Tuesday, January 22, 2002
Local Law Firms Faring Better Than Those in Bay Area but Still Feeling Effects of Economy
By NICK YULICO, Staff Writer
Los Angeles law firms are weathering the depressed economy better than their Bay Area counterparts, but they’re still facing prospects of cutting costs, restructuring business priorities and slicing through the escalating fog of uncertainty, experts say.
Paula Patton, director of NALP, a non-profit group that advises law schools and legal recruiters, said the Bay Area is hurting more than Los Angeles since firms up north focused more on intellectual property work with the tech sector, which has diminished.
“Los Angeles’ strength is that bankruptcy and litigation are having very strong sources of work, so things are not in a downward spiral,” Patton said. “Los Angeles is not feeling the downturn in a critical matter like New York City and the Bay Area are. There are indications that the economy is starting to turn around.”
Intellectual property work for the tech-sector and transactional work in general is way down, according to experts, and firms that are diversified are faring best.
Jack Kyser, chief economist for the Los Angeles County Economic Development Corporation, said that law firms specializing in bankruptcy and corporate workouts will have a lot of business this year.
“Your gain is someone else’s loss,” Kyser said, but cautiously added:
“The rest of the [legal] profession, business has eased off. Major firms have done some layoffs. It will be a muted business environment until fourth quarter 2002.”
Jack Walker, a senior partner and former managing partner at California’s highest-grossing law firm Latham & Watkins in Los Angeles, has seen the economy head south before. Latham saw their profits shrink and laid off 43 associates 10 years ago, but Walker said that his firm’s being “more diversified” after adding intellectual property and litigation expertise has helped them beat the recession; although, he admitted there are many question marks.
“There is a tremendous amount of uncertainty and lack of clarity right now,” Walker said. “Law firms are trying to cut costs as much as reasonable. Everybody sees that the general cyclical recession probably is at bottom, with a slow build from there.”
Latham has not laid off associates or trimmed salaries as of yet, but the firm recognizes getting through a “shaky, rocky economic environment” will be a challenge in the coming months, Walker said.
Charles Woodhouse, executive director at the Los Angeles office of Gibson, Dunn & Crutcher said his firm is optimistic yet cautious about the coming year.
The firm has not experienced the layoffs and severance packages that other firms have, Woodhouse said, because the firm is evenly split between corporate work, which he said has softened somewhat in the past month, and litigation work, which is “counter-cyclical.”
“Our internal barometer shows things are picking up,” Woodhouse said. “Whatever effects of Sept. 11 on how busy people were seem to be less so now. We take that as an encouraging sign.”
A partner at Altman Weil, a prominent, nationwide legal consulting firm with offices in California, said firms not relying too heavily on the tech sector are not doing so badly.
This appears to be the case with Latham & Watkins and Gibson, Dunn & Crutcher, who both reportedly saw their revenues swell over 15 percent from 2000 to 2001.
“Most of the larger law firms in Los Angeles have felt the impact of the slowing economy,” Blane Prescott, a partner and consultant with Altman Weil, said. “They may not have been as severely affected as high-tech law firms who had overwhelming work loads. [Non-tech] firms felt the slowdown but not as severe.”
Firms who were allured to the booming business in the Bay Area dot.com and high-tech mania have suffered harder than firms in Los Angeles who stuck with their long-term clients.
Recently tech-heavy San-Francisco-based Brobeck, Pheleger & Harrison freezed associate salaries for this year, and 82 business and technology associates agreed to take a buyout before the new year. Palo Alto-based Gray Cary Ware & Reidenrich also laid off 46 associates this month and decided in August to freeze associate salaries until July, 2002.
Although Prescott said the market is stabilizing and he does not see any further downturns, he said he does not see a turnaround in sight and that most law firms, even those that are diversified, are now facing the battle of cutting costs.
This may be in the form of travel, cutting associates, cutting office space costs and perk programs, Jolene Overbeck, director of global marketing at Latham & Watkins, said.
“A lot of firms are focusing on containing costs in travel,” Overbeck said.
Although Latham & Watkins is doing well, she said, the firm is looking into better travel packages with airlines and other service providers, who are feeling the depressions in the economy.
Mary Neal, managing partner at the downtown office of Orrick, Herington & Sutcliffe said her firm is examining costs from all service providers, like airlines, data providers and offset copiers.
Kyser added that many firms may reduce expenses on accounting and governmental relations when they introduce their budgets this year.
Partners at Latham & Watkins, Gibson, Dunn & Crutcher and Orrick, Herrington & Sutcliffe confirmed that their budgets will not be completed until February, and said that they’d have a better picture of their expenses then.
Despite the absence of budgets, legal consultants are still pitching in their predictions.
Prescott said he believes firms will change marketing efforts. He described the growing number of law firm advertisements in print publications and even on television, as Brobeck did, last year as mostly counterproductive.
Similarly, he advises firms to look at staffing levels and realize that cutting back people is “not a universal fix-it.”
Many legal experts say that firms will likely opt for performance-based layoffs rather than massive cuts announced publicly, as Gray Cary recently did.
Patton said the jobless numbers are going to continue to go up, but performance cuts will be quiet and will not make front-page news.
“As managers continue to look hard at the bottom line, associates will be let go who are not billing a lot and are not top-notch,” said Patton.
Another change in firms’ make-ups is the shuffling of young associates. Sheila Garb, president of Garb & Associates, which handles lateral placements in big Los Angeles firms said many firms are moving associates from the corporate side to other departments, and are thus not hiring.
Latham Partner Jack Walker agreed in part and said:
“We have young attorneys that came out of law school wanting to do transactional work, and we’re moving them to other areas like insolvency, bankruptcy, and restructuring of credits.”
Right now the job market is very competitive and the reports vary as to how much firms are actually hiring.
Garb said her placement agency has seen many less postings from the big firms, with corporate, real estate, tax, and intellectual property practice areas hit hardest. Although bankruptcy is supposed to be picking up, Garb said she hasn’t seen many openings for work in the area—only litigation is picking up.
Mel Negussie, partner at BCG Attorney Search, one of the largest placement agencies in California, said big firms are hiring strategically and not in massive ways; although major firms are all hiring top students from top law schools.
“The indication is that firms will improve as opposed to last year,” Negussie said. “2002 will not be like 1999 and 2000, but will be better than 2001.”
He added that the market looks a lot more stable than it was 3 to 4 months ago, which he said was definitely a weak market.
Andrew Spathis, a vice president of PCS Law Staff, said the job market is picking up, but firms are more focused on hiring support staff than attorneys.
He added that many firms have learned their lesson in associate placements.
“Firms like Brobeck led the charge of jacking up associates’ salaries and then laid off a whole slew of people,” Spathis said. “Can they keep high-priced rookies on board? Have they learned their lesson?”
As to whether firms will change their hiring strategies this year, Graham Sherr, assistant dean of career services at Loyola Law School, said it was his guess they would probably stay the same.
“No one is leading [right now] in Southern California,” Sherr said. “It doesn’t appear necessary for people to make moves.”
One big difference between last January and this January is that firms “are a little less cocky now and more practical,” Prescott said.
As to how long the “uncertainty” and “lack of clarity” in the market will last, Latham Partner Jack Walker said:
“If you can tell me there will not be another terrorist attack, then I could have a better prediction.”
Copyright 2002, Metropolitan News Company