Surviving the downturn – Part 1 

The recession has affected lawyers and law firms of all stripes and sizes, altering relationships, changing expectations and forcing uncomfortable conversations between lawyers and clients about the way legal business used to be done, the way it’s done now and the way it will be done in the future.

Most lawyers say they began to feel the recession’s effects in the first quarter of 2009. Practical changes in the handling of cases, dealings with clients and firm management quickly followed.

Charlotte attorney Zipporah B. Edwards said her practice group at Horack Talley, which provides legal services for title insurance companies, has seen what she calls a “counter-cyclical uptick in the last several years because of mortgage-related issues and foreclosures.” But she’s also seen some belt-tightening by clients.

“Clients have become more interested in pre-matter budgeting,” Edwards said.

Pre-matter budgeting refers to an assessment of the expected costs and legal fees associated with handling a case before beginning work. It’s something Charlotte solo litigation attorney Monroe Whitesides said more clients are interested in seeing on the front end, but he said, “It’s darn near impossible to come up with an accurate budget.”

That’s because attorneys, like meteorologists, can’t tell the future with flawless accuracy, and the unfolding of a case can lead to side streets lawyers didn’t plan on traversing and obstacles they didn’t plan on clearing.

Pre-matter budgeting is the most substantial change Edwards sees in her practice these days.

“In years past, I would be retained to handle a matter. I would handle it, proceed with the case and we would see what costs were as we went along,” Edwards said. “Now, even before I begin to look at the basic information on a claim, clients want information about what to expect in terms of budget. Clients want to feel comfortable that the budget for a case is in line with their expectations.”

While the recession may have been the catalyst for the move to pre-matter budgeting, Edwards said the change is likely to be permanent. “That’s my gut reaction,” Edwards said. “It makes business sense to undertake that kind of budgeting before beginning a case, so I would be surprised if businesses go back to the old model.”

Changes to the old model were looming well before the recession hit.

Winston-Salem attorney Keith Vaughan, managing partner of Womble Carlyle Sandridge & Rice, North Carolina’s largest law firm, said the recession accelerated underlying forces that were already affecting law firms.

“One thing that has been affected is expectations,” Vaughan said.

The expectation among lawyers that hourly rates would continue to rise indefinitely was replaced with an expectation from clients that lawyers should become more efficient.

“We were efficient in the past, but moving forward, we felt there was going to be a greater focus on efficiency from clients,” Vaughan said.

Vaughan said that even before the recession began, a major initiative was launched by corporate counsel for thousands of corporations across the United States to harness legal costs.

“There was a consensus that lawyers were doing a good job on cases, but that law firms needed to become more efficient,” Vaughan said. “When the bottom fell out of the economy, corporate clients became even more insistent on some alternatives to hourly billing, or lowering rates, or making sure law firms were watching legal costs very carefully.”

Vaughan said Womble Carlyle is getting better at estimating for clients the appropriate fees for services they want, and, he added, “We are very open to different kinds of billing mechanisms for clients.”

Beyond that, Vaughan said, the firm is training lawyers on project management skills to make sure that lawyers “can not only do the work but that we can also get a reasonable return on the work.”

Vaughan said practice management and case budgeting have made it necessary for lawyers to develop “a whole new set of skills. The recession has accelerated a focus on what clients need in terms of cost control and building efficiencies into handling cases.”

“We talk with clients and work with them to help them meet their budgetary expectations,” Vaughan said.

But clients aren’t the only ones feeling the budgetary pinch in the recession. Some lawyers have changed their personal and professional outlooks because of the pinch.

“I don’t think any lawyer hasn’t lost a percentage of his or her business,” Whitesides said. “Whether it is ten percent or fifty percent, any time you take a significant hit in income, it does change the way you do things professionally and personally.”

For Whitesides, that has meant dropping his country club membership and putting his vacation home up for sale.

“I buy used cars, not new cars. I’ve cancelled subscriptions to publications I normally would buy,” he said.

But while Whitesides has a quarter-century of clients and practice experience under his belt, younger attorneys — fresh out of law school and making their first forays into the field of practice — have had to alter their hopes for what the future holds.

“I’ve definitely modified my expectations,” 2009 Elon University School of Law graduate Jeremy White said.

White hoped to open a real estate law practice in the mountains – and he did, in Highlands. But he did so at a time when the real estate market was tanking, which led him to place his name on Macon County’s appointed list and do one thing he swore he’d never do as a lawyer: take on a contested divorce case.

But, he said, “I’m optimistic that the real estate market will eventually pick back up, and when it does, I hope to be in a good position to finally earn enough to pay down my two-hundred-thousand-plus student loan debt,” White said.

Like White, Whitesides has had to do some things he’d rather not do, such as cutting his hourly rate by $100 in some cases, “because that’s what market bears,” he said.

But change is a product of necessity. “I can’t quote a local client a high hourly fee, because the client can go to another lawyer and get a lower rate,” Whitesides said.

What that means, in practical terms, for Whitesides and other lawyers, is longer hours for less money.

Zipporah B. Edwards is a shareholder in the Charlotte law firm of Horack Talley, where she represents title insurance companies, lenders, attorneys, builders and developers in real estate matters. She has worked at Horack Talley for her entire legal career – since 1994.

What specific practical change in your firm’s operation have you made because of the recession? My practice group is working with clients on pre-matter budgeting, or estimating the cost of a case before beginning work on it. The firm has restricted its summer internship program for law students.

Is that change permanent, or did you make it simply to weather the worst of the bad times? Clients want to feel comfortable that my proposed budget is in line with their expectations for handling a matter. That change is going to be permanent. I would be surprised if that changes even after the economy gets better.

What specific practical advice are you giving to clients that you did not give before the recession? I’ve talked to clients about the need to be more conscious about whether recoupment efforts are going to be worthwhile. People don’t want to be spending money unnecessarily. Let’s say a client is assigned a note and some thought has been given to whether it is worth it to pursue a claim on the note against the borrower. If I determine that the borrower has no assets, I may advise the client that it is not worthwhile to pursue the borrower. There is more of a focus now on where money is being spent and whether it is even worthwhile to spend money to pursue something.

How have you personally changed, either in your outlook or in your practice, as a result of the recession? I’ve come to be more aware of the potential for ups and downs in a practice’s growth. My practice group has seen growth in recent years in part because of the recession. But other practice areas have been suffering, and it’s possible that when the economy is on an upswing, my practice group could see a downswing.

Note: This is the first in a three-part series about attorneys’ thoughts on the recession.