A traditional legal maxim states that, "law is recession-proof." (Andrew Kitchenman, Recession changes the letter of the law, NJBiz, November 16, 2009.) Despite decades of growth and unprecedented profit, most law firms have learned that this maxim does not always hold true. As the "great recession" has crippled industry and consumer spending, it has also exposed the bloated structure of law firms and has ushered in major changes that may alter the field forever. In order to forge successful careers, young lawyers and students must be cognizant of the impending changes and the forces behind them. One thing is for certain, today the law firm structure is in peril, and if history is any guide, a threatened entity is far more dangerous than a secure one.
Over the last two decades the legal field has enjoyed unprecedented growth. In 1987, the average number of lawyers at a NLJ 250 firm was 194, by 2008 that number had grown to 535. (James Jones, Trends Impacting the Legal Profession, April 3, 2009.) This growth indicates the increase in demand for legal services that has spurred massive hiring in the associate ranks. Competition for talent was fierce and firms were hiring dozens of first year associates at salaries as high as $160,000, despite the minimal value these young lawyers contributed. (Tamara Loomis, Has the recession forever changed large law firms, The American Lawyer, October 6, 2009.) Firms have been able to sustain these hiring practices because demand for client services was robust.
Traditionally, law firms have been quite resistant to downturns in the economy. (Loomis at 1.) Upticks in bankruptcy and litigation activity usually counterbalance periods of economic decline. For example, in the late 90's and early 2000's, the legal profession remained viable and healthy despite the dot com bust and corporate scandals such as Enron. (Loomis at 1.) This recession has proven to be unique and much more severe. Most recessions are precipitated by over exuberance in a segment of the stock market, and followed by a lack of confidence that drives the stock market down, which is typically called a recalibration. The 2008 crisis is unique because it involved real losses to critical economic infrastructures such as banking, finance, and real estate. As a result, corporate mergers have stalled, and corporations have not only slashed demand for legal services, but also are less willing to pay high prices for their work. (Loomis at 1.)
In regards to severity, since the official start of the recession in 2007, more than 40,000 legal services jobs have disappeared. (Erin J. Cox, Economic crisis is a terrible thing to waste: Reforming the business of law for a sustainable and competitive future, 57, UCLA Law Review, 2009.) Over one particularly hectic ten-day stretch in February 2009, over 2,500 positions were wiped out completely. (Cox at 57.) The legal profession is now in disarray.
This is the first in a seven-part blog post series from Building a Better Legal Profession on the unprecedented current state of the legal profession. We'll cover the effects of the recession on the legal industry, the short-term solutions that BigLaw firms are employing and their effects, some of the long-term changes that we think are likely, and finally, what law students can and should be thinking about as they venture into the legal profession's brave new world and a wrap-up overview of where we see the profession heading.
Building a Better Legal Profession (BBLP) is an organization based at Stanford Law School. BBLP is a national grassroots movement that seeks market-based workplace reforms in large private law firms. For more information, visit BBLP's Web site at www.betterlegalprofession.org.