The Bubble Burst
BigLaw firms were booming in the years leading up to the recession that started in 2008. In the early years of the 21st century, many of them expanded.
Expansion meant stretching themselves financially in several ways:
- Borrowing money to pay for the expansion.
- Hiring lawyers who would work for salary rather than a share of the firm's profits. These might be non-equity partners (those who don't own a share of the firm) or associates hoping to work up to become partners. They might also be attorneys working on contract or in other non-equity arrangements. Of course, those salaries tended to be big.
- Leasing more top-dollar office space.
When the economic bubble burst, it burst for BigLaw firms too. Some of the first to get into trouble had worked with the mortgage industry, which had run aground by 2007. A prominent example is Thacher Proffitt & Wood, a New York City law firm. Early in 2008, revenues dropped sharply, but debt was still there. Profits were down, and so were paychecks for equity partners. Bonuses were a thing of the past. Partners began bailing out. By December 2008, the 160-year-old firm had dissolved. [source: Orey]
Some BigLaw firms stayed afloat partly by cutting staff. Partners were encouraged to retire. Associates were laid off or asked to take leaves of absence. When the recession lasted longer than expected, more BigLaw firms began to feel the pinch.
Howrey LLP, a BigLaw firm based in Washington, had continued to expand while others were running into trouble. But early in 2011, mainstream media and legal blogs began speculating about Howrey's possible collapse. Its top partners were leaving in droves and taking jobs at other firms [source: Becker]. This makes sense: In recent years, top clients have begun to be loyal to top lawyers rather than to firms. Lateral moves from one firm to another have become more common.
News reports blamed Howrey's problems on expanding too rapidly and into the wrong fields, including construction law. Revenues and paychecks dropped sharply. By the end of 2010, many of Howrey's top partners were finding other jobs.
Keep reading to learn how BigLaw's woes affect law students' prospects.