Legal Industry

“New Contact Information”

How many emails with this as the subject line have you gotten lately? I seem to be getting about two a day. Everyone is moving around. In a good number of cases it is people who were laid off finally finding new employment. This is a good sign even while the unemployment numbers remain high.

In other cases it is folks who aren’t doing much at their current job and they see the writing on the wall and look for something better, or at least different. Another category are folks that were on their own for a long time and suddenly join or rejoin a larger business. That is either because things were so great they needed more support, or more commonly so horrible they had no choice but to “find a job.”

This is no more true than in the world I live on dominated by PIPEs, reverse mergers and other alternatives to traditional IPOs. Lawyers, hedge fund guys, investment bankers and on moving around like crazy. This shifting of the deck chairs has some interesting consequences, and it has seemed to strengthen those able to hire and put at great risk those that don’t.

For me? I did recently rename my firm and expand its capabilities after a separation with several partners whose successful business created a number of potential conflicts with mine. But I’m still here in the firm I founded in 1996 and business is definitely picking up. What will the future bring? As always I have not the answer. To those moving, congrats and good luck! Sometimes change is good. Hopefully most of the time..

About that Crackberry…

Website Above the Law reported that a partner at law firm Quinn Emanuel Urquhart Oliver & Hedges chided a young associate by emailing the whole firm that associates should be checking their Blackberries once an hour unless they are sleeping or in a tunnel. Apparently the unfortunate new lawyer didn’t see an email from the partner just before he left the office asking him to stay to take care of a project.

When I started law practice way back in the 1980s, there was no Internet, no email, and the fax was this very new machine. I had a PC at home but it wasn’t hooked up to anything. Don’t get me started on how much of a pain it was just to get a distribution of drafts of documents out to a team of lawyers on a transaction which can now be done with one click of a mouse. When we left the office, we left. Of course the phone was there at home, but we all had answering machines, and I know a number of my colleagues would simply screen calls so that a call from the firm could be ignored while the associates claim to be out or unavailable.

Nowadays, getting deals done is more about brainpower than manpower, which helps make a boutique firm like mine much more competitive with the big boys. But with instantaneous communication of course comes cost. I recently turned off the vibration on my Blackberry that went off when each email came through. I check it often, but I will check it when I check it. Unfortunately young associates in law firms don’t have that luxury. Our 24/7 world gives us many conveniences, but that old idea of private time or small escapes is pretty much gone.

Madoff Victims Sue the SEC…Can They?

There’s a very old legal maxim that we Yankees adopted from the British. It’s so old it even has a Latin name: Rex non potest peccare. It means “the King can do no wrong.” This concept of sovereign immunity remains and it is nearly impossible to sue the government for something. Must have been fun for the old British monarchs. Some former US Presidents thought they were immune too. That didn’t work out too well. In any event, there’s an exception. If, for example, the guy waxing the floor at the Pentagon doesn’t warn people and someone slips and falls and breaks their collar bone, you can sue the government for that. So if they are negligent in carrying our their function, you can sue. But you cannot sue them for making policy, declaring war, things like that.

So sure enough two victims of the Bernard Madoff $65 billion Ponzi scheme (as an aside, prosecutors now estimate losses much lower, at around $13 billion, though of course still huge!), Phyllis Molchatsky and Steven Schneider, are suing the SEC for negligence and asking for $2.4 million that they lost. They say the SEC missed countless opportunities (including at least 6 formal complaints) that they should have followed up on to get this guy. They cite an internal SEC report that essentially admits this. The SEC says it’s a meritless case. Everyone acknowledges that mistakes were made on this one. But merely as a legal observer it will be interesting to see whether the court lets this go forward. Was the decision not to follow-up essentially a policy decision of some sort, or was it merely implementing an existing policy? I’ll keep an eye on this one for you guys.

Whither Law Firm Salaries?

The ABA Journal online is reporting that the major law firms are no longer marching to the same drummer. In the past, several key firms would set their starting salaries each year, and everyone else would simply follow. But now folks are all over the lot. Some have started lowering the $160,000 top rate achieved last year to $145,000. With that, some are also cutting the hourly rate charged to clients for first years’ work. Other firms have kept the $160,000 but frozen or lowered more senior associates’ pay. Still others are moving away from the lockstep increase associates receive each year to embrace more merit-based models.

A prominent consultant was quoted in the piece as saying the days of everyone with the same salary structure are over. The feeling is that starting salary will now be less important than how fast your salary can increase. Note that the big firm salary ranges trickle down to smaller firms, like mine. Of course I don’t pay anything near what big firms pay, but most small firms tie their compensation approach to have some relationship to what the big firms are doing. We try, for example, to keep our starting salary at a specified percentage of starting salaries at big firms. So what’s not clear is, what will I base it on now?

I guess more free market forces may finally get their day in our profession. This is not necessarily a bad thing. And yes, I like the merit-based approach to comp.

Skilling Gets His Day in (Supreme) Court

The Wall Street Journal just reported that the US Supreme Court has agreed to hear an appeal from Enron Corp.’s former CEO, Jeffrey Skilling. Skilling was convicted of fraud and a bunch of other stuff in 2006 and sentenced to 24 years in prison and fines of $45 million following what  the Journal called the “spectacular collapse” of Enron following the discovery of widespread accounting deception at the huge energy company.

The prosecution based its case on a novel theory that he committed fraud because the company was denied his “honest services.” Skilling points out that at no time did the government suggest that he did anything for personal gain. It appears the Supremes want to rule on whether the “honest services” theory holds up. An appeals court has already confirmed Skilling’s conviction but did say that his sentence was not correct and needed to be recalculated.

The Enron scandal, followed by a similar set of problems at WorldCom, Adelphia and others led to the sweeping securities law reform in the Sarbanes-Oxley Act of 2002. It showed that big frauds can happen in big companies, even when the best auditors in the country are on the job. The Enron scandal even resulted in the collapse of Arthur Andersen, one of the five biggest worldwide accounting firms.

Why do we care what happens to the guy whose apparent misdeeds killed a company and many thousands of jobs now 7 years after the scandal? For quite awhile he was the fall guy, with many feeling sorry for the out of touch “outside man” Chairman Ken Lay, who died of a heart attack waiting for his sentencing awhile back.

Were the “off balance sheet” arrangements arranged with Skilling’s blessing, in which underperforming assets were moved to “hidden” outside entities, truly horrible? Was the failure to disclose these arrangements in fact illegal or fraudulent? Now it would be, as Sarbanes closed the loop and now requires all such arrangements to be disclosed. Was Skilling railroaded into a conviction with a tainted Houston jury and a lynch mob mentality throughout the nation at the time?

Hopefully you know me by now, faithful blogees. I do not have the answers to these questions. Just hope to get you to think about it a little. Skilling must have known that failure to disclose these arrangements was not very nice, but illegal at the time? Just not clear, which probably explains the difficulty the prosecution had in fashioning a proper cause of action against him.

Love This Question: “Do You Have the Capacity?”

One sign for me that things are really turning around in my area of the world – Wall Street and the middle market in particular: more than one client this week essentially asking the same question. “We have a bunch of deals  in the pipeline and want to work with you. Can you handle it?” Now, from those promises to the hoped for avalance  is going to be a little journey.

Luckily, we are already seeing things noticeably pick up. In addition to areas that have stayed strong in my practice throughout the difficult past year, the transactional work that slowed considerably is now picking up considerably. We’re working on acquisitions, reverse mergers, self-filings, private placements, public underwritings and even new partnerships getting started. Honestly, there was virtually none of this stuff in early 2009. So this is good.

Is this a “fool’s rally” in the stock markets as some have said? Is the economy and market about to take a second dip? Is the recovery going to look more like a soup ladle (as I have suggested) or some up and down letter of the alphabet? Yes, again I annoy my faithful blogees with great questions and no answers. But for now, I’m enjoying being busier!

One Hot Area of Opportunity for Lawyers: Government

Some feel President Obama believes that only “big government” can solve the nation’s problems. Others think he’s only temporarily increasing its size to help the economy, and after all, George W. Bush is the one who sent the deficit above $1 trillion. And everything in between.

When I was in Washington in early February I saw it already. With the economy elsewhere in tatters, a ton of new construction was going on and there was clearly a feeling of economic revival of sorts. This is good for lots of people, but in particular lawyers. According to the ABA Journal online, the government needs to hire 270,000 lawyers. That’s a whole lot! The report also indicates that there are five other “mission critical” areas where a lot of hiring is coming, including the medical, law enforcement and technology fields. It’s not all about the stimulus, in many cases there is simply an aging government worker population and many are beginning to retire.

Even with so many lawyers out of work, the report suggests it may still be difficult for the government to lure lawyers away from much higher-paying private sector jobs. Given the resumes I see from talented attorneys without jobs, I think this may be the best hiring moment for the government in a long time.

New Name for a Changing Economy

It’s finally happened. When we started what was then known as Crisis Post, our hope from the beginning was to outgrow our name when the economy began to rebound. Frankly, in March 2009 when we started, it seemed like we would be Crisis Post for quite awhile indeed.

Well, I am pleased and relieved to officially change the name of my humble blog to Rebound Post.  Don’t worry, the old crisipost.com URL will still connect here. We will remain your source for information on the economy,  the President and his economic policies, Wall Street, scammers, reverse mergers and other alternatives to traditional IPOs, the legal industry, the world scene and just plain musings- now focused more on thoughts connected to the now recovering economy and stock market. I know it seems like an eclectic and disjointed set of topics. I pretty much don’t care as it is a list of things I am interested in and enjoy writing about. I hope you find some (or all!) areas of our focus that will strike you as kinda interesting.

As you may have discerned from my posts, I am a diehard optimist. Gets me in trouble sometimes as I too often believe good things are around the corner. In the last year that optimism has been tested for sure. In this process I would say I’ve evolved into more of a rational optimist. Hoping for good things always but realizing more than ever the reality that there are times that just ain’t so great after all.

I have appreciated all your support, your emails and welcome those who came from our sister blog, www.reversemergerblog.com. If you have any interest in considering a sponsorship of our site, with banner ads, etc., of course let me know!

Now let’s go economy……

Survey Reveals Substantial Growth in Online Social Networking by Lawyers in 2009

New survey data reveals that more than 70 percent of lawyers are members of an online social network – up nearly 25 percent over the past year – with 30 percent growth reported among lawyers aged 46 and over. The second annual Networks for Counsel Survey of almost 1,500 lawyers was commissioned by LexisNexis Martindale-Hubbell, the industry leader in networking and law firm marketing. It shows that more than 50 percent of respondents think online networks have the potential to change the business and practice of law, while 65 percent expressed interest in joining an online professional network designed specifically for their profession.

The 2009 Networks for Counsel Survey was conducted by Leader Networks, a consultancy that helps businesses foster online social networks. It is the second annual survey that examines the online networking practices of lawyers. A copy of the survey is available online at www.leadernetworks.com.

“Networking remains a critical means of business and professional development for lawyers even as opportunities for face-to-face networking have become severely limited by budget and staff cuts,” said Vanessa DiMauro, CEO of Leader Networks and author of The 2009 Networks for Counsel Survey. “Online networking has emerged as a viable and fast growing means for legal professionals to accelerate or augment their ability to connect with their peers and share best practices.”

“Lawyers are transforming the way they network by incorporating social media tools into their work in record numbers and in increasingly sophisticated ways,” said Ralph Calistri, CEO of Martindale-Hubbell and senior vice president of Global Client Development at LexisNexis. “Both the survey results and the phenomenal membership growth in our own online legal network, Martindale-Hubbell Connected, demonstrate the strong demand for a secure, authenticated network designed specifically for legal professionals.”

Hey Buddy.. Wanna Buy Stock in a Law Firm?

Since everything is on the table in this tough econonic environment, why not reconsider the rules that prohibit law firms from being owned by outsiders? Currently, it is not possible for a law firm to be owned by anything but lawyers. This makes entrepeneurship within a law firm basically impossible. Why? Because good entrepreneurs know how to build something up to a high value and then exit, usually through a sale or public offering. This gives the big pay day reward to the people who built the enterprise. You can’t sell a law firm. You can’t take it public. All you can do is hopefully keep increasing the profits you take out of it. As a lawyer friend of mine told me, he is income rich but net worth poor. Even when a law firm is merged, there are rarely big up front payments akin to the brass ring usually offered successful entrepreneurs. Even accounting firms are not subject to this, they are sold for cash all the time.

There’s another problem. Entrepreneurs often take in investors who provide needed growth capital. This is usually in the form of equity, thus not burdening the balance sheet of the company, which is especially helpful in tough times. Law firms can’t do this other than to take money from their partners, or borrow money from a bank. As pointed out in today’s ABA Journal online, this is what makes things more challenging in tough times as the debt service becomes more burdensome. Philadelphia’s WolfBlock allegedly imploded because of issues related to their debt.

University of Illinois Professor Larry Ribstein has written a white paper which you can find at http://www.law.georgetown.edu/legalprofession/documents/ribsteinevolvinglawfirm.pdf. His basic argument is that law firms are businesses and should be able to access capital from outsiders, and be able to provide services beyond legal ones as well. The fear of outside owners is that the lawyers in the firm will seek to maximize profits at the expense of their duties to their clients. Hello? Are we really saying that when lawyers own the firm themselves they are not seeking to maximize profit? As Ribstein points out, the first publicly traded law firm, Australia’s Slater & Gordon, makes very clear that lawyers’ duty to benefit the owners is secondary to their duty to clients. Period. Well that works, no?

Years ago a storefront law firm “franchise” known as Jacoby & Myers, founded by entrepreneur Gail Koff (I have met her, she is really something), raised money from outsiders. How did they do that? They created a separate company that ran all aspects of the law firm except the actual practice of law. The management fee paid was essentially all the profit from the law firm. Ingenious. But why should it have to be that complicated? J&M also led the way by bringing a court case that resulted in law firms being able to advertise for the first time. Well, that one may or may not have been a good thing, but the ability to market obviously makes sense.

There are ways, as Ribstein states, that we can recognize that law firms are businesses without impeding lawyers’ professional and ethical obligations to their clients. Let’s start opening the door to have these discussions.

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