Adjusting to the economy
At law firms, outsourcing is just one of the changes.
Law-firm consultant Robert Denney, founder of Robert Denney Associates, talks about how the softening economy has affected goings-on at law firms, including the outsourcing of legal work overseas.
In addition to consulting for law firms, his firm also works with nonprofits and various other professions and businesses.
Question:
What kind of impact will the softening economy have on law firms?
Answer:
They probably won't have as big an increase in revenue as they did last year. Firms that are well-managed and alert can make adjustments. The practice of law goes in cycles, so when the economy gets soft you find many areas - like bankruptcy, collections and litigation, particularly - that do better, while other areas, like mergers and acquisitions, become soft. But you have whole new practice areas, like subprime lending.
So what firms should be doing is beefing up practice areas that should be strong while being cautious and conservative in other areas.
Q:
How will this affect hiring of first-year associates?
A:
The larger firms are still recruiting quite heavily. The impact will be seen in midsize firms, and for law school graduates who are not in the top 20 percent of their class or in second-tier schools.
Q:
So, if you are not at a top law school, or at the top of your class somewhere else, what do you do?
A:
Other than slinging hash, you are just going to have to get by looking for temporary employment almost anywhere you can get hired. Some graduates have been signing up with contract law agencies where they go to work for a period of months or longer, but at a much lower rate, and others are looking at any law firm that will hire them. The public-sector law is still strong, but of course, starting salaries are much lower.
Q:
How long do you expect these conditions to last?
A:
My crystal ball is a bit cloudy and has some cracks in it, but I think we are going to see this for the balance of 2008. By then, I would expect that law firms will have adjusted, and after that we might see an upward trend.
Q:
How much will outsourcing of legal work to India and other offshore sites affect the industry?
A:
That has been a very strong trend in the last few years. India became a center, and now there are other areas. It used to be just research work, but now it is document drafting, particularly for large firms, that need to drive costs down.
Q:
Why are they doing this?
A:
They are trying to boost their per-partner profit numbers and to make their clients happy.
It is a combination of both. Clients are really complaining more about their rates, the hourly billing rates. But it is also another way to try and maintain profits.
Q:
How reliable is a legal document drafted in Mumbai for use in the United States?
A:
Many of these people are graduates of law schools, and the quality of their work is reviewed by lawyers in the United States. Whether they are drafting documents for a federal case, or for use in Pennsylvania, the law firms that outsource this work make sure that they are well-grounded in the laws of those venues. The quality control is done back here in Philadelphia.
Q:
Do the clients know?
A:
Many of them do not. Even those that do, many of them, such as corporate legal departments, also are outsourcing their work. It is the same issue for them, trying to keep costs down.
Q:
What is the most interesting trend on the legal horizon?
A:
I think it is the increased use of technology, which affects the rates that people are charged. We are also seeing generational issues in law firms as senior partners retire and other partners are elevated to take their place. The younger partners do not want to work as hard as the lawyers of 20 or 30 years ago. There has been a lot of hand-wringing in the legal press about this. Last year, two third-year students at Stanford Law School sent a letter to 100 major law firms, urging them to reduce their billable-hour requirements.
Q:
How much sway are these arguments going to have in a competitive environment?
A:
They already are having an impact. This is just the strongest wave of this thinking that I have ever seen.
Q:
Law firms then are trimming their expectations for billable hours?
A:
We are starting to see it. I believe the trend toward non-equity partners in many firms is an example of this. It allows a partner to accept less compensation. A growing number of firms are not requiring partners to invest capital in the firms. They are getting their capital through borrowing. They (non-equity partners) don't have to work as hard and they don't earn quite as much money.