Welcome back to the Big Law Business column on the changing legal marketplace written by me, Roy Strom. This week, we look at a plan to create a “virtual office” at one of the country’s 100 largest law firms. Plus, we follow up on last week’s “PPP-per partner” column. Sign up to receive this column in your inbox on Thursday mornings.
Big Law has worked remotely for about four months, and there’s no clear end in sight at many firms.
How do you plan a return to the office when more Covid-19 cases are being diagnosed in the U.S. than when the switch was made to working from home offices, kitchens, and basements?
Husch Blackwell has an answer, at least for some of its lawyers: Forget about it. The top 100 law firm this week launched a “virtual office” that includes 50 employees and nearly 40 lawyers who volunteered to give up their office space in exchange for permanent work-from-anywhere status.
Those lawyers’ compensation is unchanged, and they’ll retain full employment status. It’s just that they won’t have a dedicated, physical office. They’ll be able to move to cities where Husch Blackwell doesn’t have a lease, and the firm intends to hire lawyers in locations its people never lived before, J.Y. Miller, the managing partner of the virtual office branded “The Link,” said in an interview.
“We don’t see this as work-from-home. We see this as work-from-anywhere,” Miller said. “It’s very liberating. You don’t have to live near a physical office location or in a city where there is a physical office location. You have the freedom to live where you want to be.”
I’m more than four years into the remote lifestyle in Chicago, and I’m all for it. I know one New Yorker who left the city since the pandemic struck, and two Chicagoans who are preparing to move to Colorado. Their employers didn’t have much of an argument with the request considering they’d productively managed remote work for months.
That puts me in the 22% of Americans who recently told Pew Research they had moved or know someone who has moved since the onset of Covid-19. Young Americans, in particular, are more mobile—though in large part due to moving from college campuses or losing jobs.
Miller said a number of Husch Blackwell employees had reached out expressing interest in The Link and the freedom it could provide. He thinks it will be a “great recruiting tool for young people.”
“We are enabling people to organize their work around their life rather than their life around their work,” he said. “And at the end of the day, those people are going to be more happy and more successful.”
There will be real estate savings associated with the move, Miller said. In addition to downsizing upcoming leases, he said the firm is thinking differently about how it will use the space it keeps. Some offices will require a hotel option for The Link lawyers, who Miller said will still be able to go into the office on occasion.
Husch Blackwell says it has more than 700 lawyers, so it is unlikely that reorienting 40 into virtual positions would change the firm’s economic model enough to consider the alternative compensation structure offered at “virtual” law firms like FisherBroyles or Potomac Law Group. Those firms’ lawyers can receive up to 80% of the revenue they generate. Still, cutting overhead could provide a competitive advantage among the firm’s Big Law peers.
“I am convinced that this will be permanent,” Miller said. “It will expand. And it will be one of our largest offices in the firm.”
More On PPP Loans
Last week, I wrote about how much it might have cost partners at 45 Am Law 200 firms to provide capital to their firms in the amount the firms received through the federal Paycheck Protection Program.
That was based on guidance the Small Business Administration issued after the CARES Act was passed, which said companies should assess their ability to access “other sources of capital” when determining if they need the loans. If capital calls were considered another source of capital, I asked if they would not be necessary due to being deemed “significantly detrimental” to a firm’s health, which the SBA says is also part of the analysis.
Paul Pollock, a partner at Crowell & Moring who has advised companies on the PPP program, responded to the column to argue the first point, saying capital calls should not be considered “other sources of capital.” He points out that nowhere in the SBA process does it require owners to put up additional capital to receive a loan. And he said making law firms do that would “completely defeat” the purpose of the emergency loan program.
“A reasonable person looking forward from March could conclude that we were in for a lengthy recession,” Pollock said. “And that person would likely decide not to throw good money after bad and choose layoffs and furloughs.”
I also heard from John Morley, a Yale Law School professor who has studied the economics of law firms.
Morley said capital calls could be considered detrimental to firms by causing partner departures. He also said one way to compare law firms to ordinary companies would be to consider a law firm capital call as “comparable in spirit” to a company’s choice to retain earnings by cutting dividend payments—something some have argued recipients of public loan programs should be forced to do.
Both have the effect of increasing business capital at the expense of ownership’s current income. But Morley said there is a key difference between the nature of equity in law firms and companies: Firms don’t have a permanent equity structure, and so their annual “profits” are closer to compensation for the partners’ labor rather than money invested in the past.
“Since the spirit of the PPP is to keep people employed, one could argue that law firm partners have a stronger argument for being able to take distributions of profits than shareholders of ordinary companies,” Morley wrote in an email.
Worth Your Time
On Jones Day: Former U.S. Solicitor General Noel Francisco is returning to Jones Day’s Washington office, where he led the firm’s regulation practice before spending three years arguing before the Supreme Court.
On Jones Day 2: Jones Day argued this week that a group of women lawyers suing the firm for alleged sex discrimination in pay can’t pursue their claims as a collective action, saying their claims cannot be proved despite a substantial discovery process in the case.
On The Big Four: Deloitte unveiled a new consulting and technology services department aimed at corporate legal departments, Bloomberg Law’s Sam Skolnik reported. He said it is “perhaps the most direct effort yet by a Big Four member to compete with law firms and alternative legal service providers in the U.S.”
On Hogan Lovells: Sam also reported on how Hogan Lovells’ new CEO Miguel Zaldivar responded to Covid-19 since taking the reins earlier this month.
On a Trial Bar Pro: Stephen Susman, a trial bar giant who founded Susman Godfrey, died on Tuesday at 79, The American Lawyer reported. He was recovering from a cycling accident but later contracted Covid-19, according to the report.
That’s it for this week! Thanks for reading and please send me your thoughts, critiques, and tips.
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