Small firms can find diamonds in a rough recession

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Published on 8/24/09

The recession has made law firms look hard at their revenue and cost structure. Consider a law firm where the revenues from a given client are $40,000, while the costs to service that client in lawyer and staff compensation are $48,000.

A decision must be made from among hard choices. Terminating the client relationship, seeking to leverage cost-efficient technology and/or decreasing the number of people serving the client are all standard remedies to reduce cost.

Most firms today focus on staffing levels. Do you need two senior lawyers, each with high hourly rates and likely with personal assistants, to handle the work? Can you involve an associate, or even a paralegal, and get by with one senior partner? Can two associates or a mix of associates and paralegals do it, provided they have proper partner oversight?

Paralegals have often been considered the most cost-effective form of leverage, but in 2008 the ALM Research annual compensation survey for paralegals showed that their average billing rate was more than $150 per hour, with rates for most positions exceeding $175. With many lawyers still charging less than $200 per hour, this is not a cost-effective option for smaller firms.

However, the ongoing recession has given small firms a new way to get paralegal-style leverage without high paralegal cost: hire a lawyer who has been laid off or terminated from a larger firm. It is undeniable that many such lawyers are on the market and would be willing to accept paralegal duties as an alternative to being unemployed. All things being equal in the short term, it would be a good hire for both sides.

But what about the longer term, when business turns up again? What's to keep such lawyers from bolting to the first new opportunity they find?

Savvy small firms can provide two major incentives to retain such skilled professionals:

  • Big firm experience at small firm prices

    Since many of these talented lawyers once worked at large firms for corporate clients, they may now be available to do the work that corporate America wants done, at a far lower cost.

    Corporate standards for evaluating firms have shifted to value as they seek to identify which firms can do the work properly. This should open up a seat at the table for smaller, more cost-effective firms that meet the criteria of the Association of Corporate Counsel Value Index. It's a win-win-win situation for firm, client and lawyer.

  • A smooth transition

    Talented former big firm lawyers can help solve the small firm succession dilemma. Rather than simply closing or selling the practice when the name partner retires, the firm can groom the new lawyer as a successor, structuring a transition as client responsibilities gradually transfer to the new lawyer. Grooming and building such a relationship of trust can build peace of mind for the lawyer, the members of the firm and its clients.

    Seen in this light, today's job market might be a one-time talent opportunity for small firms that choose to seize it. After all, to catch a trophy fish, you have to go where the fish are; and today's legal talent pool is full of prize catches for savvy anglers.

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