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Associate Utilization in 2010

 

It has not escaped our attention that several firms in early annual reports  for 2010 are announcing both reduced revenues yet increased profitability.  Much of this is due to the ramping down effect and is therefore short lived.  We are all familiar with “ramp up” investments.  The other side of the equation is ramp down yields; that is once a lawyer is discharged, his compensation package and associated expenses disappear.  But, collections on his accumulated WIP and A/R continue to flow in to the firm’s coffers. Thus, there is no eureka announcement or reason to believe that the firm has fixed the problem, or that good times are on their way back.  Yes, year end business did show some increase and that did boost both revenue and profitability.  But only negligibly, since 2009 year end work will likely result in an early 2010 cash flow stream.  But that cash should be held on to tightly to brace against a 2010 rough sea.  More significantly, the loss of time billers could potentially adversely impact the firm’s ability to produce a full head of billable hours. 

          Accordingly, an influx of work in early 2010 does not and should not give rise to a sense that the storm is over and it’s time to restock the pond with more time keepers.  2010 and lessons of the past do dictate that any influx of work and hours billed should be monitored more closely than ever. The nature and quality of any new work must be scrutinized.  Examine the nature of the work coming in:  litigations do settle transactional work does close or become aborted. Do not mollify your egos or enhance your perceived reputations by crowing about the fact that you are building up a new head of steam and that you are hiring again. Rather be afraid, very afraid that an early build up of business suggest that the storm is over and, to mix a metaphor, it’s now time to restock your benches. The appearance of a few swallows does not assure the arrival of spring.  A rough midyear may find you overstaffed again.  Rather, as I will suggest in a moment, consider carefully the deployment of staff or contract attorneys until you have some seriously greater assurance that the inflow of work has some assurance of longevity.

          And, yes, some firms did announce record profits.  Those were the firms that had significant insolvency practices.  But, as I said before the ebb and flow of business cycles may or very likely result in a bench full of insolvency lawyers with little to do.

          Thus, it does not make sense given the current state of affairs to maintain a bench full of young lawyers to be available for that call from the Big Client for a major matter or to meet early 2010 new engagements.  Rather, with the streets teeming with well educated and often well trained lawyers, more associates will be engaged directly by law firms on a project by project and as-needed basis, subject to oversight by the project managers and quality control systems and personnel. Less than voluntary flex time and part time lawyers will be more common.  These lawyers obviously will be paid less and will not receive benefits.  The increasing use of temporary help, as opposed to full time employees, across all industry lines was a trend noted and reported on December 19, 2009 by the United States Bureau of Labor Statistics.  And, given the vast army of such lawyers pounding the streets, as I previously described, the necessity to use contract lawyer agencies to effectively act as distributors of these resources and paying them a distributor’s profit, the efficient law firm will retrofit its own recruiting personnel, no longer engaged as deeply in on campus recruiting and deploy them to find these project lawyers.  Some number of these project lawyers will shine and be offered full time employment.  The others will return to await the next casting call.

          The start of this next decade will be marked by numerous challenges:  Increased competition in every area; continued pressure on fees; declining unavailability of capital; flat, at best, demand for legal services; and certain unavoidable increases on the expense side.  Some will see the approaching storm warnings and take measures to deal with the next storm. Some will see this is a year of opportunity and will successfully exploit these opportunities to their advantage.  Others will simply repeat their prior actions and anticipate different results.  Some call that the classical definition of insanity.  We will all sit sadly by and see several firms fail next year, having failed to realize that perfect storms do sometimes repeat themselves.

© January, 2010, Jerome Kowalski.  All Rights Reserved.

 

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One Response

  1. […] interesting and certainly breathtakingly more expensive.  Since as well now know too well, and as we previously reported , clients are simply refusing to pay for first and second year associates. Accordingly, scads of […]

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