Skepticlawyer

A few posts back, I made a cynical comment about the impact of the global financial situation on the fortunes of lawyers:

Globalisation brings new challenges for creditors in corporate collapses. I will be fascinated to see how this latest crisis works out. About the only people who will emerge with smiles will be those thousands of lawyers mentioned above.

Seems I might have been wrong. According to this article in the New York Times, even law firms are feeling the strain of the economic downturn:

In downturns of years past, law firms exploited corporate failures and bitter, protracted lawsuits to keep busy and keep billing. But in this still-unfolding crisis, the embittered and the bankrupt have been relatively slow to appear, at least in court.

Law firms in turn are feeling the strain. Thelen and Heller Ehrman, two firms whose deep San Francisco roots extend back decades, have collapsed outright, in part because of the business slowdown. Each firm left several hundred lawyers out in the cold. Many others, including Sonnenschein Nath & Rosenthal and Katten Muchin Rosenman, two Chicago firms ranked among the nation’s hundred most profitable by American Lawyer magazine, and the international giant Clifford Chance have jettisoned dozens of associates.

Still others, like Powell Goldstein, a firm based in Atlanta with more than 200 lawyers, are merging with larger rivals in deals that may be bids for stability. Over all, the Bureau of Labor Statistics reported on Friday that the legal services industry lost more than 1,000 jobs in October.

The difficulty is that things have shifted so quickly, and lawyers in certain areas such as finance and real estate have suddenly found themselves without work. In addition, clients are not keen to have more money chewed up in expensive and drawn-out litigation stemming from the current financial downturn.

Interestingly, clients are also increasingly showing an unwillingness to accept timed billing, and there are signs that firms are going to have to adapt:

Beyond the current crisis, corporate clients are trying to rein in spending on law firms. Now that firms are increasingly desperate for business, some corporate general counsels say, the firms are more willing to accept less profitable payment arrangements that do not reward the firms for simply assigning more lawyers to spend more time on a project.

A survey of about 600 corporate executives by Acritas, a London-based research firm, found that 32 percent expected billing practices to change over the next two years.

“Rather than having hourly rates, we are increasingly negotiating flat fees or fixed fees, or success fees,” which include a premium based on predetermined conditions, said Ivan K. Fong, chief legal officer and secretary at Cardinal Health in Dublin, Ohio, and chairman of the Association of Corporate Counsel. Some law firms have resisted those changes, he continued, but may find they have to accept clients’ wishes.

I guess that changes which occur in the US will later trickle into the Australian law firms. So it’s worth keeping an eye on what happens.