May 4, 2006

Weathering Economic Storms

By Elizabeth Brockett

Indiana Lawyer
Vol. 16 No. 5 May 18-31, 2005

Ever resilient, the legal community continues to adapt and reinvent itself to meet challenges brought about by external influences, including the economy.

In 1990 when Indiana Lawyer began publication, the United States was at the beginning of a recession. Since, attorneys and firms alike have weathered economic cycles that affected them, their client, and the nation, and have continued to change directions to better serve a changing world.

Depending on the type and size of practice, the economy can either help or hurt certain areas within the legal profession. Attorneys say that in the late 1980s and early 1990s, like now, practices that deal a lot with bankruptcies and foreclosures are busy, while there is less transactional work.

When the economy slumped in 2001, Indiana’s manufacturing-based economy saw the loss of corporate headquarter. However, there is a flip side because firm attorneys act as local counsel in the absence of local in-house counsel.

That wasn’t true in 1990 because there were more corporations headquartered here who had in-house counsel, said David Russell, partner and chair of the Business Services Group at Harrison & Moberly in Indianapolis. He noted the state lost “dozens and dozens” of companies and headquarters because they were acquired by out-of-state or out-of-nation firms.

Other areas of the law seem to be unaffected by economic factors.

“Litigation seems to be popular when things are good and when things are bad,” said Russell.

“We’ve been required to become very chameleon to compete in the market today,” said Robert Wagner, a founding partner of Lewis Wagner in Indianapolis, “and it is very competitive.”

Politics and governmental action, such as tort reform, affect the small firm more, said Barry Rooth, partner at Merrillville firm Theodoros & Rooth.

“We’re in many ways immune to economic downturns,” said Rooth, whose firm has three attorneys and one of counsel.

Also, more or less governmental regulation and taxation can either diminish or increase legal work, said Phil Bayt, a managing partner at Ice Miller in Indianapolis.

“A balanced firm can ride out the ups and downs of the economy,” said Russell.

Pressure to specialize

“I think there is a trend in the economy and in the legal community toward specialization,” said Russell.
Russell noted that years ago new lawyers weren’t paid much and they apprenticed themselves to learning different areas of the law. Because there wasn’t much cost involved, they could work on various projects and learn on the job.

Lawyers are always having to retool, reinvent, and re-educate themselves throughout their careers in order to remain in the profession, said Bayt.

But economic pressures, among other things, affected the profession. One such incidence was the dot-com revolution – what Bayt called a “blip.” It caused people to flee law firms to work for companies, initially for lower salaries and what then appeared to be good stock options.

But because of the specialization and the boom of e-commerce and technology, associate salaries increased on the coasts and spread through the nation. Attorneys also left law firms to work at large corporations, sometimes in the general management.

Law firms responded by paying higher salaries to keep the talent; however, law firms couldn’t compete.
“We had to quit at some point,” said Bayt. “Starting salaries haven’t come back down, but they haven’t gone up either.”

Russell remember associate compensation spiking in the mid- 1980s and again in the late 1990s – the latter in response to salaries of starting associates in Silicon Valley.

Starting salaries went up considerably in comparison to older attorneys, said Russell, who believe that may be one factor why associates are now expected to be profitable more quickly.

Russell said the danger in having associates “very specialized very soon” is they don’t get a broad overview.

Wagner agrees people are more specialized and “haven’t unfortunately, had the opportunity to experience other parts of the profession.”...

To read the rest of this writing, please download the attached document.

File: Weathering Economic Storms.doc

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