California love?

BY RANDY BECKWITH

Law firm hiring, like the economy, is cyclical. We have seen ups and downs over the past 20 years. Following the explosive growth in the late 1990s, we are once again in a downswing.

Dramatic law firm growth began in the exuberant 1980s, with the expansion in the size and number of offices of California-based firms. Moreover, many national firms from New York City, Washington, D.C. and the Midwest opened California branch offices – a large number in Los Angeles – to share in the state’s economic boom. Law firms hired both new and lateral associates, as well as partners, at previously unheard of levels.

This seemingly unending upward trajectory came to an abrupt halt in the early ’90s, when the economy went into a very severe slump – a slump that was longer and deeper in Southern California than elsewhere. There was a concomitant decline in law firm hiring, considerable “downsizing” within the associate ranks and “rightsizing” at the partnership levels. Some mid-sized and smaller firms completely dissolved and unprofitable branch offices closed.

The economy began to slide downward in the fall of 2000, and over the last two years there has been a marked slowdown in the hiring of transactional lawyers at all levels of seniority. In addition, sizeable layoffs and downsizing continue to occur. Northern California is the hardest hit because it expanded most dramatically over the past few years. The expansion, primarily in the Silicon Valley, was fueled as firms rushed to represent emerging-growth companies and serve clients in the venture capital, high technology and biotech communities. Because Southern California has a more diversified economy, the downturn has been less severe, but still law firm hiring practices are considerably more modest than in the boom years of the late Ô90s. Nonetheless, the news is not all gloom and doom, as law firms continue to hire for their summer associate programs, make permanent job offers to the summer associates of 2002 and, for the most part, welcome the new graduates with an eye towards improving economic conditions.

The sheer size of California’s legal market is enormous. There are over 140,000 active members of the California Bar; the State Bar’s recent demographic study shows that 45 percent of them practice in the Los Angeles area and 30 percent in the Bay Area. The state’s five largest legal markets, in descending order, are as follows: Los Angeles County, the San Francisco Bay Area (including Silicon Valley), Orange County, San Diego and Sacramento.

Over the past 20 years, the law-firm model evolved from a professional collegial club to a business entity; the emphasis now is definitely on the bottom line. Whereas “gentlemen” lawyers of old did not disclose revenues, profits or compensation, today that information is regularly disbursed in legal publications, daily newspapers, and via numerous Internet web sites. Through associate chat rooms, law students and associates have immediate access to changes in compensation, hours, bonuses and other pertinent information. Indeed, almost immediately after a decision is made by a firm to have another round of layoffs, the news is transmitted nationwide.

Another major change is the increase in lawyer – most notably partner – mobility. Attorneys no longer spend an entire career in one firm. When offered higher compensation, more managerial responsibility or a chance to head up a practice area, many partners have shifted firms. Furthermore, merger and acquisition activity remains strong. Over the past years, a number of out-of-state firms have come into California, each by acquiring several local partners with very profitable practices, or entire smaller to mid-sized firms. A number of law firms, national, regional and local, either are actively considering or have been involved in merger discussions with other firms. This summer, Clifford Chance became the first British firm to come to California. They did so by acquiring a number of Brobeck Phleger & Harrison partners with substantial business and opening four California offices. The trend seems to indicate that many of even the most highly regarded small to medium firms are having difficulty competing with the large firms on associate compensation and in providing clients with a full array of legal services. Just last month, the well-regarded IP boutique Lyon & Lyon, with offices in both Northern and Southern California, closed its doors. Many of the firm’s partners have joined large national full service firms and other intellectual property lawyers have or considered the same type of move. The consequence of this consolidation is that students have more limited choices when they are considering law firm practice.

Many times, associates follow partners to their new firms. However, the majority of associates move on their own for varying reasons. It is increasingly rare that an attorney’s first job is his/her only job. Thus, in considering your first job the question is less “Is this the right job?” and more “Will this firm give me the training and experience to enhance my marketability for my next position?”

Another reality is that, after the tremendous increases in associate salaries and bonuses over the past two years, compensation is flat. Many firms have notified their associates that there will not be bonuses this year and that base salaries are frozen. In addition, some firms are employing other cost-cutting measures such as asking new associates to defer their start dates until early next year, paying new attorneys a stipend to work in the public or not for profit arena, and offering unpaid leaves of absence. There is an effort to avoid rescissions of offers to entry-level associates and to date, the only salary reductions have been in those few firms that upped the $125,000 starting salary to $135,000 and now have reverted to the original figure.

The “hot” practice areas continue to be those that dominated last year’s findings. Litigation heads the list with the most opportunities. Intellectual property remains very strong from patent prosecution to “soft IP” areas such as copyright, trademark, licensing, Internet, piracy and privacy. Next on the list are real estate and land use, followed by bankruptcy. The labor and employment practice remains strong. “Lukewarm” practice areas include international, environmental, tax, trusts and estates. “Cool” areas are healthcare, banking, and government contracts. And for those of you with stars in your eyes: Although Los Angeles is the entertainment capital, it is virtually impossible for a new graduate to break into that industry unless you know someone.

In this tight legal market, firms are placing more emphasis on law school grades, business or legal experience gained by working in the field prior to law school or during a summer, and performance evaluations. Law firm hiring programs are currently tailored to reflect a more conservative and long-term approach; therefore, you need to distinguish yourself from other students as you interview. Being knowledgeable and truly interested in a firm and then conveying that to the interviewer will help you stand out.

RANDY BECKWITH is a partner with Seltzer Fontaine Beckwith, Legal Search Consultants in Los Angeles. He can be reached at rbeckwith@sfbsearch.com.

Comments