Law Prof Predicts More Big Law Firms Will Collapse in ’09
Large law firms are “immensely fragile institutions” and some of them aren’t likely to survive another year, according to a law professor who has studied firm management structures.
Indiana University law professor William Henderson makes his prediction in cross posts on the Legal Profession Blog and the Empirical Legal Studies Blog. “There is a good chance that several hallowed BigLaw firms, particularly those with weak balance sheets, will cease to exist sometime in early to mid-2009,” he writes.
He says a large proportion of big firms are in “one hell of a vise” because of the potential for weak collections and continuing costs after layoffs. Firms could be stuck with “vast expanses of Class A office space” after layoffs while making severance payments to its former lawyers, Henderson says.
If revenues drop by 20 percent, a possibility for some firms with large capital markets practices, profits could drop 50 percent or more, Henderson says. That could set off lawyer defections and a “rapid death spiral,” if figures from two collapsed law firms are a guide.
Henderson found that Heller Ehrman and Thelen “saw modest diminutions” in revenue per lawyer for 2003 through 2007 as other law firms in the top 200 posted steady increases. Yet the small drops “were precursors to total collapse.”
A November survey of the nation’s 700 top law firms by Altman Weil found that most were collecting fees at the same rate as last year. But the legal consulting firm did note “some softening” in balance sheets, particularly in firms with more than 250 lawyers and in major legal markets.
Updated at 2:09 p.m. to extend the time period during which Henderson notes firms “saw modest diminutions.”
