Tag Archives: Economic Downturn

Featured, Tips

How to Survive an Economic Downturn

With talk of recession now impossible to avoid, many lawyers have started to wonder about their job security. It’s worth emphasizing that actual hiring data still looks healthy by historical standards. Nationwide, lateral moves in Q3 2022 were down more than 20% from the Q3 2021 level, but keep in mind that the 2021 market was unbelievably active. If we use Q3 2019 as a more normal base case, we find an almost 10% increase in lateral moves in Q3 2022. But even if widespread pain is not yet evident, there is much anecdotal discussion of so-called stealth layoffs. Additionally, at least one firm has deferred start dates for its incoming first-year associates, reviving an approach that was widespread in the Great Recession.

Making the conservative assumption that conditions will get worse before they get better, now is the time to assess your situation and take steps to position yourself to survive a downturn. Here are some things to consider.

1. Are you a restructuring lawyer? Can you become one?

There’s nothing like a countercyclical practice to help you ride out a recession. If you do happen to be a restructuring lawyer, you should be worried more about a coming deluge of work than about job security. But assuming you haven’t worked in bankruptcy, now may be the moment to wedge your way in. In the old days, corporate lawyers tended to have broader skill sets, with bankruptcy being one component of a more diversified transactional practice. Even though modern law firms tend to be all about specialization, this historical legacy can still serve as an inspiration. If you’re already in a corporate or finance practice, call up a restructuring partner and ask if the group needs help. With the next wave of restructurings presumably on the horizon, if you can get in the door now, you might find yourself in the enviable position of having plenty of work.

More broadly, you may want to think about retooling, if not to restructuring then to another more recession-resistant practice. This is especially worth considering if you are a junior corporate associate who never particularly liked your work. The best time to retool is when your group is not busy — a slowdown in deals might present an opportunity to escape.

2. Assess your firm: is it well-positioned for a downturn?

In thinking about your firm’s relative strength, it’s helpful to consider the past, present, and future. As the disclaimer goes, past performance is no guarantee of future results. But if your firm is known to have conducted stealth (or outright) layoffs in the last recession, that’s probably a relevant consideration.

The present is relatively easy to assess. Are you busy? Is your group busy? What about your friends in other groups?

The future is inevitably murkier, but you can still make some educated guesses. Is your firm unusually reliant on corporate M&A and capital markets work? Bad sign. Is it well-diversified, with strong offerings in litigation and restructuring? Good sign.

3. Consider your alternatives

Keenly observing conditions at your current firm is an important first step, but you also need to contextualize against the rest of the industry. Talking to friends at other firms is a good idea. But for deeper insights informed by data, having a relationship with a trusted legal recruiter can be invaluable. We spend all day talking to people at various firms, so we’re always informed about how the market is trending. And we have access to extensive proprietary data specific to individual markets and practices. We know which firms are growing and which are losing people to the competition. As stealth layoffs pick up, you can be sure that seasoned recruiters will be among the first to know the real story.

If you learn that your firm is underperforming relative to peers, or that it’s perceived to be at greater risk in a downturn scenario, you’d be well advised to investigate whether firms in a stronger position may be seeking someone with your skill set. Naturally, a trusted recruiter can help with that diligence as well.

4. Watch the partners

Even in a good economy, most partners are open to hearing offers from rival firms. But with conditions deteriorating, it’s especially safe to assume that your partner is taking calls. Many partners feel the ground shifting under their feet, and they are just as worried as associates about potentially being pushed out. To the extent there may be concerns about the health of the firm overall, partners will be especially eager to flee: nobody wants to be the last person on a sinking ship. If you notice an uptick of partner turnover at your firm, it could be a sign that you too should look elsewhere.

Featured, Tips

Is Your Firm Recession-Resistant Enough To Thrive In An Economic Downturn?

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.