Ethics Corner

Carol M. Langford

Our profession is undergoing a major structural realignment and at the same time the legislature has put the State Bar of California under the microscope to see where the Bar can be more efficient and more public (vs. lawyer) oriented. That the Bar is undergoing major changes can be seen in the recent firings of several long-term Los Angeles Bar prosecutors and in the very recent severance package offerings to some key San Francisco Bar employees.

That the law profession is undergoing rapid change is demonstrated in the September Bureau of Labor Statistics report. This report shows that the legal industry in the United States shed 2,000 jobs in the October to December 2010 period, with a net loss of 1,500 jobs in the first nine months of 2011, of which 1,300 were in September 2011. It is hard to predict the future based on these numbers. Since summer clerkships end in August, it pushes up the September figure. Also, firing attorneys typically happens around September so that severance and other costs are fully absorbed in the current year and the benefits of cost reductions are received in the next new year.

However, it is fairly easy to see that attorney reductions mean staff reductions, and those will likely occur in the last quarter. One former managing partner (who shall remain nameless) says that economies of scale from regional law firm mergers will exacerbate staff reductions and mean a culling of lawyers. Litigation has been soft across the board at firms, and outside of big public company mergers transactional work has been tepid. This may or may not improve next year, depending on the Euro crisis and whether China keeps growing.

Is this an ethics issue? Yes, because this will all be particularly hard on our newly minted lawyers, especially minority lawyers, since firms are now concentrating on the partnership’s bottom line and not on nurturing minority newbies as they have in the past. In addition, firms are waiting until October to add associates, vs. September, the start date for decades. This has very broad and deep ramifications for law schools under siege for hustling applicants despite dim job prospects, as seen in the eighteen class action misrepresentation lawsuits recently filed, and more to surely follow. My guess – and I could be wrong – is that law school tuitions will have to decrease, as students find alternatives to traditional law schools and refuse to pay the typical $30,000 to $40,000 per year cost.

The October and November employment figures will be key, because if the BLS shows a significant reduction in the labor force, firms will pull out their axes and start swinging. With the stock market up today, let’s hope for the best, as this is serious, and bad news could mean that firms hanging on by the skin of their teeth will simply implode.

We have already seen a number of law firm losses in Contra Costa County. What can law firms do now to survive? It is easy to say but hard to re-do all their contracts so as to have leaner operating budgets; lower leases and pension contributions; force union concessions and bleed some equity shareholders.

Two things are certain though: law firms that cannot do those things will be left in the dust – and yet this will still be hard for many law firms to do. Law firms are not bastions of change. But if they don’t, good partners will take their books of business elsewhere to another firm that eagerly snaps them up to relieve their own economic stressors (and the partners may do it anyway in a hope that they are safer elsewhere). There is a cost to this: Jewel v. Boxer claims on profits from all work transported to new law firms until that work is completed. That will make finding a new home more difficult.

The bottom line is that we have lost 40 firms from the AmLaw 200 in the past 25 years. We are averaging 2 to 3 in the past 10 years. This is not a blip on the radar. This is a major change in how law firms will operate. Buckle up.

Carol M. Langford is an attorney practicing in Walnut Creek, California. She specializes in ethics and attorney conduct matters, and defends lawyers before the State Bar. She is also an adjunct law professor at U.C. Berkeley School of Law.

Filed Under: Ethics Corner

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