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The forecast is foreboding –
recession ahead – and everyone is scrambling for safety. But what does
is mean for the legal profession?
Some experts believe the legal profession is recession-proof; in good
times and bad, there is always a need for lawyers. But others say the
demand for legal services is already declining and could drop even lower
in a recession.
Most agree, however, that law firms have learned from the errors of the
past and are now better equipped than ever before to handle an economic
downturn.
"The legal industry is more recession proof than most," says Peter
Zeughauser, founder of management consulting firm Zeughauser Group.
"Clients will have legal needs in down times and have legal needs in up
times – they may be different needs, but they'll have them. As a service
business, the legal industry is generally recession proof."
Practice areas likely to remain healthy even in a recession are
litigation, intellectual property, restructuring and
bankruptcy, Zeughauser says. Those likely to slow are
transactional areas such as mergers and acquisitions and private equity
work.
Zeughauser's perspective is one shared by many – litigation will remain
strong while major transactions will taper. But a just-released report
concludes that a confluence of economic factors could challenge that
conventional wisdom.
The January 2008 Client Advisory jointly
issued by Hildebrandt International and Citi Private Bank finds that the
current economic downturn is hurting the legal industry across all
practice areas.
"In a sense, the current downturn has thus far been a 'perfect storm' in
which finance, transactional, and litigation work have all trended
downward at the same time, with no offsetting surge in work related to
the economic downturn itself," the advisory cautions.
Still, that downward trend is likely to turn up as the recession
deepens, at least for litigation, says one of the advisory's authors,
Danilo S. DiPietro, head of the Law Firm Group at Citi Private Bank in
New York. "There is already some evidence that high end litigation and
investigatory work are picking up."
The reason litigation remains strong during a recession is no surprise.
Even when the economy is down, companies still want to sue each other,
notes John A. Jordak Jr., a partner with Alston & Bird in Atlanta. "In
fact, companies might be more inclined to sue if the economy is down."
In his focus area of securities litigation, that also holds true, Jordak
says. "Class actions are filed typically when the stock price of a
company takes a nose dive. If the market is jumpy, you'll have more of
those cases filed. So a recession can often mean an up tick in our
work."
FIRMS BETTER PREPARED
Industry observers agree that most large law firms learned valuable
lessons from the economic downturn a decade ago and are better prepared
than ever to weather any approaching economic storm.
Ward Bower, principal of legal consulting firm Altman Weil Inc.,
suggests that the key to being prepared is for a firm to diversify into
countercyclical practice areas and to be prepared to downsize where
necessary. Also, firms should cross-train lawyers in areas such as
corporate law and real estate to handle matters on both sides of the
cycle.
Jordak believes this is why larger firms such as his are better able to
withstand the vagaries of the economy. "For a firm such as Alston with a
broad base, if one area is down, others go up, so it equals out over
time."
Even so, some firms are tempted to hunker down in the face of a
recession. That can be a mistake, Bower warns, because they may be
missing opportunities presented by the recession to expand through
lateral hires and mergers. "Firms that are adequately capitalized can
find recession to be a growth opportunity."
Also important is for law firms to be flexible in their staffing,
advises Jordak. "Firms need to have the flexibility to assign associates
from an area that's down to a more active area."
Others suggest trimming may be in order. "Look extra hard at the quality
of your lawyers," recommends Donald A. Loft, a partner with Morris,
Manning & Martin in Atlanta. "Get lean and market the firm harder.
Incentivize your good marketers to get out there."
Citi's DiPietro is even blunter: "Firms are recession resistant, not
recession proof. This is an opportunity to shed unproductive lawyers via
rigorous performance reviews." .