In an interview in the Legal Intelligencer (which we found via law.com), consultant Frank D’Amore made a number of predictions about the future of law firm recruiting.  You should read the whole thing, but among the predictions were:

1) Smaller law firms being more competitive with larger ones when it comes to recruiting top law school talent (and an increased interest among law students in smaller firms who, by and large, seem to be surviving better in this down economy and

2) Large firms scaling back their summer programs and increasingly relying on lateral recruitment. 

Bloomberg reports on firm efforts to reevaluate their pay structures as a response to current economic conditions. 

Another post for those of you considering Big Law. 

Bruce MacEwen of the Adam Smith, Esq. blog weighs in on the subject of leverage by focussing on Big Law’s non-equity partner ranks.   His post was prompted, in part, by the one I linked to in my previous post on law firm leverage.  See the last paragraph of my prior post for why you should care about leverage.   

MacEwen includes a table of the firms with the highest and lowest ratios of equity to non-equity partners and a chart that demonstrates that non-equity partners are systematically among the least productive lawyers at firms.  

His conclusion (other than the obvious fact that the non-equity tier represents the most expensive kind of leverage there is): 

Those with de minimis or non-existent non-equity ranks all share “an unusually high combination of cultural cohesion and readily articulable strategy. . . . [E]ach of those firms . . . stand[s] for something, and      . . . achieving partnership there is dependent on several dimensions beyond that of being a mighty rainmaker.”  As for those firms with ratios greater than 1, “it must be said of that group that their strategies are extremely diverse and, in some cases, as yet unproven.  Additionally, many of the firms in that group have high proportions of relatively new lateral partners.”

He suggests that firms ought to be looking at “deleveraging” in this area and rethinking the two-tiered partnership structure.   

If you are considering Big Law at all, here is a must-read post on “Marginal Revolution,” the blog co-authored by economics professor, Tyler Cowen, which helps explain the reason for the unprecedented number of Big Law firm layoffs.

Leverage is the ratio between (full equity) partners and associates (and non equity partners).  The higher the number of associates a firm has relative to the number of partners, the more leveraged it is said to be. 

Why is leverage good?  If a partner – the source of business – can keep a higher number of associates’ time occupied with client work, it stands to reason that the the firm will generate more revenue and therefore will become more profitable  (time is literally money under the billable hour regime).  Economists and law firm management consultants think this is overly simplistic (see, e.g., here) and that increasing leverage is not a good in and of itself.  Nevertheless, all law firms are leveraged to some extent.  It is a cornerstone of their business model. 

When work slows, the leverage ratio has to be adjusted (because there are fixed costs associated with each salaried (non-equity) attorney) and this is what we are now seeing in the market.  High leverage works great in good economic times, and is terrible in bad economic times.  Even a modest drop in revenues could cause a much higher percentage drop in profitability due to the fixed costs (salary and overhead) of having a higher proportion of associates and non-equity partners.        

The original post that Tyler Cowen quotes from extensively, which was written by a Big Law partner based in NYC, says it alot better than I just did, so be sure to check it out.

Why should you care about this?  Knowing Big Law’s business model — and the ways it is adjusting to the current economic realities — will help you make better decisions (and ask better questions) as you explore your summer and post-graduate options.