Law Firms and Recession - A Bifurcated Story

 "Soros' Money Manager [Dawn Fitzpatrick] Warns Recession 'Inevitable.'" - Bloomberg, May 31, 2022.

Left out there for speculation: So, how severe will the downturn be and how long will it hang on? 

LAW FIRMS MOST IN DANGER

The most vulnerable law firms during a downturn? They include:

• One-trick ponies. At the top of the list are those which invested heavily in beefing up their M&A practices over the past five years.

• Litigation practices, which were beginning to rebound, could have a setback. Corporations tend to put on hold "elective" litigation. Remember, also, last year litigation funder Burford Capital had a net loss of $56.4 million.

• Big Law firms which haven't diversified beyond lawyering. The Wall Street Journal warns that becoming a full-service business vendor and launching other kinds of profit centers such as consulting about risk management are now necessary. That can help meet the competition from the Big Four. Among those which have moved in that direction are Dentons and Ropes & Gray.

• Those without the financial reserves to keep paying that nosebleed associate compensation. Even before any downturn they were wobbly.

THE NEW MEMES

Of course, that is where the lay offs will start. And the two-year-plus narrative about the boom will shift to what it takes for a law firm to survive and even have a shot at growth amid a down economy. 

The story will develop myriad memes.

At the top of the list will be the peril, which associates should have factored in, of skyrocketing compensation. They were sitting ducks to be purged.

Other themes will be, yes, how the tradition-bound legal sector has to reset. The recession will be positioned and packaged as the tipping point for that.

There will also be the usual one: No job security in the law firm niche. Not anymore. Partners could be forced out. That kicked in at Kirkland & Ellis in 2009. Back then, it affected non-equity partners. It could seep into the equity ranks. 

Of course, reductions-in-force are clickbait. So expect for legal media and social networks to make hay with the subject. Abovethelaw, RollonFriday, and Subreddit Big Law will be busy bees.

LOST SLEEP FOR LAW SCHOOL DEANS 

The implications for law schools are staggering. Will new graduates, like new hires at Meta and Twitter, find themselves experiencing snatched-back offers? Law school deans will have plenty of explaining to do about their job-placement.

Also, bring back the age-old story line of the defense of the financial investment and the student loan debt involved. According to the American Bar Association the average debt is $165k. Early versions of the Biden Administration proposal for student loan forgiveness rule out that for professional education such as law and medicine. 

SO, WHO'S GOT THE WORK

Meanwhile, a subcategory of memes will be law firms which don't have to resort to RIFs. The opportunity for brand enhancement for them is profound.

Those who got the work will include the law firms which are diversified. 

Another kind will be those flush with cash from boom times. They can afford to keep making those expensive lateral hires. The presence of those brandnames will be doing all the heavy lifting in landing those plum assignments. In professional services clients come for the stars, not the name of the firm. They want X wunderkind to handle their business, not the firm itself.  

Of course, there will also be those with an edge because they have the big names in restructuring and bankruptcy practices. An example is Paul Weiss which makes it its business to attract, retain, and motivate the leaders in a niche. That includes its restructuring practice.

Recently Lawdragon recognized 13 of Paul Weiss' partners in the "500 Leading Bankruptcy and Restructuring Law for 2022."

In addition two of its partners Alan Kornberg and Elizabeth McColm published the USA chapter in the International Comparative Legal Guide (CLG) to Restructuring & Insolvency Laws & Regulations 2021-2022. Here is that chapter, available to be read, at no charge. On LinkedIn, where I presented the chapter's highlights, that particular post is receiving heavy traffic. You bet, restructuring is hot. 

In addition Paul Weiss is diversified, both in its transactional and litigation practices. It has also gone beyond traditional lawyering services. That includes its ESG and Law Institute. 

MEANWHILE, LAW FIRMS BULLISH ON THEMSELVES (at least that's the story being signaled)

Doom and gloom - that's always a good story in itself. But the reality is that the law firm sector might not be overwhelmed with a dramatic falloff in demand.

In fact, there are signs that law firms will continue their success, only adjusted for more normal demand. For example, the large number of summers hired screams the optimism of law firms, as Law.com chronicles. 

The reality is that in this volatile global and US economy there are emerging new kinds of opportunities and Black Swans. No business, including the business of law, really knows what's around the corner. 

Connect with Editor-in-Chief Jane Genova at janegenova374@gmail.com. Now and then she does freelance assignments for professional services firms such as law. Those include Paul Weiss.