California markets are changing — and not for the better

BY RANDY BECKWITH

Law firm hiring, like the economy, is cyclical. We have seen ups and downs over the past 20 years, and following 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.

Today, there is marked slowing in the hiring of transactional lawyers at all levels of seniority, and actual layoffs and downsizing are in process. Northern California is the hardest hit because it expanded most dramatically over the past few years, primarily in the Silicon Valley high technology and biotech markets. Nonetheless, the news is not all gloom and doom, as law firms continue to hire for their summer associate programs, make permanent offers to summer associates of 2001 and hire new graduates with an eye towards improving economic conditions.

The sheer size of today’s legal market is enormous. There are over 136,000 active attorneys in California; 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; 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 and via numerous Internet web sites. Indeed, almost immediately upon the decision by Northern California law firms to begin layoffs, that news was transmitted nationwide.

Another major change is the increase of 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 mania” is upon us. Over the past few 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 large number of law firms, national, regional and local, either are actively considering or have been involved in merger discussions with other firms. The trend seems to indicate that many of even the most highly regarded small to medium firms are having difficulty competing with the larger firms on associate compensation and in providing clients with a full array of legal services. The consequence of this consolidation is that students have more limited choices when they are considering law firm practice.

Many times associates follow partner(s) 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, firms are employing other cost-cutting measures such as asking new associates to defer their start dates, and have been offering unpaid leaves of absence. To date, there have been no salary reductions.

With the changes in the economy, especially the decline of dot-com and emerging-growth companies, the “hot” practice areas have shifted since last year. Litigation heads the list of 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/land use, followed by labor and employment. There still are some corporate positions available, but primarily for mid-to-senior level associates. Not surprisingly in this economic cycle, bankruptcy is heating up. “Warm” 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 giving closer scrutiny to grades and performance evaluations. Current hiring programs appear to be tailored to reflect a more conservative, long-term approach.

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

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