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. 

Comments

[liz]

Thank you so much for being honest and compassionate in your commentary.

[Supremacy Claus]

The US is overlawyered by about 500,000 out of 1.3 million. Every lawyer destroys a $million in economic value. The law is in utter failure in every goal of every law subject. Its sole success is in rent seeking. Any correction can only be good. Nations that are underlawyered, such as Japan, India, China, have low crime rates, and good economic growth rates.