We’ve all heard the adage that sex sells. But when it comes to the financial press, no topic is more irresistible than speculating about the possibility of a recession. Are we on the verge of an economic downturn? I don’t know, and frankly, neither does anyone else. But given all the recession talk, now is a good time for lawyers to consider their strategy in the event we do experience a downturn.
There are two key messages to keep in mind. First, the good news is that if you are at a well-diversified firm, recession fears should not keep you up at night. Most major Am Law 200 firms are recession-resistant thanks to their diversity of practice areas.
Second, hiring remains strong by any normal standard: there were around 300 more lateral placements in Q2 2022 among Am Law 200 firms than there were in Q2 2021. And as you might remember, spring of 2021 was not exactly a slow market!
Law firm hiring is like squeezing a balloon. Last year we saw an overwhelming appetite for capital markets and M&A laterals to fill the never-ending demand for attorneys to service deal flow. Today we are seeing a large uptick in the demand for litigation laterals. That’s exactly what we would expect given the historical pattern of recessionary times fueling more litigation and insolvency work from deals gone bad and inevitable breakups.
In Q2 2021, 30% of lateral placements in the Am Law 200 were in corporate practices, and 27% were in litigation. By contrast, in Q2 2022, only 24% were corporate and 30% were litigation. Bankruptcy hiring was a small proportion of the total in both quarters, but it is clearly picking up. There were 67 bankruptcy lateral placements in Q2 2022, as compared to 46 in Q2 2021.
Is now a good time to lateral?
If you aren’t happy at your firm, don’t let concern about the economy dissuade you from making a lateral move. If you’re in a situation where you don’t feel supported, it would be a mistake to resign yourself to being miserable just because people are talking about recession. The truth is that demand for lateral candidates is persisting across a broad range of practice areas, so you likely have options.
However, if you are at a firm overly dependent on corporate M&A and capital markets work, perhaps you should look at some alternatives that are better positioned to weather the storm, if not come out of it even stronger. The benefit of being at a well-diversified law firm is roughly analogous to the benefit of being in a long-short fund as an investor. The long-short structure gives you upside while protecting the downside through diversification of puts, shorts, and long positions. Similarly, a strong bankruptcy practice may not “pull its weight” in the good times, but it is extremely useful when the economy sours.
Although you shouldn’t hesitate to accept a good lateral offer, you may want to think twice about pivoting to a new practice area unless you are certain retooling meets your long term career goals. With an uncertain economic outlook, it’s especially important that you make an immediate impact at your new firm — now is not the best time for a long ramp-up period.
If we reach the point of layoffs — which, again, are not happening yet in any widespread way — firms will primarily consider the revenue impact of each practice group and lawyer. An advantage of the billable hour model is that individual contributions are more easily measured than in a typical corporation. So instead of taking a blunt “last in, first out” approach, firms can be more targeted. The way to protect yourself isn’t necessarily to cling to your current job, but rather to put yourself in a situation where your skills will be well utilized.
What about a move in-house?
It’s more difficult to generalize across in-house roles because some sectors are likely to be more resilient in recession than others. But broadly speaking, you should be wary about moving in house with a downturn potentially on the horizon. When a company is forced to cut costs, the most recent hires are often the first to go. You could then find yourself looking for a job in a relatively weak market.
If you are considering an in-house transition, it’s important to understand that switching back to a firm likely won’t be easy. Firms value law firm experience more than in-house experience, so returning to law firm work can be a challenge even in a good economy. Now imagine trying to make that switch while unemployed, in a soft economy, when your skill set has stagnated.
That’s not to say that going in house is definitely a mistake. Individual circumstances vary. But make sure you are clear-eyed about the risks and your potential backup plan.
Strengthening your position at your current firm
What if you’re reasonably happy at your current firm and just want to guard against a layoff? The first thing to realize is that this is not 2009, where we had a complete collapse of the financial markets and widespread law firm layoffs. Instead, we expect that the uptick in litigation and insolvency work will largely offset any slowdown in corporate.
So the better question is how do you protect yourself and stay relevant if you are a corporate attorney? There’s a few things you can do to strengthen your standing ahead of a potential downturn.
First, do you have strong relationships with partners? If not, make it a priority to develop some. You should be doing this regardless of the economy, as it will both improve your experience at your firm and position you to be recommended for future external opportunities. But obviously these relationships can be especially valuable in the event a practice group head is instructed to cut headcount.
One way to build stronger relationships is simply to make yourself more visible. Spending less time in the office over the past two years may have made it easier to hide, whether intentionally or not. If you haven’t been making an effort to connect with partners, either in person or virtually, now is the time to start. Make sure they know who you are and that you’re eager to be helpful.
As mentioned above, your recent record of billable hours will be an important factor in case of layoffs, so an obvious way to strengthen your position is to make sure you’re meeting billable expectations. For most Biglaw associates, that hasn’t been a problem recently, but if the economy slows, billable hours will be less plentiful in some practices. In that scenario, you will want to be flexible about accepting work outside of your primary practice area. You may not enjoy bankruptcy work as much as M&A, but if the alternative is falling short on your hours, the choice should be clear.