Come gather 'round people
Wherever you roam
And admit that the waters
Around you have grown
And accept it that soon
You'll be drenched to the bone.
If your time to you
Is worth savin'
Then you better start swimmin'
Or you'll sink like a stone
For the times they are a-changin' ... .
Written for the revolutionary and historic 1960s, Bob Dylan's iconic song might be dusted off and added to your iPod favorites as a reflection on current global change -- certainly in business as we once knew it -- and even in the storied practice of law.
"The changing business model will be challenging for those with deep roots in the old ways," said Michael D. Short, vice-president of the international management consulting firm Hildebrandt Baker Robbins.
"If you made partner in 2009, you had to be pretty good as the classes were small relative to 2008 or even 2007."
Smaller by how much is not certain. But from consultants to partnership committee boardrooms, the phrase repeated like a new mantra is "the bar for making partner is being raised."
"Last year firms cuts costs and let support staff go, now they are being very cautious about who makes partner," said Thomas S. Clay, principal at Altman Weil, a global management consulting firm.
"You have to truly have proven yourself. It's not just time and grade; that won't do," Clay said, adding, the bar should have been higher in the past for some people. "If you are loyal, but not producing business, it will be harder and harder to make partner."
And Clay warns that in the first six to eight months of this year, there may be reductions in current partner ranks.
"We are not out of the woods yet economically," Clay said pointing to tens of millions of dollars in reduction in associate and support staff pay. "Where do you go now? Rates cannot go up. Firms will need to get rid of non-producers or those who don't have value to make way for Joe-the-senior-associate who is phenomenal as compared to Bill-the-partner who is just coasting along. They'll have to make room for young blood."
Clay added, "We've never seen anything like this before."
Following the first dismal half of last year, Peter A. Giuliani, a partner at the Connecticut office of strategic management firm Smock Sterling, decided with his colleagues to hit the road and visit with law firms across the country to see, firsthand, what was going on.
"You have not seen in the Southeast what has already happened in the North," Giuliani said. "We have already seen long-time partners pushed out. I have one client -- 25 lawyers -- who let go almost half of the firm's 13 partners."
The decision of who to let go and who to keep was based on identifying the most and the least profitable practice areas, he said. The firm likewise tapped new equity partners in those growth areas, all of whom were young with the exception of a former social worker whose first career had given her leverage in a strong mediation and family law practice. "She had a reputational advantage and was very creative, particularly in getting cases settled out of court," Giuliani said.
Although the Fulton County Daily Report's annual survey of new Atlanta partners is by no means scientific, the percentage of new partners older than 40 appears to mirror the action, dropping to just 12 percent of respondents from a height of 22 percent in 2006.
Based on his national tour, Giuliani also reported firms in large financial centers like the Northeast, Chicago or San Francisco had experienced harder times than firms in the Southeast and Midwest.
"With the problems on Wall Street and technology [in California] in the tank too, all business and litigation was off," he said. "These were horrible times, actually kicking partners out -- all part of restructuring."
CHOOSING THE CLASS OF 2010
Altman Weil's Clay confirmed that fewer new partners were made this year.
"Some [firms] are simply making no partners," he observed. "Committees would ask several questions when considering someone for partner after hopefully winnowing down the field. 'If we don't make him/her partner what do we lose? Will he/she leave the firm if not made partner? Or say, Jim is not happy; if we make him partner, will he stay?'"
Hildebrandt Baker Robbins' Short said partnership committees have become more numbers focused.
"They might focus on a big case. And they might consider whether the new partner can take care of himself and keep another lawyer and a half busy," he said. "The person would need at least two to three years of good numbers."
Of 18 new partners named at Alston & Bird, eight are in Atlanta, at least twice the number announced by other major firms here. Partner Timothy J. Pakenham, former chair and a two-term member of the firm's partnership committee, is not surprised. "It's a talent game," he concedes.
Now a veteran of the "before" and the "after" partnership decisions, he said the global recession has not changed the process the firm employs. "But the discussion was different," he observed. "There was more talk about what can we afford in this economy and what can we afford not to do. The standards are as high as possible. It's about excellence as a lawyer and total commitment to the firm. We expect client cultivation and an independent profile outside the firm."
Alston & Bird did not increase its capital contribution for partners this year, Pakenham said. But, he added, there is a lot of pressure on the partners to make earnings. He also foresees the possibility of forcing existing partners out the door.
"It wouldn't surprise me," he said. "We take very mature lawyers and think of them [turning over the]business to the hungry young Turks."
Short, however, believes capital contribution buy-ins are increasing. "Some firms may take it out of the monthly draw over a certain number of years. Some that need the cash may suggest the new partner do business with a bank that has a relationship with the firm and it will hold the notes," he said. "Even in the down economy, with difficulty in credit markets [loaning money to a new partner] would still be a good investment."
Smock and Sterling's Giuliani concludes at the least, firms cannot cut contribution levels.
"They are holding fast. Otherwise, it would disenfranchise other partners to charge less," he said.
Sutherland's firmwide managing partner Mark D. Wasserman said that in the past five years he has witnessed more "rigor" in looking at potential partner candidates. This year the firm promoted eight new partners nationwide -- four in Atlanta.
"In terms of the economy, we did not change the process or the metrics really in anyway. The overall economy would not make us take away an opportunity for a particular person," he said. "In the past, there might have been more emphasis, solely, on whether the candidate was a very, very good or excellent lawyer. That emphasis is still there but we've added more, perhaps looking at what kind of business case this person will bring and whether or not he or she will succeed in the future."
Half of the firm's newest partners, he said, are in tax practice. "We are strong in that area, and they are doing very well -- strong, young partners spread around the different offices."
Like Alston, Sutherland has not raised its capital contribution for nonequity partners, Wasserman said. The newest partners are nonequity and are not considered for equity partnership for three years. Five nonequity partners, however, were promoted to equity status in the past year, which he acknowledged was the largest group ever.
At the Atlanta-based national legal recruitment and placement firm, The Partners Group, 2009 was a banner year in partner placement, especially among equity partners with portable business, according President Paul M. Talmadge Jr.
"There was tremendous lateral movement of equity partners with portable business. From everything we are seeing, that will continue in 2010," he said. "It is a mix of those being recruited and those [actively] looking. As we say, the best placement is someone who doesn't know they want to move."
Vice President and Managing Partner David Gruskin added, "A lot of firms are viewing this moment as a singular time to add talent. They may be willing to pay the premium."
Talmadge reported younger partners at a larger firm might move to a mid-size or smaller firm where the rate structure is different.
"They might take a smaller book of business but rates are perhaps $100 to $150 an hour less, so they might be able to actually generate more new business," he said. "Also, in the last three years we have seen more of the big firms moving into Atlanta to establish a beachhead, if you will. They will seek out lawyers with a good book of business already established in the local market."
Sutherland's Wasserman said the firm always is looking outside the firm for new business.
"We just added a [lateral] partner in Houston," he said. "We only added three to four [from outside] last year and maybe one to two the year before, however, I expect we'll add more in the next few months."
Besides the new business, laterals bring another bonus to the table: a view of how competing firms operate. "It keeps you on your toes," Wasserman said.
Alston & Bird's Pakenham, said of the firm's 18 new partners, 10 have spent their entire careers at the firm. "We are always in the hunt for partnership talent. We always have a busy agenda talking to people even if the economy chilled some of this in 2009," he said.
Of the 33 respondents to this year's survey of new Atlanta partners -- identified by announcements sent to the newspaper's editors, solicitations of law firm marketing managers, through ads on the Fulton County Daily Report's Web site and electronic alerts -- 75.8 percent were men, six of whom identified themselves as African American. Fewer than one in four of the survey-takers was a woman, including one who identified herself as Asian and one as Latin American. There were no African-American female respondents.
Alston & Bird's Pakenham said, "Anything more than half white males [in the survey] would be surprising." Still, only five of his firm's 18 new partners this year were women, which he contended is a smaller ratio than past years. "I wouldn't begin to suggest why," he said.
Smock Sterling's Giuliani found the lack of gender diversity "puzzling."
"It may be just timing. It may be who was in the pipeline," he said. "It does not reflect law school graduation rates, which are still running about 50/50 men and women."
And Giuliani said clients continue to push firms to be racially diverse. "In part they want the big firms to feel the same pressure they do," he said.
Short, of Hildebrandt Baker Robbins, believes firms will be more diverse -- ethnically, gender-wise and age-wise -- and look much different in the next five to 10 years. "As baby boomers move out, the firms will change and the average person will be 55 or slightly older, or 25 and younger," he said.
Leaner and meaner are the buzz words for a new year and a new decade. Many areas of business have been forced to cut and streamline, and law firms, increasingly, will be no different.
"Why should law firms not be subject to the business life?" asked Clay. "[Law firm restructuring] was creeping along, and now, with downward pressure on billing rates, it's trotting along."
More senior associates, Clay said, are likely going to be happy where they are or just happy to have a job. "A lot won't be as angst ridden this year. Many are thinking about the business production at the partner level and deciding they may not want that," he said. Pakenham, said his firm already is identifying and encouraging lawyers who see a different future, to step forward. "An increasing number of young lawyers will say, 'I'm happy to work hard and be a lawyer but not be on the partnership track.' We expect to increase those numbers," he said.
"Some may rise to the challenge, and some simply don't want it," Short agreed. "Some may be brilliant lawyers but are not capable of generating business. The new business model will call for different roles for lawyers within a firm."
Movement, too, from firm to firm is to be expected.
At the University of Georgia School of Law, Beth Kirch, director of legal career services, said the school's 700 enrollees are savvy about the marketplace.
"They know there is work out there," she said. "There is a way to be successful."
Granted, the work may not have the structure of a few years ago, but Kirch said many students are not expecting to stay with a single firm. "It is reflective of American careers in general," she said. "People move as many as 10 times during a career and legal firms are changing along those lines."
This article is part of Fulton County Daily Report's special section, New Partners 2010, which includes related articles and charts (paid registration required).