenue, and as long as this shakedown continues, partners will continue to explore and firms will continue to acquire with increasing temerity. And as in any other downturn, those who trade well while the storm rages will profit handsomely once the winds subside, and those who don't will have to settle for the same old dysfunctionality in the same old outfit, just hoping that when the next good hurricane shakes the trees, they'll be ready, willing and able to look around and leap if the right opportunity presents itself.

Where Were the Lawyers?

2009-02-02T20:43:05Z

While our economy crumbles, the American public observes like lemmings as the Wall Street criminals who executed the greatest financial fraud in history add insult to our collective injury by continuing to openly steal billions. Only now, instead of conning the world into believing that their excrement is some sort of sophisticated securities derivative too complex for non-Streeters to comprehend, they are referring to their cash grab as "bonuses." Relatively insignificant sociopaths like Bernie Madoff can only aspire to sit at the desks of these miscreants whose greed may still prove monumental enough to bring us all to ruin. We at Hanover Legal are certainly not the first to ask whether and when members of our legal community should have recognized and tried to put a stop to the epic Wall Street slight of hand. However, we viewed our function as limited to servicing the financiers to whatever extent we were paid to do so, and as long as Moody's and S&P were signing off on these transactions with their highest ratings, who were we to raise an eyebrow?

But to what extent can attorneys credibly claim ignorance when the perpetrator of massive fraud is their own attorney colleague and full-time employer? Which brings us to the alleged crimes of Marc Dreier, formerly the sole equity and managing partner of Dreier LLP, the now defunct New York law firm that only two months ago employed two hundred and fifty lawyers. To put the question another way, how is it possible that another sociopath this time with a law degree was able to enlist an army of attorneys while perpetrating millions of dollars of fraud under the guise of the practice of law, all the while maintaining an excessively lavish lifestyle even by successful major law firm partner standards? Can it be that Mr. Dreier was such a skillful con artist that he was able to fool every one of the lawyers on his payroll? Does it not stand to reason that at least one of these attorneys had an inkling that he was not your typical hard working litigator?

As of today, only about 100 of Mr. Dreier's former lawyer-employees have been able to secure work at other firms. Given the overwhelming glut of attorneys on the market, there is little hope that any of his remaining attorney-colleagues will find new major law firm employment in the near future. It is our hope that some of these still jobless lawyers will take this crisis as an opportunity to engage in a field other than the practice of law, and that this time around they will be circumspect and fortunate enough to lend their talents and energies to good and honest enterprises.

We at Hanover Legal also see the current upheaval as an opportunity to assist in the substantial major law firm restructurings now underway at virtually all BigLaw firms, encouraging the implementation of potent internal oversight committees consisting ideally of former prosecutors fresh out of the elite offices of the United States Department of Justice. Indeed, it is our prediction that given the certain upcoming onslaught of white collar criminal prosecutions of indefinite breadth and duration and the ever decreasing tolerance for criminal behavior at our major firms, those with the strongest white collar criminal groups and internal oversight committees will be best positioned to thrive in our post Wall Street world.

Best Wishes for an Ethical 2009

2009-01-07T16:08:34Z

As we at Hanover Legal enter this new year and look back on BigLaw in 2008, we are reminded of the bibical tale of Lot's wife glancing towards Sodom and turning to salt. So in the hope of avoiding a similar fate, we'll keep our retrospective analysis brief.

2008 saw four AmLaw 200 firms dissolve, namely Heller, Thelen, Thacher Proffitt and Dreier. Of the remaining 196 firms, the vast majority have laid off significant numbers of attorneys and staff in order to minimize expeditures and to stay afloat in the midst of the current economic and political tsunamis (see "The Layoff List" at http://www.law.com/jsp/tal/PubArticleTAL.jsp?id=1202425647706#bal). In the worst BigLaw cases, name partners have been accused and convicted of criminal behavior (see "Milberg, Dreier and the Shanda of it All" at http://hanoverlegal.com/2008/12/milberg-dreier-and-the-shanda.html). In other cases, firms were severely mismanaged, motivated by unattainable goals reminscent of the irrational exuberance that defined the dot-com era (see "Big SF Law: Heller, Thelen -- Next?" at http://hanoverlegal.com/blog/).

More generally, in their quests to summit the AmLaw revenue and profitability charts, BigLaw firms have competed for offers to service the financiers who invented and sold bogus financial instruments to unwitting investors worldwide, worked their associates to squeeze as many billable hours from them as possible, and perpetuated underclasses of lawyers while facilitating sweatshop-like conditions for "temporary attorneys" engaged in mind-numbing document reviews. Cadwalader may have begun to soften its image by thinking twice before threatening to excommunicate partners with under $5 million in business, but Milberg remains as brash as ever in proclaiming that they have signed up Professor Arthur Miller "to head up an appellate practice" and as many vulnerable victims as reachable of the greatest alleged Ponzi scheme in history to restuff their coffers (see "Milberg Rides Madoff" at http://www.crainsnewyork.com/apps/pbcs.dll/article?AID=/20090104/FREE/901039944).

We at Hanover Legal are heartened that some prominent practitioners like Cravath's Evan Chesler are striving to revamp the billable hour formula which simultaneously disincentivizes efficient production for clients and humane working conditions for attorneys (see "Cravath's Chesler: Time to Kill the Billable Hour" at http://amlawdaily.typepad.com/amlawdaily/2009/01/cravaths-chesler-time-to-kill-the-billable-hour.html), and predict that the firms that will thrive in 2009 are those that will veer away from the pursuit of AmLaw chart ascent for its own sake, strengthen their internal oversight, and adopt such policies motivated by concerns for health, balance and efficiency with respect to their own attorneys as well as their clients. We look forward to working with all of BigLaw in their efforts to break ground towards the achievement of such truly admirable goals in 2009, and wish the entire legal community a good and prosperous new year!

Milberg, Dreier, and the Shanda of It All

2008-12-09T17:33:30Z

As Marc Dreier, the sole equity partner of Dreier LLP, faces federal charges of transferring $113 million in bogus securities to two hedge funds, an impersonation charge filed against him in Toronto as well as a lawsuit filed by the Securities and Exchange Commission to recover the $113 million, the firm he created, namely Dreier LLP, sits in receivership pursuant to the order of United States District Court Judge for the Southern District of New York Miriam Goldman Cedarbaum and faces an additional civil suit filed in the Southern District by Wachovia Bank alleging that the firm and Dreier himself defaulted on a $9 million revolving credit note made in connection with a $14.5 million credit agreement and a term note in the amount of $5.5 million.

As for the 238 attorneys whom until recently comprised Dreier LLP, only those with either substantial portable business or experience in counter-cyclical areas such as bankruptcy, white collar criminal defense and employment law will find refuge on other legal ships still riding out this storm. Our advice to Dreier LLP's remaining associates and "partners" (none of whom shared with Mr. Dreier in either the firm's equity or management) is to hang a shingle or better yet, explore opportunities in fields entirely apart from the practice of law which, even before the current economic crisis, was already glutted to the point of creating an entire industry of temporary attorneys whose sole occupation is to review mind-numbing documents for paltry wages in sweatshop-like conditions often under the auspices of the world's most reputable and prestigious firms.

We at Hanover Legal would like to offer our special condolences to those attorneys who were so ill-fated as to land at Dreier LLP in the fog of the Milberg indictment two years ago, memorialized in part in a Wall Street Journal blog posted on August 18, 2006 as follows: "The bleeding continues at Milberg Weiss Bershad & Shulman. This week, four partners -- Bruce Bernstein, Brian Kerr, Dan Scotti and Lee Weiss -- announced they were leaving. The lawyers are heading to New York's Dreier LLP which represents defendants and plaintiffs in securities litigation. The news was confirmed by Marc Dreier, the firm's managing partner, who says the Milberg transplants will create a class-action group for their new firm. 'Primarily, they will look for opportunities to do plaintiffs work,' he says. The four attorneys did not return calls for comment. Since its indictment in May, Milberg has lost more than a dozen partners out of a previous total of 46. Melvyn Weiss did not return a call for comment, and a firm spokeswoman did not offer a comment today."

It is sad to think that the Milberg and Dreier embarrassments may only scratch the surface of the securities related fraud and other improprieties involving members of the New York legal community over the last few years, each playing their small but ignoble parts in the fiascos of the New York, American and global economies.