The 2009-2010 Market - What It Means for Entry-Level Hiring

The national economy is in the midst of the most serious recession since the mid-1970's. Large and mid-sized law firms struggle with decreased demand, static or falling revenues and profits, and the challenges posed by the need to reduce partner and associate headcount. Law firms have been hit by two massive changes in the flow of business.

‘ First, the severe recession led to a dramatic drop in the flow of corporate and finance work. This impacted law firms on Wall Street, other major markets, and secondary markets nationally. Many firms saw utilization fall from 110% of budget to 30% - a massive change by any measure.  Associates accustomed to working 200-250 hours a month in 2006-2007 found almost nothing to do in late 2008 and early 2009.

‘ Second, litigation has always been the counter-cyclical Clydesdale - steady, large, and reliable. For years routine and bet the company litigation stoked the fires of law firms across the country. And then something happened. In the last five years the volume of complex litigation has fallen. Clients are developing sticker shock over hourly rates in general and the costs of E-discovery in particular. More than ever clients want to settle rather than fight a protracted battle that has enormous expense and uncertain results. The impact: in law firms nationally - litigators are not nearly as busy as they were 5 years ago. Partners scramble to stay busy. Associates struggle to get real responsibility on substantial matters. Law firms know they need fewer new litigation associates. This has nothing to do with the recession. And it has everything to do with a structural permanent change in the hiring calculus for firms in all markets.

All of this has a direct, immediate, and significant impact on entry-level hiring in general and summer programs in particular. In the past eighteen months scores of firms have terminated large numbers of associates and partners. Several large firms have failed. Firms have withdrawn from offices in various markets.

                        Summer associate offer rates have fallen. Over the last year most large and mid size firms have announced deferred associate start dates, furlough programs, or stipends for associates to take public interest or other positions for 6-24 months.

                        This is done to manage headcount while trying to maintain relationships with former summer associates and others who have received offers of employment.

                          Recruiting has inherent and significant delays - the student seen on campus in the Fall does not arrive as an associate for 24-30 months. Firms understand that the depth of today’s recession may be replaced by a steady healthy recovery in 2-3 years and do not want to be caught short when the next period of economic growth occurs.

                        This Fall most leading firms slashed the number of offers extended to 2L’s for next year’s summer program because of continuing uncertainty about the flow of business. Most law firms are planning for smaller summer programs in 2010 than they had in 2009. And most law firms extended lower percentages of offers at the end of the summer of 2009 than they did in the past three years.

            What does this mean for students who will be summer associates in 2010?  Higher expectations, higher risks, greater pressure, and in general a tougher environment. All is not  Bleak House by any means. The best and the brightest will fare well. Those with exceptional writing ability and people skills will succeed. But the summer associate whose performance, attitude, and commitment is substandard is highly likely to fail.

            There is good news in this sea of chaos and confusion.

First, the rising stock market and modest increases in corporate finance activity could be a reliable signal of a recovery, which will lead to more work for law firms nationally.

‘ Second, law firms are doing a far better job of managing head count than they did in 2000-2008. While this adjustment has not been pain free by any means - most firms are not over hiring  for 2L’s and 3L’s which means that there will be fewer  instances of “no offers” at the end of the Summer of 2010 than in the three previous summers.

‘ Third, compensation is resetting - but not at a dramatically lower level than in the 2005-2008 boom.

‘ Fourth lateral hiring of associates has resumed - at far lower levels than in 2005-2008 - but Lazarus has awakened from his coma. Lateral hiring of associates is a highly reliable indicator of stability and growth in entry level hiring.      

‘ Finally, many mid-level and senior corporate associates at leading firms are extremely busy - something that reflects lower headcounts and increased activity - another reliable indicator of better times ahead.