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Legal Beat
No Joke: Law Firms Hire
More Lawyers Than Needed

August 27, 2008; Page B9
The Wall Street Journal

Over the course of the summer, leaders at the country's biggest law firms have come to an unpleasant realization: They're about to employ more lawyers than they need.

This is no small issue. With their $160,000 annual salaries, many first-year attorneys make for expensive paperweights. "It's an acute problem," says Dan DiPietro, the client head of the law-firm group at Citi Private Bank. "It's much worse this year than it's been in years previous."

So how did the nation's biggest, richest firms get themselves into such a bind? There's a macro and a micro answer. Part of it lies with the credit crunch, which has decimated deal work, one of many firms' major revenue streams.

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But blame also lies with the legal industry's strange and rigid hiring process that has been entrenched for a long time -- one that dictates that law firms more or less commit to hiring a set number of new lawyers a full two years before they start their full-time jobs.

When times are good, the system isn't a problem. There's plenty of work to go around and, even so, profits are good enough to float some extra weight. But for firms, the good times came to a halt in August 2007, with the freezing of the credit markets. Now, some smaller firms are ditching their summer-associate programs, the traditional linchpins of the hiring process. And larger firms are wondering whether the programs have outlived their usefulness.

That said, don't look for the system to die quickly; most tradition-bound law firms, risk-averse institutions that they are, fear the consequences of ditching the system. In fact, some firms that recently had layoffs are still bringing in a sizable roster of new hires this fall, showing how difficult it is to turn the tide.

Here's how it all works: Early in their second years of law school, students apply for highly coveted law-firm internships for the following summer. The summer programs, legendary for their wining-and-dining extravagance, are ostensibly tryouts for the students. Those who do well will be invited back to work full-time 12 months later, in the fall following their third (and final) year of school.

But in reality, the programs aren't meant to separate wheat from chaff. Even in down markets, firms hand out job offers to nearly everyone, fearing that to do otherwise might set tongues wagging at the law schools -- that a firm is troubled, or unfriendly to women, or, perhaps worst of all, a cutthroat "sweatshop."

The system gives students a lot of certainty. After receiving offers at the end of their internships, students can breathe easily through their third year of law school, knowing that full-time employment awaits after the bar exam.

But the system provides too much certainty to the firms, causing them to commit to hiring in a way virtually unheard of in most other industries. Investment banks typically wait until the late winter or early spring before offering full-time jobs that start in the fall. The large consulting firms, like KPMG LLP and PricewaterhouseCoopers LLP, use their summer internships to fill 50% to 60% of their anticipated slots for the following year. The rest, they pick up on an as-needed basis.

But no time in recent memory has the flaw in law-firm hiring process been so glaring. That's because the credit crunch came on so suddenly in the last summer of 2007 -- just as that flood of full-time job offers was going out. Firms didn't know just how bad market conditions were going to get.

"It's created challenges," says James Rishwain, the chairman of Pillsbury Winthrop Shaw Pittman LLP. Earlier this year, Pillsbury and other firms decided to stagger the start dates of its incoming associates to several months over the course of the fall, rather than having them all start in September. Still, Mr. Rishwain says the firm continues to be "firmly committed" to providing work for all 84 incoming lawyers-to-be. "We'll look for secondment opportunities," he adds, referring to arrangements in which lawyers work on loan for a period of time with a particular client. "And technology will help us. Lawyers in L.A. can work on New York-based projects, and vice versa."

Given its shortcomings, why has the first-year hiring process proved so durable? Mr. Rishwain and others say the social functions and mentoring of a summer-associate program builds camaraderie and morale across all levels. And the programs give both the firms and summer associates the opportunity to back out of a bad fit.

But others see a different explanation. "The reason hiring is still done this way is tradition," says Mark Rust, the head of Barnes & Thornburg LLP's Chicago office. "It's existed for decades and hardly anyone gives any critical thought to it." Earlier this month, Mr. Rust's Chicago office decided to do away with its summer-associate program, largely because of the hiring difficulties it creates. "Now, when we look at our staffing, we ask, 'Who is it that we need?' " he adds. "If we need a restructuring lawyer, we'll go out and hire one as a third-year or as a lateral attorney. It's 'just-in-time inventory.' " (Other Barnes & Thornburg offices decided to keep summer-associate programs, however.)

Arnstein & Lehr LLP, a midsize firm with offices mostly in Illinois and Florida, also this month announced it was chucking its summer-associate program. "We'd be interviewing in 2008 for people who would be coming in the summer of 2009 and ultimately starting in 2010," says Ray Werner, the firm's chairman. "We need a better crystal ball than we have to make this work."

Among the bigger firms, however, few, if any, are thinking about getting out of the game. "You may see a reduction in programs, a reduction that's not related to the economy," says Jay Zimmerman, the chairman of Bingham McCutchen LLP. "But to get the best law students, the best talent, you absolutely have to be in this market."

Adds Mr. Rishwain: "It's not a perfect system, but it's the one we have."