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February 2, 2009 12:17 PM

Hildebrandt, Citi: 2008 Was Bad, 2009 Will be Worse

Posted by Zach Lowe

For those lawyers wondering just what happened in 2008 and what's going to happen in 2009, we point you to a prediction that's as good as any we've seen: this client advisory note from Hildebrandt International and Citi Private Bank.

The upshot: The current crisis is the legal community's worst since at least 1991. Most firms saw profits per equity partner either stay flat or fall by up to 15 percent in 2008. And things will get worse in 2009--especially if your firm isn't willing to change its salary structure or its billing demands. We can also expect that a few firms will not survive this crisis.  

The 2008 data is based on a survey of 140 law firms and billing data reported by 74 firms, including 30 in the Am Law 100. 

Last year's problems was pretty straightforward: Overall demand for legal work either held flat or declined (depending on a firm's reliance on securities and transactional work), while head count grew by 5 percent, just like it has nearly every year since 2000. That's a recipe for hard times.

As for 2009, the report predicts that some practices (bankruptcy and regulatory work) will see a jump in demand, while the rest will continue to sputter. The result: an expected decline in net income ranging from 5 percent to 15 percent at most firms.

The rest of the Hildebrandt-Citi note focuses on what firms should be doing to right themselves--and that's where we get the most interesting material. Some of the suggestions:

• Dump associate locked-step pay and start paying associates based on merit. 

• Use more creative staffing structures, including naming fewer partners and instead keeping more lawyers in some form of in-between stage between associate and partner, such as "of counsel" or "senior attorney."

• Acquiesce to client demands for discounts and alternative billing arrangements--and even initiate them. This could mean helping clients outsource more routine work and, when it comes to litigation, offering to find find firms who can do some work, such as routine discovery and deposition-taking, at cheaper rates.

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The day of the $1000/hour fee needs to end. In fact, the billable hour must end. Now is the time to follow Cravath's example, and consider flat fees, alternatives fees, etc.

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