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Law Firms Curtail
Associate Programs
As Economy Slows

The Wall Street Journal
April 14, 2008

For associates at law firms, how quickly things have changed.

This time last year, salaried lawyers at many of nation's largest firms had just scored a pay bump, as business was blazing and firms were scrambling to keep talent. Now, due largely to a slowdown in work relating to mortgages, real estate, mergers and private equity, some firms are rescinding offers to incoming associates and summer associates, asking first-year lawyers to start several months later and shortening their summer programs to save money.

New York-based Pillsbury Winthrop Shaw Pittman LLP, which employs more than 800 lawyers, recently shrunk the duration of its summer-associate program, which in some offices had been 12 weeks, to 10. And rather than have all incoming first-year lawyers start in September, the firm is staggering start dates over several months. Chicago-based Sonnenschein Nath & Rosenthal LLP, a 700-lawyer firm, last month rescinded employment offers for two summer associates and two first-year associates in its Charlotte, N.C., office.

Associates are key revenue generators for law firms. Firms generally charge clients an hourly rate for associates' work, and the more work firms can assign to associates, the more they can earn. But associates are expensive as well, especially now, after firms jumped to match each other's raises for them when times were good.

The salary for many entry-level lawyers at large firms in big cities is currently $160,000 per year. Summer associates -- typically law students between their second and third years of law school hoping for offers of full-time employment after graduation -- often get paid by the week at a rate pegged to the first-year associate salary. In many offices, summer associates in 2008 will bring home $3,100 weekly. So shaving weeks of employment can mean real savings for a law firm.

"Law firms, Pillsbury included, are facing a challenging economic climate in the short term and we are examining how best to face this challenge in a way that both maintains our collaborative culture and sustains the firm's long-term success," said Pillsbury's chairman, James Rishwain. "One way to achieve this is to take a closer look at our associate programs."

Elliott Portnoy, the chairman of Sonnenschein, emphasized that the rescinded offers in Charlotte were because that office had been heavily concentrated in work related to commercial mortgage-backed securities, which involves the packaging of mortgages into securities. "We don't want to create a dynamic in which our existing talent is having to compete with new people," he said. "It would be unfair to them and unfair to the new folks."

News of the actions follows reports from last month that Thelen Reid Brown Raysman & Steiner LLP, a 550-lawyer firm based in San Francisco and New York, dismissed 26 associates. Thelen also trimmed its summer-associate program by three weeks -- to eight from 11 -- and pushed back the start date for this year's incoming associate class by several months. The firm's chairman, Stephen V. O'Neal, blamed the layoffs on both the troubled economy and consolidation following a 2006 merger which resulted in the combined firm having duplicate offices in New York and Los Angeles, two of which were eliminated last year.

Scaling back the summer program for law students and delaying start dates for new hires are unusual moves for law firms, which worry a great deal about how they are perceived in the marketplace for talent, considered highly competitive in good times. Still, the moves represent more "tinkering around the edges rather than doing anything really radical," like large layoffs says James Jones, senior vice president at legal consulting firm Hildebrandt International. Law firms, he says, are reluctant to lay off people because it is expensive and time-consuming to staff up when the market regains its vigor.

So far, there have been few reports of layoffs and those that have occurred have mostly been at firms that have had a significant practice in mortgage-backed securities and other structured finance work. "Most firms are taking kind of a hunker-down, let's-wait-and-see attitude," says Mr. Jones, who adds that economic pressures aren't hitting all firms equally. "I know some firms that are very busy right now."

While lawyers may be happy to have jobs in a slowdown, not all have a full plate of work. "I come to work and expect 12-hour days and it's just not happening," said one junior associate at New York's Weil, Gotshal & Manges LLP. "People have encouraged me to take on pro-bono work, and I have, but there are days when I don't have enough to do from 10:30 to 6."

"I'm not exactly complaining," said the associate. "I'm going to the gym a lot, but frankly, I'm a little bored."

Stephen Dannhauser, the chairman of Weil Gotshal, said the associate's experience was "atypical." "In any downturn, you're going to have an associate or two who may not be completely productive, but that's not representative." He said that while the debt-financed acquisitions were down, the corporate department was still "seeing substantial activity among private equity and M&A in middle-markets," adding that "our numbers in the department are above budget."

One trend that could materialize in a downturn is "hoarding" of associate-level work by partners who, like associates, are generally expected to maintain a certain level of productivity each year. Mr. Jones says his firm advises managers at law firms to discourage hoarding, which he called a "natural phenomenon" in a recession. Hoarding doesn't necessarily lead to inflated bills as partners may be more efficient, lawyers say. But hoarding, they say, can lower associate morale and reduce training opportunities.

"When work begins to dry up, the partners tend to hoard it, and you see precipitous dropoffs" in hours of associates, says Mr. Jones. "We think that's a bad idea." He says his firm counsels firm management to tell partners: "It's OK to spend some time on the business development side" and that "we accept the fact that the billable hours are going to be down somewhat."