Things are Looking Up -- for Now

Cravath, Swain & Moore is raising the starting salary for first-year associates to $180,000 beginning July 1, and other firms are following suit. It's merely a base salary; bonuses will sweeten the pot even more. This, of course, will mean pay increases for other associates.

Bad Economy is receding rapidly in our rear-view mirrors as we drive toward a better place. That's good news. But it's important for all lawyers to remember that good times don't last indefinitely. Not so long ago headlines screamed about associate and staff layoffs, the de-equitization or demotion of underperforming partners, and the postponed hiring's of new law school graduates.

To compound the problem, frenzied mergers, lateral hiring and law school recruiting from prior years gave many firms overly high head counts just as demands for legal services turned soft.

No law practice is immune from the economic cycles. That's why every firm needs a strategy for staying viable in the face of changing times. As we've learned through the years by watching the collapse of many venerated and long-established law practices, we have to keep a constant eye on the business fundamentals of the firm, whether the broader economy is at its bottom or at its zenith.

Law practices everywhere should be ready to adapt to meet the challenges and opportunities of any changing economy.

As a law firm sets goals and makes plans for how to adapt, many of its business decisions will be driven by two salient factors: the size of the firm and the firm's practice areas.

Size of the firm

Size is one of the key distinctions among law firms, which range from international "Big Law," to midsize regional firms, to small or solo practices. There are advantages and disadvantages to each.

The pros of working for larger firms include larger clients that tend to have more sophisticated matters or bet-the-company litigations, so the lawyers in that environment tend to earn more money.

On the other hand, in the recent economic downturn, large firms faced a challenging economy in which finance, transactional and litigation work turned downward with few offsetting increases elsewhere.

Many regional midsize firms do well in a down economy since they have less bloated operating costs than the big firms, but still have enough lawyers to put together cross-practice teams to service client matters.

However, midsize firms are too small to be competitive for the better, more lucrative larger matters and clients.

Small firms, including solo practices, typically have talent challenges. These practitioners usually can't charge the higher fees, and they also tend to write off more billings than large-firm lawyers. However, small-firm lawyers tend to have a better work-life balance.

Practice areas

Law firms generally can be defined as either boutique practices or full-service firms. Some people say that lawyers should "specialize or die," but I have seen many generalist firms survive and thrive because they were able to adapt to a changing market.

On the other hand, when a particular practice area is "hot" and the firm is a boutique specializing in that area, a specialist firm may be better able to attract particular clients.

To adapt to the changing needs of the market, you could change your practice area when the one you are practicing in declines; be a larger firm with numerous practice areas so that lawyers can shift from one practice area to another; or be a general services firm while marketing one or a few specialty areas to differentiate your firm.