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Center for Career Strategy
and Advancement
Levy Mayer Hall, Room 124
357 East Chicago Avenue
Chicago, IL 60611-3069

Phone: (312) 503-3498

Market Trends

Welcome to the Center for Career Strategy & Advancement's Market Trends webpage!

Our goal is to provide our assessment of, as well as third party information regarding, overall hiring trends in the legal marketplace, and to link to recent articles providing detailed analyses and updates.


Summary
Nearing the end of the second quarter of 2009, we are amidst a decline in law firm revenue and the demand for legal services. Despite a range of factors leading to these downturns, we are seeing growth in certain practice areas, particularly bankruptcy and litigation, though not at a level to entirely offset declines in various corporate practice groups. Firms have taken a conservative approach to managing expenses, including slowing hiring, attorney and staff layoffs, and even closing offices.

Legal Services
Government data preceding the current economic crisis indicated that the market for legal services had continued to increase as a proportion of the GDP (click here for a graph which showing the consistent growth in legal services revenues over the past twelve years). However, the Hildebrandt International Peer Monitor Index shows an 8% decrease in demand for legal services in Q1 2009 when compared to the same period of time in 2008. The decline in demand was steep in January in February, but did flatten out in March.

Geography
The decreased demand for legal services has been felt differently across the nation, with markets experiencing varying drops in demand in Q1 2009. San Francisco, an outlier compared to other markets, experienced only a 1% decline in demand as compared to sharper declines in other major U.S. market (Los Angeles and Chicago: 8%, New York: 9.5%, and Washington, DC: 12%). International markets saw demand shrink as well (e.g., London: 12.5%). By the end of the year, it is predicted that Tokyo, Beijing, Seoul, and Brazil will grow, and Dubai/UAE will remain strong. Within the U.S, Reno and Las Vegas are expected to be "hot" markets, and Chicago may benefit from regional and national firms seeking to gain a Midwestern presence.

Practice Areas
As economic growth has slowed down, so too has corporate work, particularly M&A, finance, commercial real estate and securitization. Significant bankruptcies and buyouts have slowed down deals due to financing uncertainties and created the potential for lost underwriting work. However, bankruptcy (up 13% in activity in Q1 2009) has picked up and growth has been experienced in regulatory and litigation practices, as well. While there has been a shift in the demand for legal work, there remains a lot of existing and new work to be done. "Hot" practice areas for 2009 include bankruptcy, regulatory and litigation, intellectual property (including IP litigation). Additional practice areas predicted to be "hot" in 2009 include antitrust, foreign corrupt practices, health care, and environmental law - all in reaction to the new presidential administration and expected regulation. It is believed that the new Build America Bonds arising out of the stimulus package will lead to new bond work, as well as ancillary work connected to bond-related building projects.

Attorney Hiring
The market for attorneys slowed in reaction to the economy, with 2008 associate hiring down 6% compared to 2007. However, 2008 lateral hiring was about on par with 2007. Non-equity partnership is the fastest growing segment of the attorney population, accounting for 35% of partnerships in Am Law 100 firms. In a recent survey of law firm leaders, 43% expected to hire fewer new associates in 2009, though 72% did expect total firm headcount to increase. Equity partner promotions are down 50%, with equity partnerships shrinking at some firms.

Staff Reductions
Attorney and staff reductions remain common, though have slowed as 2009 has progressed. At the onset of the economic downturn layoffs and office closings tended to be in locations most closely tied to financial markets, particularly New York and Charlotte. Recent layoffs have hit almost every substantial legal market, and national and international firms have seen the layoffs spread across almost all offices.

It is estimated that since January 2008, over 22,300 legal sector jobs have been lost. In the U.S., the number of employed attorneys declined by 7000 in 2008. It is reported that 25% of the UK's largest law firms are considering layoffs in 2009 and/or have already done so. Seasonally adjusted U.S. Department of Labor statistics show that 8200 legal sector jobs were lost in the first quarter of 2009 (1300 in January, 4200 in February, and 2700 in March). On February 12 and 13 alone, almost 800 lawyer and staff positions were lost, and over 800 more were lost in the first 10 days of March. Putting this into perspective, approximately 3.3% of lawyers at AmLaw 200 firms have lost their jobs since January 2008 (2.5% since January 2009). The UK has had its share of layoffs, too, with several large firms laying off over 8% of their attorneys (Allen & Overy: 12.2%, Clifford Chance: 10.8%, Linklaters: 8.6%). Recent dissolutions include Heller Ehrman, Thelen Reid Brown Raysman & Steiner, and Wolf Block. Click here for a list of law firm layoffs.

Lateral Hiring
As many law firms have already engaged in attorney reductions, with further reductions likely, associate lateral hiring is somewhat stagnant. As the economy picks up, it is likely that the associate lateral market will pick up based upon practice area and need. Conversely, the partner lateral market is still active and individuals with large books of business remain marketable. A recent study found that during Q1 2009, almost 70% of lateral partner moves were from firms with higher profitability to firms with lower profitability. While the results may be skewed by a range of factors, they do suggest a trend away from focusing on PPP and towards other factors.

Entry-Level and Summer Associate Hiring
As firms consider new models for delivering client services, we have seen several firms begin to move away from a highly leveraged approach, possibly from the traditional pyramid shape towards a diamond shape. In recent weeks, Cravath, Swaine & Moore announced a one year delayed start date for the Class of 2010 (following one year deferrals for the Class of 2009), DLA Piper reported it would scale back the size of its associate classes, and several firms have publicized their intent to offset smaller entry-level classes with the use of staff attorneys for large scale projects.

A common reaction to decreased workflow has been to push back start dates for the Class of 2009 anywhere from late-2009 to January 2011. Some firms have rescinded offers to incoming attorneys and others have offered deferral plans, such as paying a decreased salary in exchange for working in public interest for a year and starting at the firm in late-2010. Cravath, Swain & Moore has announced that Class of 2010 incoming hires will be deferred for at least one year, and it is likely that other firms will make similar announcements as they try to manage the integration of deferred attorneys. Incoming associates, as well as those already at the firm, may find themselves working on matters outside of their primary practice group in the short-term.

Reflecting on fall 2008 recruiting, nationwide, offers for 2009 summer associate positions fell by 33%, with offers from the nation's largest firms falling by almost 40%. That greatly exceeds what we experienced at Northwestern Law, where offers were down slightly. Mid-sized firms continue to focus more on recruiting new lawyers from local schools and in some cases have decreased visits to schools outside of their geographic region. It is expected that fall 2009 recruiting will continue to reflect the economic downturn, with smaller law school OCI programs and further reduced summer associate class sizes.

Apprenticeships
Several firms have instituted apprenticeships for integrating new attorneys. The details vary from firm-to-firm, but the basic concept is that recent graduates are hired at a reduced salary for a set period of time (ranging from six months to two years), during which they take classes, shadow firm attorneys, and handle pro bono matters, all the while building practical legal skills with little to no time billed to firm clients. Ford & Harrison was a leader in instituting such a system, and they have since been joined by Drinker Biddle & Reath, Frost Brown & Todd, Strasburger & Price, and most recently, Howrey.

Compensation
While in the last twelve months a number of the nation's largest law firms have begun to make changes to their compensation systems, there continues to be a large disparity in attorney salaries, especially for entry-level attorneys. A recent NALP study revealed that for the Class of 2008, the median salary was approximately $72,000, though the bulk of recent graduates were grouped in two distinct ranges: nearly 42% fell within the $40,000 – 60,000 and roughly 23% reported a starting salary of $160,000 (representing recent graduates employed at the nation's largest firms). Only 3% had a salary near the $92,000 mean.

In the past few years, entry-level salaries at the largest firms were almost consistently set at $160,000 in major markets. However, firms have now begun to cut starting salaries, often times by as much as 10%. It is unclear how widespread reductions will be, but it is predicted that many more will retreat towards $145,000 in major markets, with others instituting apprenticeship-like programs (see above) making even deeper cuts. Large firms in non-major markets tend to start attorneys in the $90,000 - $125,000 range and may also see reductions. Overall, the salaries at the largest firms put financial pressure on mid-sized firms, but such pressure may not be as significant as in the past.

Compensation changes have not been limited to entry-level associates, as a number of firms have reduced or eliminated bonuses, frozen or cut associates salaries at all levels, and some have even cut partner (equity and non-equity) pay, as well. The extent to which cuts have been made is unclear, though this has not been confined to just mid-sized and regional firms, as evidenced by cuts at AmLaw top 10 firms Baker & McKenzie and Greenberg Traurig. Related, an increasing number of firms have begun to move away from lockstep associate compensation towards competency-based systems. At the partner level, despite revenue per lawyer remaining relatively stable, the overwhelming majority of the AmLaw 200 experienced a decrease in profits per partner in 2008, many experiencing a double digit decline.

Law Firms
Though recent months have proven to be challenging to firms of all sizes, some of the nation's largest firms have been hit the hardest. A survey of law firm leaders indicates an expectation that profits per partner will remain level or slightly decline in 2009. A recent Citi Private Bank survey of 133 law firm managing partners/chairman provided some positive news (an expectation of a stable or improving economy over the next six months), but was largely grim: most anticipate layoffs, with nearly 33% expecting to cut non-equity attorneys and 25% predicting a decline in equity partnership. Due to a focus on limited practice areas, lower overhead, and flexibility in working with clients on reducing expenses, smaller firms and boutique firms (depending on their practice area) may be positioned well for adapting to changes in the legal market. Overall, firms have been good at limiting expenses (up 6% in 2008 v. 10% in 2007) and as mentioned above have also made staffing changes to adjust for decreased productivity and demand.

Law firm mergers are again on the rise, as is global expansion, particularly in Asian markets. Almost 25 firm mergers were completed by the end of the first quarter, most between firms smaller in size seeking to diversify based upon practice or geography. In Chicago, Bell Boyd & Lloyd recently merged with K&L Gates (national firm with a Pittsburgh home office) and Schuyler Roche grew its litigation practice by merging with Crisham & Kubes. (For updated information on law firm mergers, we highly recommend Altman Weil's Mergerline).

In the face of client demands for cost containment and increased efficiency, it is still too early to proclaim the death of the billable hour. Firms are showing more openness to considering fixed fee, contingency fees, and other alternative billing arrangements (typically on a matter-to-matter basis), but sweeping change has not been realized. A recent Altman Weil survey of corporate chief legal officers revealed that 75% believe firms have shown little to no interest in changing the way they deliver legal services. Despite several firms stating that they would not increase fees in 2009, another recent survey found that fees grew by almost 3% in Q1 2009.

While it is hard to predict whether the economic downturn will have a lasting impact on how law firms function, a recent Altman Weil survey is revealing of potential permanent and temporary changes. The 208 survey respondents highlighted four areas where permanent change is likely: (1) increased price competition, (2) lengthened partnership track, (3) increased use of contract attorneys, and (4) alternative client-billing options. While in the aggregate respondents thought that changes in associate-partner leverage would be temporary, 40% of respondents with over 500 attorneys thought changes would be permanent. What we are likely to see in the coming years is large law firms moving from a "one size fits all" structure towards fine tuning internal structures to best meet the firm's individual needs. Leveraging, compensation, staffing, entry-level hiring, and billing structures may vary more greatly from firm-to-firm as profitability is maximized on an individual basis; a significant change from recent years in which often times firms simply tried to emulate what the top firms were doing.

Government and Public Interest
While federal government lateral hiring will likely increase in 2009, presently all entry-level hiring, which is conducted through the Honors program, remains stable. State and local government hiring is largely frozen due to stress related to decreased tax revenues. Entry-level public interest hiring is down. Legal Aid across the country has been hit particularly hard due to decreased IOLTA funds. Due to the large number of attorney layoffs, it is expected that volunteerism at public interest employers will increase in 2009. Several firms have offered to pay recently laid off attorneys and/or deferred incoming associates reduced salaries to work in public interest placements for specified periods of time (typically 9 - 12 months).

Law School Applications
Law school applications have increased nationally (approximately 1% for 2009, following a slow and steady decline from 2005-2008) and law schools class sizes remain relatively stable (up 0.3% in 2007; 2008 numbers are not yet available). There appears to be stratification in law school choice, with students opting for higher ranked schools in reaction to the troubled economic outlook.

Diversity
The overall percentage of ethnic minorities in the 252 largest U.S. firms rose from 13.4% in 2007 to 13.9% in 2008 according to The Minority Law Journal's 2009 Diversity Scorecard. The percentage of minority partners improved incrementally, as well, up to 6.6% in 2008 from 6.2% in 2007. There was also a slight increase in the percentage of newly promoted partners that are minority lawyers (from 13.3% in 2007 to 13.8% in 2008), but minority lawyers made up a smaller proportion of lateral partner hires (from 11% in 2006 to 9.6% in 2008).

Wilson Sonsini Goodrich & Rosati received the highest diversity score (42.5) and boasts the third highest percentage of minority attorneys (25.5%)(Note: The current Diversity Scorecard rankings are based upon a revised formula that gives greater weight to minority lawyers in senior positions). The individual law firm with the highest percentage of minority attorneys was Lewis Brisbois (26.3%), the firm with highest percentage of minority partners was Curtis Mallet-Prevost, Colt & Mosle (18.5%), and Greenberg Traurig reported the highest total number of minority partners (79). Irell & Manella had the highest percentage of openly gay and lesbian attorneys (8.4%) and Curtis Mallet-Prevost, Colt & Mosle had the highest percentage of disabled lawyers (2.0%).

Resources: American Lawyer, Altman Weil, Bureau of Economic Analysis, Bureau of Labor Statistics, Hildebrandt International, Hildebrandt International Peer Monitor Index, Legal Times, The Minority Law Journal, National Law Journal, NALP, and New York Lawyer.


Recent News

Salary & Market:

Big firms slashed headcount at international offices, NLJ 250 shows, National Law Journal, November 12, 2009

For NLJ 250 firms, weak partner growth, while 'others' disappear, National Law Journal, November 11, 2009

Headcount declined sharply in New York, Atlanta and Philadelphia, National Law Journal, November 10, 2009

Litigation Practices Showing Signs of Life, Says Hildebrandt Study, National Law Journal, November 10, 2009


Firms:

Baker Hostetler hangs out its shingle in Chicago, National Law Journal, November 12, 2009

Two-Edged Sword: BigLaw Firm Slashes First-Year Salaries, Billing Rates by 20 Percent, New York Lawyer, November 10, 2009

2009 Plaintiffs' Hot List: The Firms to Watch, National Law Journal, October 6, 2009

Wildman Harrold Rescinds Job Offers to 10 New Associates, American Lawyer, October 2, 2009


Summer Associate/Associate:

Lunch Meetings Lead to New Job as Partner After Baby Break, Recorder, November 4, 2009

The Corporate Deferred: Associates Who Took a Different Path, AmLaw Daily, November 4, 2009

Hard Times for Harvard Law Students, AmLaw Daily, October 1, 2009

How to Succeed at Business Development: A First-Year View, Legal Intelligencer, September 16, 2009


Diversity & Lifestyle:

Survey Shows Large Firms Have Few Women Among Top Rainmakers, Legal Intelligencer, October 27, 2009

NALP finds slight improvement in law firm diversity, but pockets of decline, National Law Journal, October 21, 2009

Diversifying Diversity, New York Lawyer, September 25, 2009

Can They Still See the Forest?, Minority Law Journal, October 1, 2009


Clerkships:

Clerks in Paradise, American Lawyer, January 9, 2008


Geographic Markets:

Denver midsize firm, among others, believes now is the time to expand, National Law Journal, October 6, 2009

BigLaw Bullish on Chicago, National Law Journal, June 11, 2009

Hello, SoCal!, National Law Journal, March 30, 2009

Sunshine State Firms Weathering Bitter BigLaw Winter Pretty Well, New York Lawyer, February 20, 2009


Student & Bar Issues:

Options for Managing Law School Student Loan Debt, Daily Business Review, October 5, 2009

Law Students Turn to Externships to Help Land a Job, National Law Journal, September 17, 2009

Reality Bites, National Law Journal, September 9, 2009

Welcome to the Future: Time for Law School 4.0, AmLaw Daily, June 22, 2009


Public Interest & Pro Bono:

For Whose Good?, American Lawyer, July 1, 2009

Pro Bono Report: Recession-Proof?, American Lawyer, July 1, 2009

Lawyers Operate Without Borders Too, National Law Journal, June 5, 2009

Are Public Interest Lawyers Getting Crowded Out by Deferred Associates?, National Law Journal, June 2, 2009


Corporate & Client Issues:

Survey: In-House Counsel Really Are Cutting Budgets, AmLaw Daily, October 14, 2009

Outside Counsel Spending Projected to Drop by 4.3 Percent Next Year, National Law Journal, October 9, 2009

Firms, GCs Starting to Talk the Talk, Legal Intelligencer, July 13, 2009

Study: Law Firms Have "Little or No Interest in Change," CLOs Say, AmLaw Daily, June 30, 2009

Last Updated: November 2009

 

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