The Future of BigLaw? Forum

[Aeon]

So long as there are big corporations, there will be some need for BigLaw firms. However, the post-Great Recession economy has seen a fair bit of consolidation in many sectors. Combine this with increasingly sophisticated technologies and outsourcing, and it seems like there may be some redundancy among the top firms. Moreover, with the "golden age" of law firms long past, BigLaw firms are ossifying. Fewer equity partners are being made, employees (i.e.: associates) are being worked harder as class sizes have shrunken, associate wages have stagnated for a decade.

Law firm finances are notoriously opaque. It's fair to say, though, that most firms have a lot of overhead with only modest cash reserves on hand (if that). Pretty much every big firm survived the Great Recession, but I wonder whether they will be able to survive another serious recession, and regardless whether there will be enough work in 10 or 20 years to justify as large of a BigLaw sector as exists today.

So, TLS, does BigLaw have a future?

[mvp99]

Biglaw -> 190k

[Johann]

But with 4/5 the staff.

[Magic Hat]

A couple things. I don't think that big law wages have stagnated. They have topped out. Big difference. Plus bonuses are up. I think that select forms in the future will increase mid level and senior salaries as the up or out model is disappearing. I do not think first year salaries will uniformly be increased for a long time (and nor should they).

I also don't see how you get from saying firms have high overhead to having modest cash reserves.

[bearsfan23]

OCEANS RISE

CITIES FALL

QUINN REMAINS

[mvp99]

A couple things. I don't think that big law wages have stagnated. They have topped out. Big difference. Plus bonuses are up. I think that select forms in the future will increase mid level and senior salaries as the up or out model is disappearing. I do not think first year salaries will uniformly be increased for a long time (and nor should they).

I also don't see how you get from saying firms have high overhead to having modest cash reserves.

not sure.. I think OP tried to say that in a bad year firms won't be able to cover overhead properly b/c of no cash reserves

[Aeon]

I also don't see how you get from saying firms have high overhead to having modest cash reserves.

I don't mean that low cash reserves follow from high overhead costs. Perhaps my phrasing was imprecise. My point was that firms have considerable overhead expenses (rent, salaries, etc.), and they also have low cash reserves (partners don't like getting taxed on amounts they don't receive, so firms tend to distribute most of their net income). These two independent factors combined make BigLaw firms financially fragile.

[Magic Hat]

True, but they also generally have excellent cash flow (though partners will deny this).

[Aeon]

But in a recession that cash flow slows down. Sure, firms have lines of credit, etc., to make ends meet, but those lines may also dry up if the banks are hit severely and need to conserve their cash. Law firms essentially live paycheck to paycheck. There isn't much room for error.

Of course law firms do have a better chance of surviving if the partners are willing to take a big hit to their income. But in BigLaw, loyalty seems to have gone the way of two-hour lunches and three-piece suits.

[Johann]

Law has been the worst sector to recover in the last 5-7 years. Another recession could Chernobyl biglaw. No telling when that will happen but this is the opposite of a healthy field with sustainable long term growth etc.

[mvp99]

I think it would have a huge impact on all the firms that thought they could have the same "elite firm" lifestyle.. Just pre-recession 60-70 percent of large firms paid 160k to first year associates and now its something like 25-30 percent

[BigZuck]

Isn't "The future of big law=haha, nope, there will be no more big law" like one of those things people have been talking about for decades?

I haven't thought about it too deeply and don't plan on starting but I wouldn't worry about it too much

[Desert Fox]

The model is extremely profitable. Firms don't fail because they aren't profitable, but because they distribute profits in a way that sends their partners fleeing to new firms. If you don't give out guaranteed pay and have an eat what you kill comp. plan, there really isn't any reason why a firm will just fail.

If revenue is flat, profits will just be flat. Cash flow isn't a problem. Firms panic, not because they'll run out of cash, but because their PPP will drop 20%.

I think you'll see firms that can't demand top tier rates do some cost cutting measures. Like moving to the burbs, even less staff, etc. etc. But there isn't a whole lot to cut.

The issue won't be will big law exist, it'll be exactly how rich are the rainmakers at your firm making.

[Johann]

No, biglaw was bulletproof in the last decade. And many believed just the opposite very recently - that to be successful firms needed to have over 2k or 3k lawyers. Deweys failure and the economy and layoffs is what brought the biglaw doom and gloom. Corporations have already started stacking in house depts way fuller ever since GE set the model with its tax team Boosted confidence and they've been experimenting since the recession of more inhouse. Results have been positive based on surveys so this is something that should continue. . If there's a recession outside counsel budgets will shrivel up. Again I'm not saying this is imminent because I think the economy is humming along right now. I just think that the next big recession could be disastrous for biglaw. Meaning much like the last time summers no offered associates let go based on seniority. Partners of course are always protected because they just make dogs it for a couple years relatively. But that doesn't help if you aren't the partner.

[BigZuck]

They just make dogs it?

Oh, I thibk I get it

[MCFC]

The answer is public companies, clearly.
http://dealbook.nytimes.com/2015/02/18/ ... blic/?_r=0

[Anonymous User]

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