Era of austerity has law firms tightening belts

October 21, 1990|By Graeme Browning

In the early 1980s a young lawyer with one of the most prestigious law firms in New York City used to boast to friends about the way he got his laundry done.

Instead of carting his dirty clothes down to the basement laundry room in his 25-story condominium tower, he would take them along on business trips.

"It's easy," he would say proudly. "I get the hotel to wash my clothes, and then I bill our clients for it."

Life used to be pretty plush for lawyers with large law firms, in Baltimore and in the rest of the country. In the corporate world, the sovereignty of blue-chip law firms was such that clients paid hefty bills without a whimper or complaint and never dared question how their lawyers had spent their time.

Not anymore.

With the economy in a slump, corporate bankruptcies on the rise and more lawyers competing for less business, law firms here and across the country are radically changing the way they manage their practices.

The object, lawyers say, is nothing less than survival.

Some Baltimore firms, for example, now discount their fees to attract clients or offer flat, one-time rates for specific legal work. A lawyer at one local firm offers clients management advice as well as legal advice, and another approaches prospective clients with a formal presentation, much as an advertising agency would.

Advertising -- law firms prefer to call it "marketing" -- is growing more popular. Less than a decade ago, none of Baltimore's top 15 firms hired either marketing directors or public relations firms. Now more than half do. (See story, page 3F.)

Local law firms also are freezing salaries for new associates, submitting bids for business and hiring experienced lawyers for their "star quality" -- tactics that would have been unthinkable not long ago.

Some of the new practices are driven by financial considerations or the need to stay abreast of changes at other law firms.

Many changes, however, have developed because most corporate legal departments now demand that law firms that do legal work for their corporations either follow cost-cutting measures or risk being fired.

Competition in the legal profession has become so fierce, in fact, that one commentator has dubbed it "dog vs. dog."

"I don't know if it's gone that far. But it's definitely a new world out there," said Tom Waxter, a partner in Semmes, Bowen & Semmes, one of the bluest of Baltimore's blue-chip firms. "Either you play the game or you quit."

One of the biggest changes in the management of Baltimore lafirms is the move away from the "billable hour," a system in which a client pays $80 to $500 for each hour a lawyer devotes to his case.

Only a few years ago, lawyers hardly ever kept an eye on their clocks. A client was simply expected to pay the bill, no matter what it was. But as legal fees skyrocketed in the 1980s, businesses began to balk at paying huge sums and to demand that their bills not fluctuate wildly from month to month.

Local law firms are experimenting with a variety of billing systems designed to give clients a better idea of what they will have to pay and to encourage lawyers to be more efficient. Even lawyers who usually work on a contingency basis -- meaning they are paid a percentage of the money they win in court for their clients -- have joined the movement to cut fees.

Mann & Clark, a small Baltimore firm that specializes in personal-injury and accident lawsuits, announced last month that it was slicing fees 25 percent. Since then, calls from prospective clients have increased fivefold, partner Robert P. Mann said.

"We did it because we felt it was the right thing to do for the consumer, as well as ourselves," Mr. Mann said.

Price is becoming a motivation for the way clients choose a law firm.

When Prudential Insurance Co. announced its decision last year to buy Merrill Lynch Relocation Management Inc. for $340 million, it invited three top Chicago law firms to bid for the millions of dollars of legal work the deal required.

That was considered a highly unusual step for a U.Scorporation. For several years, Maryland state agencies have been required to choose law firms through competitive bidding. Increasingly, private businesses such as banks and insurance companies with a great deal of routine legal work will do the same, local lawyers predict.

"If you're a bank and you need somebody to put together loan packages, any competent banking lawyer can do that," said Christopher D. Olander, managing partner of Shapiro and Olander. Competitive bidding is "going to happen more and more because the delivery of 'plain vanilla' legal services is becoming very price-oriented."

Since the beginning of the year, Mr. Olander's firm also has made formal presentations to four prospective corporate clients, something few law firms would have considered even five years ago.

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