Becoming Recession Proof

Recession proof
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If you have been practicing law for even a few years, you’ve had to deal with recession. For the more seasoned attorney – multiple recessions. While the recessions of the late 1980s to early 1990s and later in 2002 to 2004 were difficult times, they were of course nothing compared to what we have all just lived through since 2008. Economic recessions will probably always be with us, but are there steps law firms can take to better cope with these down times? Aside from the obvious synergy of real estate and bankruptcy practices, is it possible to become recession proof?

I recently polled partners from local firms of various sizes about how they coped with the recession and in hindsight, what they could have done differently.

Clearly, having a diverse practice mix without one client or lawyer controlling a significant percentage of firm revenues has seemed to help many firms. However, even those with both real estate and bankruptcy practices often found that this was not enough to offset the dramatic loss of work. Gammage & Burnham was one such firm with a very large real estate practice and a creditor’s rights practice. When G&B found that there wasn’t enough creditors/ bankruptcy work to fully take up the real estate slack, they were fortunate to also have a large health care reimbursement practice – a practice area not affected by the recession.

A few of the local multi office firms who found themselves busier in another office rather than Phoenix were able to share the work within the same practice area.

Cost cutting seemed to be the most prevalent practice from solos to nationals. Many larger firms scaled down or discontinued summer programs and hiring of new attorneys. While many staff, associates and partners were let go, some firms were able to resist resorting to layoffs, instead letting attrition occur naturally and not replacing those who moved or retired.

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The upside to all the layoffs was that many firms were able to take advantage of the stellar associate talent that might not have been available to them before the recession. A few firms maintained a smaller program and hired proactively, hoping the work would be there. In hindsight, some firms now regret that they did not take greater advantage of hiring opportunities. Greg Falls, a partner in the Phoenix office of Sherman & Howard, candidly admitted that he wished his firm had made “greater use of our strong financial position and lack of debt to hire more lateral talent.”

Taking advantage of talent opportunities proved to be the case for some firms acquiring partners from larger firms. For example, as a recruiter, I noticed a trickle down effect related to billing rates. A number of large national firms inexplicably chose to deal with reduced revenue by requiring partners to raise billing rates on their already strapped clients. Smaller firms were often able to take advantage of these partners – many with solid practices – by offering a more compatible practice home where similar or lower rates were the norm.

So what have we learned? Chris Berry, of Berry Law Group felt that “we are not going to go back to the old days. Mid-level and small businesses have learned that they can handle disputes on their own and lawyer fees usually push matters to the losing side of the business cost-benefit analysis; reducing the need for lawyers in general. When less money is available, people are smarter with it and more demanding of their service providers and the poor economy has definitely weeded out the amateurs. The practice models and reference points of not so long ago are now gone for good.”

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John Cummerford, a partner with Greenberg Traurig offered the following advice: “Everything you do as a lawyer or a firm should be about fulfilling client needs as we perceive them, not about building an empire or reaching a higher place on some chart.”

And going forward? A common theme seems to be that it is not enough to simply stay focused on a client’s needs. Lawyers need to maintain a new heighted awareness of a client’s economic condition and the connection to their servicing firms. When the economy is turning for your clients, it may also be turning for you.

Finally, I have also noticed that Phoenix, as a middle market city, seems to cycle a bit behind large markets like New York and Los Angeles. Arizona firms can take advantage of this lag by using it as an indicator – the canary in the coal mine – for our future economy. Phyllis Hawkins

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