Summer’s Over and Big Law’s Real Changes Are About to Take Hold

Welcome back to the Big Law Business column on the changing legal marketplace written by me, Roy Strom. This week, we look at the types of long-term changes Big Law leaders will be contemplating as they set budgets for next year. Sign up to receive this column in your inbox on Thursday mornings. Programming Note: Big Law Business will be off next week.

What’s your plan for the fall and winter? That’s what I’m asking friends here in Chicago lately.

Social distancing isn’t going away, but golf, scooter rides to grab lunch, and outdoor exercise just aren’t a part of Midwest winters. I’ve got some new plans, but they’re not great. A little golf mat to keep the swing fresh. A new indoor exercise bike. Maybe a poster of a beach to cover my work-from-home window?

Big Law firms are starting to plan for their longer-term future, too, as they prepare budgets for next year. Employees and lawyers should prep for some potentially drastic changes. Some new austerity moves already crept into the news this week.

Baker McKenzie said it will be cutting 6% of its North American employees to prepare “for the next normal.” The firm’s North American CEO, Colin Murray, told me that “turbulence” will last well into 2021. That’s much longer than he and most other law firm leaders were planning for when they took initial cash-preservation measures in spring and early summer.

Davis Wright Tremaine made permanent some of the layoffs it announced earlier this year. The firm’s managing partner, Jeff Gray, said it was the result of not knowing if or when those employees’ previous work will return, noting a “fundamental shift” in how the firm expects to operate.

Expect more firms to announce layoffs, Peter Zeughauser, a law firm consultant at Zeughauser Group, told me.

“We’re in the season where that is clearly on the table,” Zeughauser said. “At the beginning of this, when there were runs on lines of credit, people thought it was two months of liquidity they needed. And they were thinking if there were signs by August that this would be over by year-end, then status-quo would rule. But implicit in that was if it looks like this would be a longer-term disruption by August, then people would look at what they need to do longer-term. The timing is not surprising. It’s what has been on people’s minds.”

This year’s budgeting process is also bringing longer-term real estate decisions into the mix, Zeughauser said, with some previously unthinkable options being given serious consideration.

For instance, some firms are considering opening offices in suburbs while others are thinking permanent office assignments will go away, he said. Many that have opened offices with limited capacity are seeing far less interest among lawyers and employees in reporting to the office.

“Is that just because of Covid? Or is that because people don’t feel the need?” Zeughauser said. “Is it because the office is less enjoyable without your colleagues? These are the questions that firms are really starting to address right now at the beginning of the budget season for most firms for next year.”

For firms locked into longer-term leases, they may have more space than they will need. Is anyone going to be interested in taking over that space? One possible answer is companies that offer on-demand work space targeted at lawyers.

Smaller law firms have closed their offices and turned to “virtual” rentals that provide offices and other services like a mailing address and document couriers, said Ron Bockstahler, CEO of Chicago-based Amata Law Offices, which specializes in renting to lawyers.

Amata’s revenue is down about 6% in the past six months since the pandemic took hold, but that compares favorably to a 30% decline coming out of the 2009 recession, Bockstahler said. He expects the firm’s virtual office revenue could grow to as much as 40% of the company’s business within a year—up from around 20% at the moment.

The company may also be in the market for more office space, as bigger firms rethink their leasing strategy.

“That is a lot of expense you’re taking on before you really need it,” Bockstahler said. “There are better ways to do it and I think those firms are starting to realize that. This pandemic has been an eye-opener.”

Worth Your Time

On Bankruptcy Business: Bankruptcy filings set a record for August this year, Bloomberg reported this week. And Big Law firms continue to hire lawyers in that field. Cozen O’Connor hired eight lawyers from Fox Rothschild, growing its restructuring practice to 21 lawyers. And Arnold & Porter hired Maja Zerjal Fink, a former Proskauer Rose bankruptcy partner, who expects more bankruptcies among hospitality and health care businesses.

On Lateral Hires: Irell & Manella’s securities litigation practice chair and executive committee member Craig Varnen joined Gibson, Dunn & Crutcher in the latest major departure from the high-end litigation boutique, Meghan Tribe reports.

On Remote Work: Reed Smith said it is staying remote for at least the rest of the year, as more than 90% of its global workforce remains out of the office.

That’s it for this week! Thanks for reading and please send me your thoughts, critiques, and tips.