Law People : Law Practice Management, Organizational and Personal Dynamics; Talent Management : Ronda Muir of Law People Management, Inc.

Results from two surveys show growth at the country’s largest law firms to be down significantly in 2008 although employment is generally still on the rise. The National Law Journal’s 31^st annual survey of the NLJ 250 reports that those firms added 4.3% more attorneys in 2008, consistent with increases in 2006 and 2005 but at a lower rate than 2007’s 5.6%.  Partner growth in 2008 averaged 3.5%, which was down from 4.6% in 2007 and 5.1% in 2006. Non-equity partners increased 9.2% compared to 2007, when their ranks increased 8.2% compared with 2006. The average number of women partners stayed stable.

The West Peer Monitor Index, a measure of legal market conditions, reported in late November that large law firms had the lowest productivity during the third quarter of 2008 since keeping records, on average down 4.5%. Productivity at the largest firms, the AMLaw 100, was down even more--6.5%, largely as a result of continued increases in hiring at a time when there is less (particularly transactional) work for those associates to do. Often it takes two years for large firms to respond to market conditions in their hiring practices.

According to the Index, average associate hiring at all firms declined 6% in the 3rd quarter of 2008 compared to 2007, with firms offering equity partnerships to half as many attorneys as they did last year (including mega-firm Mayer Brown, which recently announced making 27 partners worldwide compared to 43 last year). Average lateral growth remains comparable to 2007.

Billable hours for all firms dropped 2.5% in the 3^rd quarter after declining 2% in the second quarter. Overhead expenses grew 6% compared to 8.3% in the 3rd quarter 2007 and direct expenses grew 8% compared to 9% last year. 

The short-term tact many firms are taking now is to lay off lawyers. According to the U.S. Bureau of Labor Statistics, 7,300 lawyer jobs were lost nationally between June and October, with an expectation of far more shrinkage when November and December numbers are tallied.       

Big firms, and particularly the big New York-based firms who draw much of their work from transactions for or financed by Wall Street financial institutions, have been particularly hard hit, and are responding accordingly.  The tally of recent attorney layoffs from New York offices includes 96 lawyers dropped from Cadwalader, Wickersham & Taft, 20 from Clifford Chance, 40 from Orrick, Herrington & Sutcliffe, 35 from Proskauer Rose, and 70 from White & Case.  Clifford Chance attorneys have been quoted questioning whether it's worth having a New York office at all. The fact that major transactional firms--Heller, Thelen, and now Thatcher, Profitt--have already folded this early in the recession may well presage more big firms collapsing in 2009.

Freezing salaries, as Latham & Watlkins has announced, and cutting bonuses in half and eliminating special bonuses, following the lead of Simpson Thacher, Davis Polk, Skadden Arps, Cravath and others in the US and Allen & Overy and Clifford Chance in the UK, are among the other responses to all this bad news, as well as cutting staff, reevaluating off-shore back office services, and trying to offer more flexible fee arrangements.  The recent explosion of non-equity partners is also being scrutinized for its impact on firm finances during these difficult times.  

Hard-pressed law departments are taking another look at the pros and cons of outsourcing, as well as insisting on more accommodation from their firms on staffing and pricing. 

There are a few benefiting from the downturn. The work of outplacement firms has expanded exponentially and attorney recruitment firms have had an influx of talent.  In recognition of this growing pool of lawyers, LegalOnRamp, among others, has added a legal positions component to its site. So those firms looking for talent are at an advantage now.   

Is there any silver lining?  Firms can take this time to experiment with different fee arrangements and also to shore up organizational fundamentals--enhancing performance evaluations, professional, leadership and business development training, and succession plans--so as to be better able to weather the continuing storm, and to be poised to take advantage of the economic improvements that will eventually come.  

Although some pundits are claiming that the economic impact on the law business hasn't been as disastrous as first expected (which we may have to wait a while longer to fully evaluate), there is no denying even at this stage a sea change of sorts---if only that the current fear and trembling in the legal community, historically one of the most economically stable professions, will cast a long shadow over firms as they embark on 2009 and the years to come.

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David Brooks' editorial in the October 28, 2008 New York Times predicted that the current financial crisis would "amount to a coming-out party for behavioral economists and others who are bringing sophisticated psychology to the realm of public policy."  Of the four steps of decision-making--1) perceiving a situation, 2) thinking of possible courses of action, 3) calculating the best course, and 4) taking action, Brooks notes that the third step--rationally calculating and maximizing what is in the best interests of those involved--has long been considered the most important.  But he suggests that comments by "experts" like Alan Greenspan in his testimony before Congress, that he was "shocked" at market conditions, may drive us to reevaluate the importance of step one:  perceiving the situation.

In Nassim Nicholas Taleb's book "The Black Swan," published in 2007, he wrote that "The government-sponsored institution Fannie Mae, when I look at its risks, seems to be sitting on a barrel of dynamite, vulnerable to the slightest hiccup."  Globalization, he noted, "creates interlocking fragility," and the growth of giant banks give the appearance of stability, while in reality, they raise the risk of a systemic collapse, for "when one fails, all fail."  But why didn't the financial movers and shakers perceive that to be the case?  Or even one possible case?

Behavioral economists have explanations for why so many smart people could have been so wrong about the risks that they were unwittingly taking.  Biases in our perception that distort our thinking include a tendency to see data that confirm our prejudices, a tendency to overvalue recent events as predictors, assigning a single causal narrative to coincidentally succeeding facts and applauding what we suppose to be our skill rather than recognizing the role of dumb luck.  And we can also get caught in social contagions that reinforce each other's (often poor) risk assessments. 

The solution that some propose for the financial arena is to have the government take on more of the job of assessing situations, and applying regulations.  Of course, government officials are probably going to be even worse perceivers of reality than private business types.  Their information feedback mechanism is more limited and, being deeply politicized, they're even more likely to filter out inconvenient facts. 

Lawyers, being for the most part pessimists, would seem to have the exact skill necessary to root out and protect against just this sort of unintended economic consequence.  Lawyers should be able to think of all the possible ways these various financial scenarios could go wrong, and at least sound the alarm if not plug the hole.  But the critical word here may be "think."

Our data on emotional intelligence in lawyers tells us that, when it comes to emotion, perceiving--correctly identifying the emotional currents at play--is what lawyers are least good at, accounting for a large proportion of the drop in average lawyer scores compared to general US population scores.  A number of experiments verify that being unable to tap into one's own and others emotions can mean a significant delay, or total failure, to identify risks or dangers that the emotional part of the brain is able to sense.  In a well-known card-playing experiment, recounted in Malcolm Gladwell's book "Blink," participants are able to emotionally identify (measured by blood pressure and heart rate) the decks of cards that are stacked against them many, many cards before they can rationally do so.

Of course it is not just lawyers who can be out of touch with their emotional red flags, and it wasn't just lawyers that got us into this imbroglio.  Plenty of non-lawyer MBAs, PhDs and other regular types clearly missed the perception boat this time.  Nonetheless, one step toward better perception in the world of finance and public policy would be for the legions of lawyers involved--at the SEC and other government entities, banks and financial institutions and law firms servicing them--to improve their connection with their and others' emotions, so that they can feel as well as think about the dangers out there, and hopefully avert just such a catastrophe as this one.  And the good news is that perception in this area of expertise can be improved. 

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What do you know? Narcissists--big personalities with big egos who like to exert control and reject collaborative decision-making--are the ones leading many law firms through these perilous times. 

"Narcissistic leaders are distinguished by their big ideas...and general indifference to the opinions of others,” according to Douglas Richardson of Altman Weil. “They resolutely reject the status quo, thus affronting all those tied to tradition and cautious about change. They want to reshape the world to their vision. They don’t much care if others label them vain and self-centered; they count on the power of their vision and their personal charisma to drive them to the top during periods of great upheaval or change. Their style is at best despotic, and often coercive.”

Such leaders tend to be nonreflective and poorly attuned to the needs of differing individuals, Richardson writes. The results are high lateral partner movement and high attrition among younger lawyers for whom money and status are not primary motivators.

Richardson says such leaders may display genius and vision, but they are at their best when they know their limits—or when someone can point them out. He suggests hiring an outside coach “with plenty of candor, a tough skin and a strong mandate from the firm to help with top team-building.”

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According to the “broken windows” theory of social science, addressing small concerns (like broken windows) that matter to individuals eventually produces major improvements in the overall sense of community and belonging, which in turn fuels a more committed, dedicated group. This theory was instrumental in rebuilding parts of Harlem, the South Bronx and other devastated areas. 

In this difficult economic climate, there is a great temptation to do the reverse:  delay until a better financial day fixing the broken windows that litter our organizational landscapes.  Why not save the money for the bare necessities?  Why not focus on growing business or collecting revenues, which have clear connections to the (ever-diminishing) bottom line?

While firms are laying off associates, reducing their non-equity troops, halving bonuses and freezing salaries, they would be advised to make sure that they are not neglecting the small things that make a firm a good place to come to work every day--courtesy, interest in each lawyer's work, willingness to spend time training, providing feedback, and whatever other individual strengths your firm prides itself on.  Do the simple, doable things that make your lawyers feel someone is listening and responding:  adjust heat or air-conditioning levels, extend night staff hours, upgrade the coffee. Small steps will make the difference in whether your lawyers have a sense of devastation or rebuilding.

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