COVER STORY

After the recession: Legal profession undergoes sweeping changes

 

Special to the Miami Herald

The Great Recession of 2008 did more than William Shakespeare ever could when it comes to reducing the number of new lawyers, both locally and nationally. Perhaps even more startling, the recession is revolutionizing the legal profession from Miami to New York and across the continent.

Shakespeare’s “Dick the Butcher” sought to kill all the lawyers, viewing them as paper-pushers who stood as the last barrier to tyranny. While far from being killed off as a class, a constricting economy over the past four years has led to a reduction in enrollment at local law schools and a sluggish hiring trend in South Florida.

“The legal market is in an unprecedented state of flux,” says Robert H. Jerry II, dean of the Levin College of Law at the University of Florida. “Unless they adapt, many traditional firms will fail.”

The good news is that the caliber of attorneys is up and the downturn has helped some local firms, particularly the small- to mid-sized firms, deepen their bench. More good news — perhaps — is that the recession has led to a revolution within law schools and law firms for more reliance upon technology. This development, in part, is aimed at cutting costs by letting computers do a lot of the time-intensive work originally allotted to associates.

These changes are a direct response to advancements in technology and overall changes in corporate culture, says Richard A. Rosenbaum, chief executive officer of Greenberg Traurig. In the past, corporate executives were more focused on results and less consumed with cost, Rosenbaum says. Now they not only want results, but also they want it at a reasonable price. With that mentality, he says, the sky’s-the-limit legal model of the white-shoe East Coast law firm is headed for extinction.

“New York firms have high-priced locations,” Rosenbaum explains. “They are paying people a lot of money and paying rent and charging rates that are enormous. That business model is being threatened. Firms have to deliver quality work at a fair and reasonable price. Firms that are able to do that are going to be just fine. Firms that cannot are going to get smaller — or worse. You’ll see consolidating, or going out of business.”

The recent mass layoffs and reduction of partner profits at New York’s Weil, Gotshal & Manges bears out his hypothesis, Rosenbaum says. Last June, the prestigious law firm that recently handled the Lehman Brothers bankruptcy fired 60 associates, amounting to roughly 7 percent of Weil’s junior lawyers, and reduced compensation for roughly a tenth of the firm’s 300 partners. In addition, 110 members of the support staff, mostly secretaries and paralegals, lost their jobs.

The blood-letting stunned the legal world.

What happened to the now-bankrupt New York-based firm of Dewey & LeBoeuf also serves as an object lesson, says Steven Sonberg, managing partner of Holland & Knight. At the time of its bankruptcy filing last year, more than 1,000 attorneys worked for the firm in 26 offices worldwide. “We looked at the things that we thought went wrong there to see if we could bar against them,” Sonberg says. “Large amount of debt was one of the factors. They were promising bonuses and paying outrageous salaries. We have no debt.”

Although Holland & Knight was debt-free, the firm began going over its books more frequently so that the partners, unlike those at Dewey & LeBoeuf, would have a clear picture of the firm’s financials. Additionally, Sonberg says, staying abreast of technological change is key to the day-to-day running of the firm, pointing out that the younger attorneys now draft their own pleadings and contracts. They rely more on computerized templates and less upon legal secretaries than those attorneys at the firm who have practiced for 25 years or more, he says. That technology saves time and money, freeing up the secretaries to work for several attorneys, as opposed to the one-to-one ratio of years past.

For Alan J. Kluger, founding member of Kluger Kaplan, technology is the big equalizer in law firms. His litigation firm relies heavily on predictive coding — software that helps locate the most relevant content — to sort through reams of discovery documents. He is currently using that process to whittle five million documents to what is most pertinent in one of his current cases. “I had my group get it down to 1,500,” he says. “I got it down to 200. I am going to go through it and will get it down to 90.”

When Kluger first started his litigation-only firm in 2009, he modeled it after similar firms in the bigger cities of New York, Los Angeles, Chicago and Washington, D.C., with the capacity to throw numerous attorneys at big, complex cases. Until recently, he says, that model “hadn’t really been successful in Miami, Houston, Atlanta — what I call the second-tier cities.” But that’s changing as Miami matures, he says.

John C. Sumberg, Bilzin Sumberg’s managing partner, agrees.

“I think what’s happened is Miami is becoming part of a global community,” Sumberg says. “I think Miami and New York are the two most interesting cities for economic development today.”

So true, says, Greenberg Traurig’s Rosenbaum.

“Miami is just one of those cities when you go around the world, it is a place where people want to be. Some of our clients who can live anywhere choose to live in Miami. The fund people like the tax environment. They like the weather, the excitement.”

That influx of international interest and financing is also stoking Miami’s growing importance. While Asia is a big backer in New York, Miami’s financial future is being fueled by investments from Russia and Latin America, Rosenbaum says.

For that reason, Miami’s largest firms — Akerman Senterfitt, Greenberg Traurig, Holland & Knight — all see Latin America as part of their core business. Over the summer months, Holland & Knight even opened offices in Mexico City and Dallas to further that interest.

Miami’s evolution from a sleepy Southern town to a sophisticated city provides a comfort level for Latin American businessmen who are seeking secure investments in a stable environment. Instead of being a flyover for those businessmen en route to New York, Miami now serves as a destination point.

“It’s now recognized as a full gateway city,” Rosenbaum says, comparing Miami to New York, Los Angeles and San Francisco — all traditional gateway cities for international business. “That’s why you are seeing a lot of legal activity in Miami.”

As Miami’s fortunes are rising, the legal profession is undergoing sweeping change.

“Coming out of the recession, the business of law has changed,” Sumberg says. “It has changed in fundamental ways. There’s much more emphasis on bringing value to the client and being efficient. This is something that law firms have struggled with. Those firms that get this and listen to their clients are going to win.”

“I’ve been doing this 39 years, and I have never in 39 years seen the kind of change in our industry that I see today, which is caused by the industry and lawyers needing to taking a different approach,” he says. “Clients are so sensitive about their legal expenditures that they don’t feel they need to do the work in New York. We’re getting the opportunity to do the kind of things that were only done in New York before.”

Like Greenberg Traurig, Bilzin Sumberg is a homegrown Miami firm. But unlike Greenberg, Bilzin uses Miami as a base and sees no need to expand to other locations. The 112-lawyer firm expects to hire more lawyers this year, though, because the workload keeps increasing. Recent successes include the $1 billion Miami Beach Convention Center with its 52-acre mixed used development, which Bilzin secured for its client, SBACE (though the deal is now under pressure from a citizenry anxious to cut back); a $350 million deal to replace Miami’s Metrorail cars for client AnsaldoBreda; and a $251 million loan for Craig Robins’ luxury development in the Design District. Bilzin also represents Genting, which bought the Miami Herald waterfront property with hopes of developing an elaborate casino resort.

For now, Bilzin has the best of both worlds — an increased workload that grew revenues by nearly a fifth more than last year — and a buyer’s market when it comes to hiring fresh legal talent.

“We are finding it easier to get high quality new grads than before because demand in the industry has decreased and many law firms have stopped hiring right out of law school,” Sumberg says. “We are getting the strongest group of new attorneys out of school post-recession.”

The deans at two of Florida’s most prestigious law schools — the University of Miami and the University of Florida — acknowledge this is not the best time to enter the profession.

“Law schools should not be increasing in size,” says UF’s Dean Jerry. “This is not a world that needs more lawyers right now.”

According to Wendy Margolis of the Law School Admissions Council, prospective students are heeding that warning. Law school applications have been steadily decreasing over the past four years. In 2010, she says, 87,900 people applied to law school, compared to only 59,426 this year. That’s a drop of 32 percent. The decline is even more dramatic when viewed in light of 2004, when a high of 100,600 people applied. Just a decade later, in 2013, the applications plummeted by 41 percent.

Oddly enough, UF saw a slight uptick in enrollment this year over last, from 284 to 315 first-year students. The University of Miami, however, significantly slashed enrollment for its incoming class. According to Dean Patricia D. White, UM enrolled roughly a third less first-year students than it did last year. New students fell from 463 in 2012 to 310 in the fall incoming class.

One reason for the excess lawyers, White says, is that when the economy tanked in 2008, many undergraduates decided to defer going into the workforce, opting instead to attend law school. By 2010, the situation had turned grim for lawyers, prompting the school to give some recent graduates a hand while assisting nonprofits and governmental agencies reeling from lack of funding.

White’s plan followed in the tradition of Franklin Delano Roosevelt, who created civilian jobs corps, such as the Works Progress Administration, to put the unemployed to work and complete public projects in the process. In 2010, White instituted the Legal Corps — a WPA of sorts for lawyers — that provided a six-month fellowship for UM law students who were unemployed at graduation.

“Legal Corps was in response to the general economy,” White says. “There were people coming out with good legal training, yet organizations serving the underserved and governmental agencies were underserved. This was a great way to match them. We discovered that those six months of post-graduate experience made the people more attractive and they got jobs as a result.”

Although the job market in South Florida is showing signs of improvement for recent law school graduates, White warned that law firms should not be short-sighted when it comes to hiring the newly-minted lawyer.

“You don’t want to have a lost generation,” she says. “The law firms have to think about that. The firms started hiring again — not as the halcyon days.”

UF’s Dean Jerry agrees.

“What’s going on right now,” he says, “is that law firms, the large law firms, many of them are contracting. They are not doing as much hiring of grads immediately out of law school.” As they contract, they flood the job market with more experienced attorneys. Small and medium-sized law firms have scooped many up. Aside from Bilzin Sumberg, some of the other winners are Aventura-based Higer Lichter & Givner, which began as a three-partner firm in 2006 and increased more than fivefold to 16 attorneys; Lydecker Diaz, which expects to hire 13 new attorneys by year’s end for a total of 81; and Kluger Kaplan, which started with 16 attorneys in 2009 and more than doubled that size to 33 this year.

But other firms approach the market differently. “We have not made a single lateral hire,” says Kluger. “I want to groom them from the beginning.”

For Michael J. Higer, co-founder and managing shareholder at Higer Lichter, the economic crunch has made his firm more attractive to attorneys who might go to larger, more prestigious firms in a different market. Instead, several lawyers who were in the top 10 percent of their class courted him.

“These are lawyers who typically would have looked at large downtown firms, and large downtown firms would have looked at them and probably would have hired them,” Higer says. “Due to the economy and other factors, these young lawyers looked at us.” Just as important, he adds, every one of those hires still remains with the firm.

For Richard Lydecker, who partnered with former Miami Mayor Manny Diaz, the strategy is to hire attorneys “fresh out of law school or close to it” and those with a personality that meshes with the firm’s “politely aggressive client service mentality.”

The firm’s Website lists 81 attorneys, which is within what Lydecker considers the ideal range of 80 to 120 attorneys. He maintains the size is manageable and yet big enough to provide backup support for lead litigators, explaining, “You’re still small enough to do back flips for your client, but not so large that they get lost.”

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