BigLaw Asks, Where do we go From Here?
To be sure, a select handful of elite law firms (Sullivan Cromwell, Wachtell, Weil Gotshal and their ilk) are seeing little drop off in work, as they wade in to arrange federal first-aid and emergency sell-offs. Other firms have managed a quick costume change, swiftly repositioning themselves to take advantage of the countercyclical mandates of bankruptcy and litigation (e.g., McKee Nelson). At the other end of the spectrum, however, a few firms tossed in the tasseled loafer and folded outright (R.I.P., Heller Ehrman).
Outside of these extremes, the bulk of BigLaw firms are gearing up for drought. They’re poring over costs, ramping up outsourcing, cutting back on recruits, transferring underutilized staffers and yes, laying people off. But firing, let’s not forget, is risky business. Markets will eventually and inevitably pick up, leaving the shortsighted short-staffed, and with a bad rep. Like elephants, laid off lawyers have long memories.
The money pond’s drying up
Corporate legal spending is now at an eight-year low, as beleaguered companies hack away at their budgets. Corporate clients are relying much more on their in house counsel, and cutting back on the work they parcel out to outside law firms. According to the Association of Corporate Counsel, median spending on outside counsel was $1 million in 2007, down from the $1.1 million of 2006 and the $1.8 million of 2005. The cutback is not all credit crisis-related: For the last few years clients have been pushing back hard, demanding more bang for their legal buck. GCs resist rate increases, insist upon alternative fee structures and e-billing, and lobby for project pricing. With budget committees and procurement divisions breathing hotly on their necks, scrutinizing their spending choices, the pressure on GCs has never been greater.
Up, up, up with outsourcing
Even before the markets imploded, companies were looking hard for ways to cut costs. In 2007 DuPont saved $500,000 by outsourcing legal work to Mumbai; General Electric did them one better, creating an affiliate law office on the subcontinent and punting $3 million in fees overseas. Some 29,000 U.S. legal jobs have already been packed off to India, a number expected to increase to 79,000 by 2015. The loss in revenue for U.S. lawyers? $4.3 billion. With the financial meltdown, the outsourcing exodus will steeply increase. India is especially attractive as an outsourcing destination. The economy’s 10 percent growth rate has had firms skipping rope and shadow boxing, getting ready for that fine day the Indian legal market officially opens. Many firms have already set up local alliances, or bulked up India teams based outside the country. Some are hiring straight from Indian law schools or poaching directly from Indian firms. The invaders' inland push sent salaries for India’s law grads rocketing by more than 50 percent in the last year. For foreign firms, hiring Indian lawyers is staggeringly cost effective: a new associate at a top Indian firm earns approximately $29,000, a senior lawyer around $200,000.
What does this mean for U.S. associates? Well, temp and part-time lawyers working on special document projects will surely take a hit. Associates at major law firms, depending on their practice area, are also at risk. Those handling the document review and database work for large scale litigations could see their jobs shipped abroad. In an internet age, such research can be done in Bangalore as well as Boston, and with stringent budgets, GCs resent footing a research tab for information they feel outside counsel should either already know or consider a fixed cost. M&A form work is also exportable. Drafting and modifying documents are tasks easily done off-site, and the low costs of foreign lawyers make this a viable choice for the mid-tier firms, which can get much more manpower for their dollar. Patent and trademark maintenance and filing can also be done offsite. IP is an increasingly global issue, and for some years the trend has been to place such work in cheaper locales.
Go East, young associate
Despite the shakiness of the U.S. legal market, there are still options for those looking for work. New York and London will see the most fallout, but the emerging markets of the Middle East and Asia are still fertile. Certainly no regions will be immune to upheaval, but these have time and geography on their side.
In Dubai, Abu Dhabi and Doha, Qatar, it’s not just oil and gas interests at play — the question is what to do with all the moolah made from rising oil prices. Sovereign wealth funds looking to invest earnings will provide their lawyers a regular supply of work. In these regions, such mandates will roll in gradually, as investors bide their time, waiting to see how it shakes out in Western markets before deciding where to stash their cash. Resultant financial, real estate and retail investment work won’t all be overseas: Houston boasts some of the best Islamic finance teams in the world.
Rather than lay off or recruit, firms prefer relocating talent. Sometimes this occurs domestically, but the slowdown in the United States is proving an opportune time for firms to transfer experienced staffers to areas where they hope to establish or strengthen a market presence. (Paul Hastings is one firm sending its underutilized abroad.) The caveat is that while Hong Kong, China, Japan, Singapore, Moscow and Dubai are still busy, that doesn’t necessarily equate to more jobs. For one, hiring partners in these regions are ever more selective, and they can afford to be, with such a marked increase in resumes. When staffing these outposts, firms are looking for the best of the best—the top 10 law school, stellar grades, language ability or cultural facility.
Regardless of one’s academic pedigree, this is clear: As the U.S. economy regroups, foreign market savvy and a demonstrable interest in working abroad will only widen an associate’s choices. The time to position oneself as a global thinker is now.