'Domino effect' hits law-related business
Businesses catering to firms feel strain.
March 16, 2009
Before the economy hit the skids last fall, Legal Insight Media Inc. would shoot two or three high-end recruiting videos a month for law firms and legal departments hoping to lure top-notch law students and laterals.
But layoffs are pummeling the law firm market, and law school recruiting is the least of partners' worries right now — which is bad news for the small Boston-based business. It's been months since the company shot a recruiting video, and Chief Executive Officer Peter Marx is now trying to figure out how to modify its services in order to appeal to law firms in the current economic climate.
"It's not just a trickle-down we're seeing," Marx said of cost-cutting at law firms. "It's more of a full slowdown."
Legal Insight Media is just one of hundreds of businesses that cater to law firms, and many of them are suffering as firms rein in their spending. Personnel layoffs are the fastest way for firms to cut a significant portion of spending, but nearly all firms are also looking at their many other expenses for potential savings.
Firms are cutting down on everything from technology and outside marketing assistance to recruiters and consultants, experts say.
When not outright eliminating those costs, firms are looking to renegotiate contracts to get better deals — which translates into less money coming into law-centric businesses.
A 'ripple effect'
"It's hard to imagine that there's a firm out there that hasn't been hit in some way and isn't looking to cut costs," said Bennett Gross, president of Callydus Group, a New York-based company that helps law firms increase efficiency. "There will be a ripple effect throughout the economy. Food service and car services, they're all getting hit."
Indeed, McDermott Will & Emery grabbed some unwanted attention last month when its decision to suspend coffee and evening food service in the firm's Chicago office landed in newspapers.
Some businesses that target law firms are responding to spending cuts by tightening their own belts and riding out the downturn. But for others, there will be no recovery from this economic blow. Ed Wesemann, a consultant with Kerma Partners, said that "without question" some law-oriented businesses will close up shop.
Wesemann isn't telling Chere Estrin anything she doesn't already know. Estrin founded Estrin LegalEd in 2004, which held paralegal education sessions across the country several times a month.
But attendance dropped off dramatically at the training sessions last year, and Estrin pulled the plug on the business in December. Nearly the entire cost of her seminars were paid for by employers, but employers increasingly stopped funding paralegal travel and continuing education throughout 2008, she said.
"We did so well for five years, and then the faucet just turned off," Estrin said.
"Before firms started cutting attorney jobs, they cut back around the fringes for support staff, and that was the major factor [in the failure of Estrin LegalEd]," Estrin added.
Legal recruiters may well be bearing the brunt of the fallout from the weak economy.
With thousands of job losses in the legal sector during the past year, there's a glut of people looking for work and very few places looking to hire — a very difficult climate for recruiters.
"It's really forced us to refocus on the kinds of placements we're making," said Steve Nelson, managing principal for the law and government affairs practice of executive search firm The McCormick Group. "We've largely gotten out of the associate market."
Traditionally, about 40% of The McCormick Group's law firm placements are associates.
With that market all but gone, recruiters who used to place associates are now working with partners, Nelson said.
In a bright spot, the partner market remains strong as attorneys who are concerned about the their current firms seek out more stable options, he said.
Still, Nelson doesn't anticipate any quick return to the recruiting climate before the financial meltdown last fall.
"It's a concern, in terms of the marketplace. We think there will be more layoffs, and layoffs of nonequity partners," Nelson said.
Wesemann, the legal consultant, has felt the impact of law firms' new-found thriftiness. In a typical March and April, his calendar would be packed with jobs from law firm clients launching new initiatives or mergers or making strategic moves. But his calendar is noticeably more open this month.
"I've got enough work to keep busy, but it's not the usual high period," Wesemann said. "The spring is usually overwhelming, and there aren't enough hours in the day to get everything done."
He said other legal consultants are seeing the same slowdown trend, especially those who specialize in law firm retreats. Several firms have canceled retreats this year in order to save money, which eliminated some opportunity for consultants on the retreat circuit.
Thanks to the weak economy, Donald Aronson is discovering that the alternative billing arrangement phenomenon goes beyond law firms.
He is a principal at Aronson/Heintz Associates in New York, which conducts client interviews for professional services businesses such as law firms and accounting firms.
Law firms hire Aronson to meet with their clients and find out how those clients feel about their law firm service and what their needs are, among other things. Aronson said he faces more pressure than ever to be sensitive to his clients' budget constraints.
"There have been cutbacks throughout the industry," he said. "There are clients who say, 'It's too expensive of an initiative to take on right now.' Some firms are also deferring client interviews."
Aronson had numerous discussions with the chief marketing officer at a major law firm recently before the firm decided it just couldn't spend the money on client interviews right now — a move he sees as shortsighted.
"It seems like a good time to do client interviews, and a good investment on the part of the firm," he said. "You may find areas where you can offer more services, and in this very difficult economic period it shows clients that you care about their needs."
Business has also slowed down at legal staffing services companies, which provide contract attorneys to law firms on a project basis. For one thing, law firms are moving associates from slow practice areas to busy ones to perform tasks such as document review — a job that may have been done by contract attorneys in a better economy.
"I think we have seen that it's somewhat slower right now," said Richard Osman, co-owner of legal staffing agency Lexolution. "You'd have to be crazy not to be bracing for a tough year."
At the same time, Osman said temporary attorney hiring is historically quick to rebound after an economic slump. Not only that, but savvy and cost-conscious law firm clients aren't likely to stand by and allow firms to bill them for document-review work by associates instead of by cheaper contract attorneys.
Not all gloom and doom
It isn't all doom and gloom for companies that target law firms, however. A handful of companies seem to be bucking the slowdown trend. In particular, those that develop Web sites and Internet marketing campaigns for law firms say they are doing well. The reason for their success may be tied to the fact that they are less expensive than traditional marketing campaigns.
Consultwebs.com, a Raleigh, N.C.-based firm that develops Web sites for small and midsize law firms, recently added two employees and opened a second office to handle growing demand, said Chief Executive Officer Dale Ticher.
The company targets small and midsize law firms, not the large firms that have been taking big financial hits in recent months, he said. Joshua Fruchter, founder of eLaw Marketing in New York, said it can be difficult to get past frozen law firm budgets, but opportunities are out there. His business has been able to capitalize on clients moving away from traditional and expensive marketing campaign to lower-cost e-mail marketing.
"If the firm is struggling, the vendors will struggle, too. It all depends on if your service adds value," Fruchter said.
As for Legal Insight Media, the business that films legal recruiting videos, Marx said the small company will manage through the bad economy. Instead of focusing just on recruiting, the company will promote client testimonial videos for law firms. It will also push its podcast consulting services.
"We're not going to do as much business this year as we did last year," Marx said. "Recruiting will come back, but not in 2009. We're hunkering down right now."