Res Ipsa Loquitur: Work Trends at New Economy Firms

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					CAREER COUNSEL                                                                                                           1. 800. 973.1177




Res Ipsa Loquitur: Work Trends at New Economy Firms
[by Peter L. Thottam]




You may have heard the story of my job           neys that I know, wish someone had offered        working as an analyst in New York with Gold-
search already in some detail. It has been       us before we graduated from our respec-           man, Sachs & Co. and, later, as a banking
featured in the Wall Street Journal, was a       tive law schools in the late 1990s. I plan to     and healthcare consultant with the Advisory
topic of great discussion on the Greedy As-      submit a follow-on more theoretical piece to      Board Company in Washington, D.C. I also
sociates Boards and even led to a story in L     BCG next year. In that piece I will write more    worked on a Chapter 11 real estate bankrupt-
magazine (an American Lawyer affiliate) and      extensively about the revolution that I believe   cy and reorganization in Los Angeles. I knew
a write-up in the Los Angeles Daily Journal      that globalization, next generation Internet,     the meaning of “risk” and that businesses
(where I had placed an ad in March 2002          collaborative and wireless technologies ,         were not always winners.
seeking employment after dealing with a          pending government rollouts of broadband,
frozen job market in January and February of     XML/IP-videoconferencing protocols, and           I was at WSGR for a total of approximately
2002). You may have even visited my website      increasing movement towards multi-disci-          21 months from August 1999 until May 2001.
at www.peterthottam.com where I widely           plinary service offerings are just beginning to   I worked in the Larry Sonsini/Marty Kor-
publicized my job search. I am one of the few    unleash on the legal profession.                  man Corporate Securities Practice Group,
New Economy victims who has chosen to give                                                         arguably one of the most demanding practice
what has happened to the careers of many         My First Legal Job                                groups at the Firm, which was staffed with
former associates a voice. I graduated from                                                        several excellent attorneys. My group was
Yale College with honors and a high GPA. I       It was a bright sunny Monday morning in           generally known within the Firm as the M&A
later attended the University of California-     August 1999, the outside air was crisp and        “swat team.” I worked with three WSGR
Berkeley for law school and then worked          there was a palpable excitement in the room.      partners who were all ex-Fried Frankers
for all the “right” Silicon Valley law firms.    I found myself ensconced in a large room at       (i.e., they were all former associates who had
Indeed, my record would appear stellar in        Wilson Sonsini Goodrich and Rosati’s (“WS-        come to Wilson Sonsini together in a joint
most respects to many attorneys. However,        GR’s”) new hire orientation at the gleaming       exodus from Fried Frank’s NY office). These
as this article will demonstrate, the New        650 Page Mill Road headquarters in Palo           guys were charged with building a New York
Economy is not something that has spoken         Alto. “650” was colloquially referred to as the   style machismo at WSGR with a “take no
well for the legal profession, and it has not    “Death Star” (i.e., the one from Star Wars)       prisoners” culture. It was tough but -at least
been kind to me.                                 by attorneys at nearby Cooley Godward LLP,        at times-dynamic, fun and challenging group
                                                 Fenwick & West LLP and Brobeck Phleger &          in which to work.
I want to relate to you an insider associate’s   Harrison LLP. The term was even used in a
view of what has happened in the last five       tongue-in-cheek and self-deprecating sort of      My experience at WSGR included participa-
years and is continuing to happen in work-       way at WSGR.                                      tion in several high profile M&A transactions,
ing environments at many large law firms. I                                                        two public offerings, and a range of venture
also will offer a mix of practice insights and   I was about to start what I hoped would be a      capital financings, contract reviews, foreign
general advice.                                  promising legal career at WSGR, a dynamic         acquisition agreements, and other legal
                                                 and fast-paced place to work in the fall of       projects. I had the opportunity to work with
I’m the first to acknowledge that I’ve only      1999 and in early 2000. The culture was           Bank of America, Sun Microsystems, Inc.,
practiced for a couple of years. Accordingly,    positive and bubbling with possibilities. I had   Hewlett-Packard, Tibco Software Inc., GoTo.
some of my observations should be taken          graduated from law school with more busi-         com, NetFlix.com, Cypress Semiconduc-
with a grain of salt. Most of the insights and   ness experience than many of my colleagues        tor, 3Com, Palm Computing, Homestore.
advice in this article, however, are precisely   (see my resume, viewable at www.peterthot-        com, Healtheon/WebMD, ScanSoft, Rambus,
the type that I, along with dozens of attor-     tam.com). My first job after Yale College was     Brocade Communications, Excite@Home, and


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CAREER COUNSEL                                                                                                                1.800. 973. 1177




a range of private company clients.                and evening cafeteria services were halted.        associates. Throughout the remainder of
                                                   By the beginning of Fall 2000, 650 Page Mill,      2000 and during the course of 2001, the ac-
Spiking and Drinking the Kool-Aid                  which had previously always been alive and         counts receivable at tech-based law firms
                                                   busy at night, was generally deserted.             (which had financed much of their expansion
I spent my first 8 months at WSGR working                                                             through reaping rich IPO proceeds, making
intensely; more often than not I worked at         According to the Venture Economics and the         short-term debt issuances, taking advantage
least 6 days a week and 12-14 hours a day          National Venture Capital Association (http://      of escalating Dot-com series financings, and
during the weekdays. I enjoyed being a cor-        www.nvca.org/nvca05_13_02.html), there             encouraging general partner paid-in-capital
porate securities attorney at WSGR and gen-        were 81 IPOs taken to market in the first          contributions) went through the roof.
erally looked forward to Larry Sonsini’s peri-     quarter of 2000, 9 IPOs taken to market in
odic voice mails to the 800-plus attorneys at      the first quarter of 2001, and 4 IPOs taken to     As the work left many firms, hundreds of
the Firm articulating his vision of the Firm’s     market in the first quarter of 2002. I think the   bright and hard working attorneys through-
place in the emerging “New Economy.” I was         data is meaningful and the graph that follows      out Palo Alto, Menlo Park and San Fran-
passionate about the Firm’s potential and          is a powerful illustration of what happened        cisco abruptly learned just how completely
had a work ethic that was galvanized by the        between 1995 and 2002.                             “fungible” associates were to the partners
Firm’s vision of the future.                                                                                running their firms and how closely
                                                                                                            the culture in the legal profession had
With the unprecedented ascent of the Nas-                                                                   come to mirror corporate America in
daq, I continued to be concerned that things                                                                its day to day profit concerns.
were moving too rapidly. While I think very
highly of the attorneys I practiced with at                                                                 Finally Being Bitten
WSGR, unfortunately many of them, includ-
ing to some degree even I, were “drinking                                                                   In March 2001, WSGR unexpectedly an-
the Kool-Aid.” Just by going to WSGR, we                                                                    nounced the opening of New York and
acknowledged to one degree or another that                                                                  Salt Lake City offices. The following
we thought that the party could continue                                                                    week, I requested a meeting with my
indefinitely. The venture capitalists on Sand                                                               group’s head partner. At the meeting
Hill Road in Menlo Park were even worse,                                                                    I asked for a transfer to the New York
arguably spiking everyone’s Kool-Aid with                                                             office. Why? I had just married during the
generous doses of Ketel-One.                       According to Dealogic LLC, the number of           preceding New Year’s Eve and my wife was
                                                   tech IPOs swung from about 250 in 1999 to          working in New York. A transfer to the newly
Popping the Dot-Com Bubble                         just 20 last year!                                 announced New York office seemed, at the
                                                                                                      time, like the ideal solution to the geographic
Everything changed with a series of sharp          Most of the firms in the Bay Area had rain-        dilemma we were facing due to the hiring
declines in the Nasdaq during a two week           maker-geared compensation systems and a            slowdown in the Bay Area banking sector.
period in April 2000. In an instant, it seemed,    culture driven by the opportunity for riches       Furthermore, work was just unbearably slow
the markets crashed and the caviar, extrava-       through growth of private equity stakes in         in Palo Alto. Senior associates and junior
gant meals and massage sessions at Don-            clients. This equity focused culture finally       partners were keeping work to themselves
nelly and at Bowne (i.e., “the Printers”) came     came back to haunt many law firms through-         in their efforts to keep up their billable
to an end. I continued working for some            out the Bay Area. According to the Bay Area        hours. Day-to-day life and office politics had
time on an IPO that was eventually shelved.        legal press, in 1999 WSGR participated in just     become truly surreal.
Coming to Donnelly was like entering a             under 170 IPOs. In 2000 that number went
ghost-town. Instead of calling WSGR’s office       down to about 40. By 2001 the number was           Admittedly, I took a risk in asking for a
the “Death Star,” many of us until then had        less than 10 with high margin M&A activity         transfer. With work slow, and people drop-
insisted on referring to it as the “Enterprise.”   similarly drying up.                               ping out of the firm for unexplained reasons,
Increasingly, we realized that the “Death                                                             there was a sense of doom in the air. I really
Star” moniker was becoming more appropri-          By the end of the ensuing summer, law firms        didn’t know whether the New York office had
ate as the ambience at the firm became truly       throughout the Bay Area began to ramp up           enough work to need an associate from the
moribund. A decision was made to shut off          what were, at least ostensibly, performance        Palo Alto office when I made the request.
secretarial support services at late hours         based dismissals of junior and mid-level           Furthermore, I was making it clear by asking

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CAREER COUNSEL                                                                                                            1.800. 973. 1177




for a transfer to New York and stating my        doors looking for work. There just was not       declines. Junior corporate associates are
reason for the request that I would probably     enough work to go around. Some more              expected to be able to make conforming
be moving to New York eventually anyway.         senior attorneys at OMM and other firms          changes to financings and other types of
                                                 around town were able to retool and transfer     deals, to pay a great deal of attention to de-
Several days later the partner called me         to other divisions.                              tail during deal closings, and to be masters
into a meeting in his office, stared at me                                                        at form document tailoring and management.
and, without batting an eyelid, said, “Pe-       I certainly cannot blame OMM for the decline     The political and client management skills all
ter, I’m afraid that we have decided that        in work that affected not just them but the      become more important once the associate’s
it’s in our mutual interests for you to leave    entire business sector. Work may have been       drafting and general work product manage-
WSGR.” That was it. I was totally floored. I     slow at O’Melveny, but I can say that I did      ment skills are comfortably established.
had received a glowing performance review,       receive some terrific mentoring there dur-       However, if there is no work to be done, then
positive feedback from him on several deals,     ing the times when I was busy (particularly      there simply is no work to be done. Even a
and a full bonus plus a merit addition from      from one outstanding senior associate in the     mega-law firm with over 800 attorneys has to
him several months earlier; now, I hear this.    Los Angeles office). Law is a business and       make cuts in such an environment.
There was no warning - absolutely none.          the law firms I was working at are busi-
When I pressed for an explanation, he said       nesses too. If the work is not coming in for     A law firm associate is completely respon-
that there was nothing further to say and that   an extended period of time, there is certainly   sible for his or her own career and has to
a decision had been made. I was given three      no reason for a firm to keep you employed.       hedge his or her prospects. The reality of
months to secure other employment.               Nevertheless, this is certainly not something    law firm associate life is that an associate’s
                                                 I expected when I entered the working world.     primary asset at a law firm is his or her time,
Having learned a great deal, I left WSGR in                                                       i.e. the billable hours that he or she gener-
mid-May of 2001 and immediately started          “New Economy” Associates                         ates. It is only much later in an associate’s
work for another top Bay Area law firm,                                                           career that a book of business becomes a
O’Melveny & Myers (“OMM”), in their San          In late 1999, an attorney in my practice group   significant asset. It is my opinion that, for
Francisco office. I had received four other      at WSGR walked into my office and told me        many large firms at least, the system’s
offers (two in the Bay Area and two in New       about the Firm’s decision to match Gunder-       incentive structure is lop-sided and rewards
York) in May 2001. I chose OMM’s San Fran-       son Dettmer Stough Villeneuve Franklin &         inefficiency in contrast to efficiency. I further
cisco office because my feeling was that they,   Hachigian’s recently announced substantial       believe some larger law firms feed off risk
among the firms where I had offers, were in      pay raise for its junior associates. We were     aversion and dangling “Sword of Damocles”
the best position to withstand the downturn      giddy with delight and relatively clueless       threats of performance-based layoffs in
in the market. Within several weeks of arriv-    about the longer term implications of the        order to get the maximum number of billable
ing at OMM, though, I realized that virtually    economic model that the pay raise was trap-      hours out of their associates.
every Bay area firm’s corporate practice was     ping law firms throughout the United States
affected. None of the firms I had received of-   into.                                            “New Economy” Partners
fers from months earlier were in a position to
re-extend the offers that they had made sev-     Tech-focused BigLaw firms today pay pre-         The system is, ultimately, a managed flow
eral months earlier -- presumably because        mium base salaries to first year associates      of legal labor with misaligned incentives in
of similar slowdowns at their own firms.         of $125,000 to $140,000. This doesn’t include    place. It portends to offer fantastic compen-
                                                 sign-in bonuses and year-end bonuses             sation rewards to tracked attorneys with
I started looking for other opportunities but    which, respectively can be as high as $10,000    what smart attorneys realize is an increas-
market conditions, already terrible by that      and $25,000. They fully expect their attorneys   ingly unlikely and remote chance at a start-
summer, began to deteriorate further in July     to work at least 80 to 100 hours per week        ing partner salary in the neighborhood of
and by the end of August, firms had begun        which translates to 2,300 to 3,200 billable      $350,000 to $500,000 around the age of 35 to
laying off attorneys en masse and publicly.      hours per year (I billed 2,700 my first year,    45 in return for billing 2,500 to 3,200 hours a
Cooley was first, Gunderson, Shearman, and       2,200 my second year, and was on track to        year. Ultimately, law firms sell their time and
Brobeck soon followed. September 11, 2001        bill 1,800 my third year).                       junior attorneys offer little in the way of cli-
was the final clincher. Corporate work came                                                       ent relationships built on trust and past work
to a virtual standstill over the next three      It’s my opinion that law school graduates        relationships, potential billing bases, or real
weeks at most firms in the Bay Area and I        generally don’t appreciate that even large       substantive expertise in specific areas of law
found myself daily knocking on partners’         law firms are not insulated from economic        to make them anything but fungible, espe-

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CAREER COUNSEL                                                                                                               1.800. 973. 1177




cially during significant economic downturns.      and 6,000 associates have been laid off over      cases, your friends, and they will not hesitate
                                                   the last two years. Res Ipsa Loquitur is Latin    to lay you off if their compensation is at
However, most associates rarely ever have          for “the thing speaks for itself.” I think that   stake; work hard, do the best work possible,
a chance in making partner at BigLaw firms.        at many firms -- albeit not all -- associates     learn as much as possible, always keep your
According to a survey by The Recorder (a Bay       are now entirely expendable. At these firms,      ears and eyes open for political and econom-
Area legal journal), the odds are in fact less     absolutely no one is indispensable. The truth     ic realities at the firm; and, perhaps most
than 15%. The odds are probably significantly      is that YOU may not be indispensable.             importantly, network whenever possible. It’s
less than 10% these days. Partners at many                                                           always easier to find work when times are
of the top tech firms got in on the action early   A recent Reuters business report put Bay          good. However, downturns can be fast, furi-
on. They boarded the private equity trains to      Area office vacancy rates at a stunning 24        ous and unforgiving, making it difficult to get
partnership and to vast riches long before         percent. The commercial vacancy rate in San       out in time; there is, regrettably, very little
the trains had even left the station.              Francisco’s SoMa district (south of Market        loyalty in this business; therefore, if the right
                                                   Street) is now at an incredible 50 percent!       opportunity comes along, one should not
Lessons Learned                                    The California unemployment rate as of April      hesitate to take it.
                                                   2002 stood officially at 6.4 percent, in stark
From 1996 to 1999 there was a shortage of          contrast to the near 2 percent unemployment       Due to the current global economic and
young legal talent, i.e. attorneys in their late   rate that prevailed two years ago. According      geopolitical malaise I -- along with now thou-
20s to late 30s, especially in major met-          to the American Bar Foundation there are          sands of other junior associates throughout
ropolitan areas like the Bay Area or New           now over a million-and-a-half lawyers in the      the country -- have reached a crossroads
York City. This shortage was coupled with          United States. Put simply, the profession has     in our legal careers where we may have to
an unprecedented startup and equity boom           a supply and demand problem compounded            pursue opportunities available outside the
that detracted from the supply of available        by the economic downturn and the remark-          traditional boundaries of the legal profes-
attorneys and that resulted in ballooning sal-     able 1999-2000 changes in associate salary        sion. Perhaps doing so will be a good thing in
ary structures across the legal spectrum. At       structures.                                       the long run.
the same time, something fundamental was
changing in the nature of law firm manage-         Here is some final -- albeit qualified -- ad-     - Peter Thottam (www.peterthottam.com)
ment dynamics.                                     vice I’ll offer to New Economy Associates:
                                                   (1) Pick a firm that has a well-diversified       Note: Peter Thottam can be reached at
Partners at some law firms are outstanding         practice, not one that is largely dependent       peterthottam@yahoo.com or through his
mentors. Others are generally looking out for      on one particular area of the economy, such       website at www.peterthottam.com.
their own self interest only. Sadly, especially    as technology; (2) Select a firm that has a
because of the economic downturn of the            reputation for decency and honesty (rela-
last two years, increasingly gone are the          tively speaking); many of us now know why
traditional loyalty and apprenticeship codes       Wilson is called the Death Star; an attorney
and norms of law firm practice management.         who wants to be treated humanely in bad
Associates have become, in some respects,          times probably shouldn’t join a firm with
as interchangeable as their clients working        such a nickname; (3) Consider going to a
within an increasingly common and ruthless         firm where you can rotate through several
anonymity in their day-to-day lives.               practice areas during your first year or two;
                                                   yes, this will put you at a slight disadvantage
A tectonic shift unfolded in the nature of as-     versus colleagues who focus exclusively on,
sociate-partner relationships during the late      say, corporate work their first two years, but
1990s. The real implications of that shift only    in a serious down-turn, you as an associate
became clear to me after the 2000 market           will be better able to transition to another
downturn. What happened to many of the at-         area of the law; it also really never hurts for
torneys I attended law school with and knew        a corporate associate to understand court
in the Bay Area and New York was not what          room dynamics, litigation and IP either; (4)
we had anticipated. What is the plain truth?       Finally, remember that the practice of law is
Many associates have become fungible “com-         becoming more and more of a business; the
modities.” Estimates are that between 4,000        partners at BigLaw firms are not, in most

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Description: An Insiders Reflections on Work Trends at New Economy BigLaw Firms. While the New Economy may be over, the memory continues to live on in the effects it had on large law firms in America.
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