Law And More

The Law Bubble Bursts - Lawyer Glut, the $1000 Hour Clients Ain't Paying, Layoffs

Like the hedge industry, the whole law continuum had a heady run. 

Law schools expanded in number and its consumer-students hadn't balked at the $60,000+ a year for three years.  After all, there were loans.  Students graduated with JDs, $100,000 to $200,000 in debt.  Currently, as the Law Bubble is starting to burst, those students, who didn't attend top-tier schools and wind up in the top of their classes, simply can't get jobs.  Some can't get law jobs.  Some can't get any jobs since, face it, there's reluctance in our society terrified of litigation, to hire a lawyer.  Over the past 48 hours there have been thousands of hits per hour on my posts providing straight-from-the-shoulder counseling to these unemployed and underemployed. 

Clients are balking at paying the $1000 hour.  Today, a General Counsel at a major business posted, off the record, that his company is bringing an increasing amount of work in house.  It's not that he and his colleagues find BigLaw unresponsive or lacking in competence.  It's the monthly billing.  The recent BTI Survey confirms this migration from outside law firms to in-house legal teams. Reports BTI, the percent of legal dollars going to outside counsel dips in 2007.  It's now at 63.5 percent, down from 65 percent.  Wal-Mart, one of the largest consumer of BigLaw, sent a memo to its outside firms banning any further price increases.

The layoffs have started in certain practice areas such as real estate and those exotic finance instruments.  Now that they have started, you bet that gives the powers-that-be in BigLaw to keep lopping, for whatever reasons.  It could be to increase equity partners' take.  Or it could be because there are fewer deep-pocketed clients. Associates in BigLaw and even some junior partners tell me they're wary these days about job security. 

Bubbles don't burst overnight.  But burst they do.  Some players probably will not be affected, in any way. 

For example, large law firm Jones Day was ranked in the BTI survey as number-one in client service by BigBusiness. From 25 months of covering the lead-paint public nuisance litigation defendants, including Sherwin-Williams, I know what law firms are on the offense in serving clients, both in legal prowess and responsiveness.  Jones Day has been so brilliant in legal theory and the nuts-and-bolts and just being-there, for its client Sherwin-Williams that my bet is that it picks up more of this premium-kind work which is pricing-resistant.

Many other firms in BigLaw, even the major brandnames, will start going head-to-head for quality clients. A greater number of the partners who are usually preoccupied with rainmaking or getting more business will also have to get back into the trenches of hands-on law.   

That's because more of those deep-pocket clients will experiment with bringing work in-house, cherry-picking the services they do need from a variety of firms and, yes, likely playing one against the other law firm, and refusing to have first- and second-year associates on the projects. BigLaw will have to endure the beauty contests that we others in professional services have had to put on for prospects for years.

BigLaw, like the rest of us professional services vendors, will have to transform their culture, operations and pricing to the emerging realities in the marketplace.  It won't be pretty.

As for the law schools, if they take upon themselves providing full-disclosure about the odds of getting a job in law and at what compensation they might escape the government pouncing on them. Maybe. My hunch, though, is that some ambitious state attorney general is going to hear from constituents the tragic tales of sons and daughters with no law career and monster debt which, it appears, will require a lifetime to pay off.  Isn't that what savvy New York AG Andrew Cuomo did with student loans? He became a national hero.

My hope: Perhaps public works programs, much like in the Great Depression for artists, will be created to employ some of these young JDs.

Meanwhile, the class of 2007 is in shock.  They call me for coaching.  I tell them to save their money and read my posts on leveraging the skills they have to get jobs, any jobs.  A job leads to a better job.  But the bursting bubble will, my gut tells me, launch a cynical gen at a time when America needs idealism and, as Rosabeth Kanter says in her book "America the Principled," a can-do spirit.  Also those highly-paid associates and partners who are getting canned at BigLaw might not get comparable positions.  Their specialties are narrow.  I predict a gen of broken professionals, akin to what happened in Japan after their economic bubble burst. 

How can we shore up these young people who invested in a career they can't enter and those who will be pushed out?  Compassion, not censure.  They bet the ranch on something that turned out to be a bubble.  With open hearts and minds, we can help them make it back to earning a living, some kind of living. 

Can future bubbles be prevented in other industries?  Forget it. Mankind is wired for maxed-out optimism. 

Post-BTI Suvey - Wall Street Opines to BigLaw

"I think that the tide has turned for business and it now wants to win, rather than settle," observes value-investor Todd Sullivan.  His financial-markets commentary is published in THE WALL STREET JOURNAL, FORBES, DEALBOOK [NEW YORK TIMES], REUTERS, CNN MONEY, HOOVERS BIZ, THE STOCK MASTERS and his own VALUEPLAYS.

"BigLaw seems to still be in the 'let's get a good settlement' paradigm,'" continues Sullivan.  "Business has recognized that the best way to assure future lawsuits is to settle current ones.  It is no coincidence that localities are dropping lawsuits against lead paint defendants.  That's because those defendants have refused to settle.

"After the asbestos bankruptcies of the 1990s, a hard lesson was learned. 'Settling' no longer puts your litigation to rest.  It only assures its continuity."

Todd Sullivan can be reached at Valueplays@gmail.com.

BTI Survery - General Counsel Speaks Out

"Surveys such as the BTI study which this blog referred to yesterday always seem to conclude that lack of responsiveness is the source of dissatisfaction with outside law firm," says a General Counsel of a major company, off the record.

"Law Firms: Don be fooled," this General Counsel continues.  "There's something happening here and it is not about relationships so much.  It is a revolution.  And it is about law-firm costs.

"At my company, we choose good outside lawyers.  We seldom experience a responsiveness problem.  Our lawyers genuinely help us and try to learn our business.  We like and respect them.

"The problem is that these truly great people sell their time and their colleagues' time for a living.  To earn more, they need to bill more hours of more people - at higher rates each year.  Our company, like most good-sized companies, is trying to do exactly the opposite.  We need to control the costs of everything we purchase, including legal services.

"I think corporations have moved on from listening to law firms jawbone about how they are controlling costs.  Instead of waiting for law firms to change - the existing partners have little short-term incentive to do so - corporations have basically starting running their own law firms, without the law-firm cost structures.

"It is amazing to see how the number and caliber of lawyers employed by companies have changed, even over the last five years.  These days, we can attract high-end talent, pay them well enough to retain them, and still end up paying much less than if we had hired the same talent through a law firm.

"The biggest savings isn't in the lower amount we pay for every hour of their times but the savings - often measured in the millions - they deliver as 'embedded' lawyers. With the in-house lawyer's economic incentives aligned completely with the clients's, the in-house lawyer spends much of his/her time spotting and stopping problems before they occur.  Increasingly global companies have figured that out.

"Big, high-caliber law departments save money.  We will always need BigLaw, in the right deal, or in the bet-the-company case, or in the area of specialized need.  But our need for outside legal services as a proportion of overall legal need will continue to shrink.

"Good lawyers will always have jobs, but in the future it is increasingly likely that they will be working for a company, not BigLaw.

"Why?  Simple.  It is a long overdue realignment of the lawyers' economic interests with the clients."

Fortune 1000 Not Happy with Outside Law Firms - BTI Reports

Jones Day came in as number-one in the recent BTI Consulting Group's survey of how the Fortune 1000 rate their outside counsel.  But in general, the survey found that BigBusiness is not satisfied with BigLaw.  And one major reason is how the law firm treats the client.  This is perceived by BigBusiness as important as legal skills.

ON LAW.COM, Katheryn Hayes Tucker notes that BTI found that clients need to see in their law firms "a commitment to help, and a lot of firms are not perceived as committed as clients would like them to be.  A primary way for law firms to demonstrate a commitment to help is to understand a client's business."  This, the survey found, is often neglected.

Halleland Lewis Nilan & Johnson came up with exactly the same findings in its independent survey of those using legal services.  More than 95 percent rated "responsiveness" as the number-one reason they selected and remained with a particular law firm.  This was more important to them than anything else, including price. Halleland has been featured in top-tier business media, including FORTUNE, for its unique organizational culture which it calls "a new breed of law firm."  Despite its size - about 60 attorneys - and its location in the Midwest, it can attract and hold onto both clients and associates.

As a consultant on culture issues, I would recommend BigLaw adapt these practices:

• Become client-centric vs self-absorbed in the organization's brand identity. Brands are build from the outside in, that is by clients.  Those clients, the BTI survey shows, are taking more work back in-house.  In this volatile new marketplace for all our professional services, the connection with clients trumps branding and clients want the good work and results, not our highly credentialed selves.  In a marketing/sales seminar of top producers, I learned "get in and get out, fast."

• Create forms of added-value that are useful to clients vs demonstrating one's brilliance or research skills.  More of us in professional services are picking up the phone and just asking, "What kind of competitive intelligence or information would be helpful - and in what form?" The medium might be a blog or podcast rather than a white paper or article published in a law journal. No coincidence, Jones Day's Mickey Pohl, who heads up firm's quarterly PRACTICE PERSPECTIVES: PRODUCT LIABILITY & TORT LITIGATION, gears the tone and content of communications to accommodate "the realities that in-house lawyers face daily."  Pohl also is head attorney on Sherwin-Williams' lead-paint litigation.

• Be accessible.  For many of us that means listening more than talking.  And slowing down.  Clients are preoccupied with their problems, not that we are in-demand and rushing onto the next assignment. Before answering the phone or composing an email, take a deep breath and tell yourself: This is worth my full attention and time.

• If your role with clients is a mere order-taker, begin coming up with and presenting a variety of other options than have been traditional or expected. In professional services, clients now expect us to be more creative and aggressive. Law firms should be assisting companies in shaping risk.

Probably the best description of our roles in our business and with clients is that of a "player."  Management expert Tom Peters explains what that is and why it's necessary in his "Re-imagine! Business Excellence in a Disruptive Age."

Tort Reform - Unexpected Consequence of Underemployed/Unemployed JDs

Tort reform may really take off with the outing of the lawyer glut.  I know the message of the extreme state of underemployed/unemployed JDs with six-digit debt is being received.  One indication is that my recent post "JD, No Job, Debt ...' is getting 1000s of hits an hour, 24/7.  The $200,000 in loans to pay back on a $15 to $30 per hour faux legal job is causing an epidemic of Sleepless in America.  Some of those hits are coming through links from other legal websites and blogs linking to it - e.g. Www.abovethelaw.com.

Does it sound counterintuitive that too many JDs will trigger a significant reduction in lawsuits?  Think about it:  The tragedy of the Class of 2007 seems to be the tipping point.  JDs who aren't making a living in law might migrate from denial and leverage their skills in another profession.  Why bother with creative theories for how to stick it to the Establishment?  In addition, just as my Baby Boomer gen wised up about not going for Ph.Ds to ready ourselves for college teaching jobs which no longer existed, gen Y and Next will too.  They will simply not default into law school.  Moreover, law schools will be ethically compelled to present elaborate quantitative risk analysis on the odds of putting together a career, any career, with a JD from that particular school.

No question in my mind:  This tragedy for 1000s of young men and women can and will prove to be a disruptive force in tort reform.  That, in turn, will precipitate other disruptions.  Philip K. Howard's classic "The Death of Common Sense" will go out of print.  Manhattan Institute's Walter Olson will shutter Overlawyered.com and Pointoflaw.com.  Unfortunately, Olson's books will also fade from the national consciousness. And state attorneys general will have trouble finding private-counsel dance partners.

Each gen has its story.  The glut in all professions which tend to send the young for degrees - law, journalism, cooking, design - might be this gen's.    

No Workplace for Old Men

Call it the revenge of the Baby Boomers.  Age-discrimination lawsuits are up, including among high-powered attorneys whose company or law firm gave them the boot post-50.  The most recent case - and it is throwing a chill across corporate America - is the lawsuit filed by Philip Morris International's former staff attorney D'Arcy Quinn, 52 years old. 

Nate Raymond of CORPORATE COUNSEL headlines her coverage of the Quinn case "Philip Morris Suit May Signal Trend of Age Discrimination Claims by In-House Lawyers."  Although Quinn is the first to do this, Raymond points out, "he may not be the last. Company lawyers are getting grayer.  According to the Association of Corporate Counsel, the median age of in-house lawyers has risen from 42.9 in 2001 to 45.6 in 2006."

And there's more.  Quinn claims that he was axed not simply because of his age per se but also because, as Raymond states, "he complained about other Philip Morris employees who were fired for being too old."  If this is not settled, it could disclose a pattern of age discrimination corporate-wide.

In tough economic times, age-discrimination complaints and actual lawsuits ususally shoot up any way. For example, the Equal Employment Opportunity Commission reports that complaints increased 41 percent between booming 1999 and the economic downturn following that. If we're heading into a recession, corporations are probably ready to reduce staff to save costs.  Older employees are targeted because they earn more than younger employees and could incur higher medical bills.   

High-profile lawsuits such as by Quinn could make prevent corporations from its traditional weeding of high-maintenance employees.

In law firms, this suing for alleged age discrimination by former partners has been going on a while.  The American Bar Association endorsed eliminating all mandatory retirement policies.  The Sidley Austin case, which settled, was closely followed.  More recently, there is that age-discrimination lawsuit filed against Sills Cummis & Gross by 52-year old former partner James Toll.

If this push-back is effective, the workplace could become age-neutral. 

Northeast OH Manufacturers Lose More Ground

On Friday, Ohio Attorney General Marc Dann will attend an informal court hearing about his proposed statewide public nuisance suit against 10 former lead paint companies.  One of them is based in Cleveland - Sherwin-Williams.  He is doing this during a tough period for manufacturers in the state, particularly the Northeastern part.

According to a report issued by the Center for Economic Development at Cleveland State University's Levin College of Urban Affairs, Northeastern OH manufacturers lost more ground than their counterparts around the nation.

In THE PLAIN DEALER, Frank Bentayou reports that, for example, the transportation equipment sector lost five percent of its jobs in the past two years while they increased nationally by one percent. The chemical industry, which pays the highest wages in the state, lost 1.8 percent of jobs. Even bigger losses were in textiles, electrical equipment, appliance and component makers, and computer manufacturing.

The exception has been the primary metals field, including iron and steel plants.  Its growth in OH was larger than what has been occurring nationally.

Another individual company bright spot continues to be Sherwin-Williams, which the state AG would very much like to sue.

Lawyers & Nanotechnology - Helping Companies Shape Risk

When it comes to nanotechnology, what's the risk level associated with these nanomaterials of less than 100 nanometers in diameter? 

The answer to that, opines THE ECONOMIST in "A Little Risky Business," is: "Nobody knows."  These particles, states THE ECONOMIST, "may be perfectly safe, but then again, they may have asbestos-like properties. ... Indeed, industry regulators and governments know little about the general safety of all manner of materials that are made into fantastically small sizes."

But companies are still going ahead and applying this new technology in products ranging from paints and varnishes to clothing and cosmetics. THE ECONOMIST estimates that the number of consumer products claiming to incorporate nanotechnology is about 600.

At this pioneering phase of nanotechnology, the lawyers are helping industry "shape" the risk.  According to management expert Adrian J. Slywotzky in his book "The Upside," to "shape" a risk means to "develop and implement strategies to reduce them and transform them into breakthrough growth opportunities."

In her essay "Product Liability Implications of Nanotechnology" which is part of Jones Day PRACTICE PERSPECTIVES: PRODUCT LIABILITY & TORT LITIGATION, attorney Robin L. Juni defines key human-health risks as increased mobility, increased reactivity and increased persistence.  To manage or shape those risks, Juni recommends:

• Comprehensive evaluation of fundamental product risks such as in the design, manufacturing process or warnings.  Is a less risky alternative available?

• Use of outside experts.  They can provide additional or fresh insight.  Also, contracting them can serve as verification that the research was unbiased and comprehensive.

• Control of documents, ranging from how communications are worded to comprehensive resporting on studies etc. 

"Product Liability Implications of Nanotechnology" is available on the Internet or from attorney editor Paul Michael Pohl who oversees PRACTICE PERSPECTIVES: PRODUCT LIABILITY & TORT LITIGATION.  Pohl can be reached at the Pittsburgh Office of Jones Day and Juni and the Washington office of that law firm.  Pohl is the head attorney representing Sherwin-Williams in lead-paint litigation.

Lead-Paint Risk - Where Did It Go?

Both the toy aisles in the Big Boxes and the upscale boutiques are packed this holiday season.  So where did the high concern over the risk of toys covered with lead paint go?

Actually, there's an answer to that.  When we human kind feel compelled to be optimistic, explains management expert Adrian J. Slywotzky, we will simply downplay the odds of bad stuff happening and way overestimate the probability that everything will turn out ducky fine.  In his new book "The Upside: The 7 Strategies for Turning Big Threats into Growth Breakthroughs," Slywotzky cites the 80 percent failure rate in the venture capital industry - one of the most optimistic around. 

Parents, it turns out, are not having a toyless Christmas for their children.  So they're engaging in the same thought processes every other risk-taker does: Denial, feeling of being too smart/careful to wind up buying leaded anything, tactics to supposedly minimize risk which is usually just magical thinking, and getting affirmation because everyone else is also doing the same thing.

Question:  Will this indifference to the Lead Threat seep into the public perception of lead paint in older housing?

American Law Schools & Full Disclosure

We tend to default into getting a professional degree when we're confused, the economy is lousy, or we're too discouraged to think out of the box.  I know.  In my last bout of underemployment I seriously considered getting a Master in Journalism.  And the administrators for those degree programs strongly encourage us to:

• Yes, enter.
• Borrow as much as we need to get through without being distracted by money.

Like law, journalism is a field with a glut of everything - seasoned pros, newbies, and interns willing to work for free.  Yet, there is rarely full disclosure about the risks involved, never mind the opportunity cost of not earning wages for one to three years.  Those risks include:

• Being perceived as over-educated or over-degreed.  [When I left the Ph.D. program jobless, a shrewd relative told me to leave all that "nonsense" off the resume.  She was right.]
• Being trained for a profession that probably will not pay high enough wages for years in order to comfortably pay off loans.  At the top tier of law and journalism, folks make a bundle.  The rest never will.
• Becoming a student can precipitate regression in confidence.  And as Harvard B School prof Rosabeth Kanter notes in her book by that title: Confidence is everything in organizations and careers.
• Given the glut, maybe no job will be obtained in that field and with the extra degree it's more difficult to nail something full time in another field.
• Leaving the program before completing the degree.  Life is completely upset and may not get on track for a year.

Academia is supposed to be one of the "special institutions" in society.  It is treated differently by government and the public because it is special. Yet, in marketing and selling its degree programs it seems to be just like any other entity in capitalism looking to enhance its P&L. 

Should higher education be held to the same standards of full disclosure as consumer products and services.  Shouldn't failure-to-warn be punishable?

Realization:  The conventional wisdom is: Another degree can't hurt.  It can.