"Stability" And Short Memories

I was talking with a law student recently and they indicated that what they really wanted in their law career was "stability."  Consequently, their plan was that they were only going to consider working at the largest of law firms because the larger law firms "never go out of business".   (Obviously, this was a 1L because you can see that they had no idea of the actual supply/demand of the hiring market and that they would be lucky to get any job whatsoever.)

When I looked skeptical, they said "Seriously, I bet you can't name one large law firm that has gone out of business in the last 10 years."  I responded instantly with "Brobeck."  They said "What?  I never heard of that firm!" (I think that they thought I was misleading them.)  I replied "It was a 900-person firm that went down in the dot com crash."  "Well OK," they said, "but I guess you can't name three!"  To which I replied "Jenkins, Altheimer, Testa, Thelen - and there are a bunch more."

I can understand where the law student was coming from - after the real estate crash and the associate layoffs, I can see how the desire for "stability" has replaced in many instances the desire for "top dollar".  However, the student apparently has a short "memory" for recent events in the law firm world.  Let's take a look at the associate's wrong assumptions and look at some aspects that they can be on the lookout for to help increase the stability of their career.

First, people should know that the largest firms can and do often go out of business.  Witness the recent demise of Howrey, as well as the firms I mentioned above.  The demise of Brobek was especially a shock because they were one of the firms that led the charge in increasing associate salary and just two years before its demise it was flying high on dot com work - that is, it went from 900 lawyers to zero in two years.


Further, check out the BigLaw Dead Pool at Law Shucks.  It lists 22 AmLaw 100 firms that have died out in the last few years.  Nor do I think that the listing at the Dead Pool is complete.  Further, there have been many, many large firms (100+ lawyers) that have gone away during that time period that were not quite large enough for the AmLaw 100.

Also, as you can see from the list, the age of the firm also does not protect the firm from going under.  Some of the firms on the list had been around for more than 100 years.

Additionally, as has been documented in many places, big firms typically many associates with the intention of only making a few of them partner.  That's not a recipe for long-term stability.

So if a young lawyer can't get stability from working at a big firm, how can they get stability?  First, they should evaluate whether they want to work in a law firm.  For example, working for state and local government, especially on the prosecution or regulatory side, is often pretty stable - if not highly paid.  Lawyers for public interest foundations also report stability, shorter hours, and often greater job satisfaction, in spite of the lower salary.

If the law student wants to work for a law firm, here are some things to look for.

• Consistent clients - money coming in on a regular, dependable basis really helps with stability.  For example, does the firm have long-term clients that face a high moat to switch firms?  Are the fees reasonable for the market so that clients don't want to switch?  Many insurance defense firms fit this bill.  Also, many firms that have a specialty like tax or IP - there will always be taxes and companies keep inventing stuff.
• No "Empire Builders" (individual) - There are partners right now who have a good book of business ($1M+) who are willing to leave their current firm for as little as a 5% increase in compensation.  Unfortunately, some firms look at these individuals and only see the increase in billables for their firm.  Unfortunately, when these people come on, the firm then expends money to provide them with the support needed to support their additional billables - space, people, you name it.  However, the firms often don't realize that the partner is going to keep looking for a better deal - and there is always a deal that will pay them 5% more.  They won't be around long - and when they leave the firm will be left with excess overhead.  Excess overhead is very dangerous because it depresses earnings - which means that the deals that other firms are offering start looking better by comparison.  A firm that is made up of partners that are always looking for the 5% better deal is not going to be very stable.
• No excess overhead in general - as mentioned above, excess overhead makes the deal look better at other firms.  Once the deal gets significantly better at other firms (say 25%), then even reasonable partners are going to be tempted, and the firm's stability is threatened. Excess overhead can creep in in a number of ways - increased expenses due to departures (above), increased expenses due to real estate, advertising expenses, ambitious expansion plans, etc. 
• No "Empire Builders" (firm level) - if the firm suddenly wants to expand radically, for example by taking on new offices, then there is going to be increased expense and the overhead may suffer.  Also, many mergers are with firms that are failing and they rarely make things better for the acquiring firm.
• Not interested in extracting the very last dollar - This ties into the type of person who would switch firms for 5%.  Obviously firms have to be efficient, but there is a difference between being efficient and being too obsessed with that last dollar.  Tracking attorney usage of office supplies is counterproductive.  It just wastes time and it irritates the attorneys.  A compensation difference is not the only reason why attorneys switch.
• Takes steps to mitigate attorney irritation - Just emphasizing the last point, aside from compensation, probably the biggest reason why partners leave (thus reducing stability) is that they just get irritated.  Tracking office supplies.  Ridiculous new forms and office procedures that reduce efficiency.  Support staff that is not helpful, etc.
• The firm recognizes that inter-attorney attitude is important and puts its money where its mouth is.  For example, the biggest billers are not allowed to be bullies.  Compensation is split equitably.  When there is trouble between partners, there is an official or unofficial way of making peace.

Large GP firms like the student was initially considering rarely fit the stability model described above.  There are often many empire builders - both at the individual and firm levels.  The overhead is also typically pretty high  - and often includes prestige space and plenty of advertising.  Also, once the firm is sizable, minimizing attorney irritation often becomes secondary to just managing the unweildy behemoth. 

Of the factors that I outlined above, obviously some of them are going to be more available to a law student than others.  However, there are at least a few that should be obvious.  Interestingly, these often run against the "common wisdom" of what someone might be interested in - or what the law firm might use to "sell" itself.  For example:

• "We are starting a huge expansion project to have offices everywhere in the world!" - uh oh!  high overhead and lessened stability
• "We just merged with XYZ!" - again, increased overhead and lessened stability
• "We just hired 10 premiere partners in this area!" - hmmmm.  Could these be prima donnas who left their previous firms for a 5% increase?
• "Your starting billing rate will be $400/hour as a first year associate because we value you so highly!" - in reality, it's that high to pay for the high overhead and real estate.  That high a rate leaves the firm vulnerable to clients moving their business to more cost-effective firms.
• "We just moved into new and luxurious space at the prestigious X building!" - overhead just went way up and stability just went way down.

In summary, if the law student wants increased stability, then he should be looking for firms with consistent clients, consistent partners and management that don't overreach themselves, low overhead (especially for space), and that puts money and real effort toward bettering the relationships between its attorneys.

Most firms don't fit this model, but it seems to most frequently crop up in regional, specialty firms of about 25-50 attorneys - especially those that own their own space and are in lower-cost areas of the country.