Companies used to depend on elite law firms to train new lawyers they could bring in-house years down the road.
Now, some are just doing it themselves, hiring directly from law-school campuses rather than recruiting lawyers who had previously spent a few years at a major firm. These companies are growing weary of paying high hourly rates for inexperienced law-firm associates.
Hewlett-Packard Co. was one of the first known companies to bypass law firms in recruiting new lawyers.
"I think it's the wave of the future," said Michael Holston, H-P's general counsel.
With the downturn in the economy, some law firms were sharply downsizing their student hiring, and this created an opportunity for H-P to go directly to the law schools instead, he said.
Billing for work by junior lawyers at law firms has long been a major profit center for law firms. The average hourly rate for a non-partner associate lawyer at a law firm rose to $378 in the second quarter, from $338 three years earlier, according to data from Peer Monitor, a unit of Thomson Reuters. The current average hourly rate for first-year associates at law firms is $283, it says.
In the past, a lawyer coming to work at Pfizer was usually one who had been practicing law for at least seven years at a law firm. But the pharmaceutical company, which employs an estimated 300 attorneys in its in-house legal department, recently recruited three third-year law students from Harvard Law School and Yale Law School, as part of a pilot program that it plans to repeat this fall.
"We need the services of first years and we need to train a generation of lawyers who know how to respond to what clients need," said Amy Schulman, Pfizer Inc. general counsel. She says she also believes the approach will help enhance its relations with outside law firms. Pfizer pays its domestic law firms largely through flat-fee arrangements.
H-P, which previously hired lawyers with five to seven years of experience, began to recruit at law schools in 2009. It will dispatch H-P lawyers from now through this fall to 13 law schools to select about six third-year law students for full-time in-house positions, in Palo Alto, Calif., and Plano, Texas.
The technology company, which has an in-house legal department of 450 to 500 lawyers globally, said it intends to "cross-train" its recent law grads in conjunction with some of its law firms, including Morgan, Lewis & Bockius LLP and Gibson, Dunn & Crutcher LLP.
The recruits work in entry-level litigation, intellectual property, corporate and commercial law matters exclusively for H-P, Mr. Holston said.
"We like to think that you can do anything at Hewlett Packard that you're going to do at a law firm, except that you're not going to get the same in courtroom trial experience," he said.
There is one downside: Fresh law-school grads who join H-P, for instance, earn $115,000 per year, plus a $15,000 signing bonus. That salary is about $45,000 less than the salary paid to first-year associates at major New York law firms.
Such company programs are considered radical by many other general counsels. The function of a company's legal division is to serve the business, not train future lawyers, they say.
Partners at law firms believe the corporate recruiting programs can be useful, but only to a limited extent.
In a business downturn, a company's foray into legal training is also vulnerable.
Citigroup Inc. in 2009 suspended what it had dubbed the "CitiSelect" initiative "due to the economic environment," according to a spokeswoman, though there are still some participants recruited in previous years.
The program, started in 2006 and aimed at hiring second-year law students, operated much like a typical big-law firm summer associates program, except the students spent half the summer at Citigroup and half their time at law firms. After completing their third year and passing the bar, the participants worked briefly at the firms then would join Citigroup as full-time junior lawyers.
The law firms didn't bill Citigroup for the work the CitiSelect associates would do. They worked on matters not only for Citigroup, but for the firms' other clients as well.
The CitiSelect junior lawyers received pay in line with the $160,000 annually paid to new junior lawyers at major law firms, plus upfront bonuses of roughly $35,000.
Some law school students, facing a challenging labor market, said jobs at top law firms are no longer the obvious choice.
"I expected to go to a law firm. That's the traditional path," said Dargie Anderson Bowersock, a graduate of Northwestern University School of Law, who spent the summers of 2008 and 2009 working at Skadden, Arps, Slate, Meagher & Flom LLP. Skadden told her and other summer associates in 2009, that due to the recession, it had to defer their start dates. In October 2009, she decided to interview with H-P. She joined its corporate group in October 2010.
Bethany Foster, a recent Yale Law School graduate who will begin working in September for Pfizer, said she had "very little luck" as a third-year student last year when she interviewed with several law firms. But then Pfizer interviewed her and hired her. Now, it will pay her salary for two years.
A spokesman said her compensation would be "competitive" with that of associates at major law firms.
After working at Pfizer in New York for six months, she will move over to a law firm, in her case, Ropes & Gray LLP, for six months to work on Pfizer matters. She will also split the next year between Pfizer and Ropes & Gray. If she performs well, she will be able to choose whether to stay in-house or join Ropes & GrayŚcontingent on the hiring needs of each.
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